BIR Ruling No. 112-84

June 21, 1984 BIR RULING NO. 112-84 34-g-161-83-112-84 Gentlemen : This refers to your letter dated January 11, 1984 requesting a ruling on the tax consequence of the transfer of shares of stock in Evenflo (Philippines), Inc. (EPI) by Questor Corporation (QC) to Evenflo Juvenile Products Company (EJPC). It is represented that EPI is a domestic corporation wholly owned by QC, a US corporation; that EJPC is also a US corporation and wholly owned by QC and that both QC and EJPC are engaged in trade or business in the Philippines; that as of December 31, 1983, QC has a subscribed capital stock of P3,999,500.00 in EPI; that the individual stockholders of EPI are mere nominees of QC and holders of qualifying shares; that EPI has no real property holdings in the Philippines. In reply, please be informed that, no gain was realized from the transfer of stocks from QC to its wholly owned subsidiary, EJPC involving stocks in EPI which is another wholly owned subsidiary of QC. Moreover, assuming that a gain was realized, the same in exempt from capital gains tax imposed by Section 34 (g) of the National Internal Revenue Code in accordance with Article 14 (2) and US Reservation No. 1 of the RP-US Tax Treaty which provide as follows: "(2) Gains from the alienation of any property other than those mentioned in paragraph (1) or in Article 7 (Income from Real Property) shall be taxable in the Contracting State of which the alienator is a resident." U.S. Reservation No. 1 provides: "(1) reservation that notwithstanding the provisions of Article 14 relating to capital gains, both the United States and the Philippines may tax gain from the disposition of an interest in a corporation if its assets consist principally of a real property interest located in that country. Likewise, both countries may tax gain from the disposition of an interest in a partnership, trust or estate to the extent the gain is attributable to a real property interest in one of the countries. The term 'real property' is to have the meaning it has under the law of the country in which the underlying real property is located." since, after investigation of the current financial statement of EPI, the assets of the said corporation do not consist principally which means less than 50%, of real property interest located in the Philippines (BIR Ruling No. 146-83). Based on the foregoing provisions of the RP-US Tax Treaty, the gains derived, if any, from the transfer of shares of stock in Evenflo (Philippines), Inc. by Questor Corporation to Evenflo Juvenile Products Company shall not be taxable in the Philippines. adc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner