Income Tax at the Rate of 30%-Gains Derived from Sale of Company

December 27, 1979 BIR RULING NO. 136-79 Income tax at the rate of 30%gains derived from sale of company This refers to your letter dated September 29, 1978, informing this Office that your client, Angela V. Elizalde, an American citizen, residing at No. 18 Iddesleigh Terrace, Boro' Bridge Road, Ripon, North Yorkshire (HG4-IQW) England, has sold to a Filipino citizen her common shares in that Company, a domestic corporation duly organized and existing under the laws of the Philippines, covered by the following stock certificates: Date issued Certificate No. No. of Shares April 8, 1958 159 64 Jan. 26, 1962 179 37 Total 101 In your letter dated June 28, 1979, you stated that said shares were sold on September 27, 1978 and that the same are not listed in the dollar or any acceptable foreign currency board of any stock exchange. You would like to know whether the above transaction is subject to the requirement of Section 37(e) of the Tax Code, as amended by P.D. No. 1457, which reads as follows: ". . . Gains, profits, and income derived from the purchase of personal property within and its sale without the Philippines or from the purchase of personal property without and its sale within the Philippines, shall be treated as derived entirely from sources within the country in which sold: Provided , however , That gain from the sale of shares of stock in a domestic corporation shall be treated as derived entirely from sources within the Philippines regardless of where the said share are sold. The transfer by a non-resident alien or a foreign corporation to any one of any share of stock issued by a domestic corporation shall not be effected or made in its books unless: (1) the transferor has filed with the Commissioner a bond conditioned upon the future payment by him of any income tax that may be due on the gains derived from such transfer or, (2) the Commissioner has certified that the taxes, if any, imposed in this Title and due on the gain realized from such sale or transfer have been paid. It shall be the duty of the transferor and the corporation the shares of which are sold or transferred to advise the transferee of this requirement." cd In reply, please be advised that since your client is a non-resident alien not engaged in trade or business in the Philippines, under the above quoted provision, in relation to Section 22(b) of the Tax Code, the gain derived from her sale of the shares is subject to income tax at the rate of 30%. Consequently, the above requirement should be complied with i.e., your client shall file a bond conditioned upon the future payment by her of any income tax that may be due on the gains derived from the transfer, or the Commissioner shall certify that the taxes due on the gain realized from such sale or transfer have been paid. This Office requires that the amount of the bond shall consist of twice the amount of income tax estimated to be due on the capital gains derived by your client. The bond shall not contain any expiry date and shall remain in full force and effect unless cancelled by the Commissioner upon payment of the tax guaranteed by the bond. Finally, the bond required under the above-quoted provision does not apply to sales of shares of stock which are subject to the stock transaction tax imposed by Section 210(a) of the Tax Code of 1977, as amended.