BIR Ruling No. 201-83

November 16, 1983 BIR RULING NO. 201-83 Gentlemen : This refers to your letter dated October 24, 1983 requesting for a certificate of exemption of the proposed sale of shares of Teijin Limited and Filipinas Synthetic Fiber Corporation (Filsyn) from capital gains tax. cdt It is represented that Teijin Limited is a foreign corporation organized and existing under the laws of Japan with its principal office in Osaka; that it is not engaged in trade or business in the Philippines; that in 1969 it invested the sum of P11,263,830 in Filsyn for which it was issued 1,126,383 Class B shares at a par value of P10 per share; and that some time later it received 3,557,116 shares as stock dividends, so it now holds 4,683,490 Class B shares of the said corporation. Teijin Limited is intending to sell all its stockholdings in Filsyn at P7.00 per share or for a total of P32,784,493 thus realizing a profit of P21,520,773.00 on the sale. In reply thereto, please be informed that as shown by the financial report of Filsyn as of September 30, 1983 you have submitted, of the P999,509,000 total assets of the said corporation, P581,042,000 thereof consists of real property and real property interest, or more than 50% of its total assets. Article 13 (4) of the RP-Japan Tax Treaty provides: "(1) Gains from the alienation of shares of a company, a partnership or a trust the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that Contracting State." Under the above-quoted provision of the Tax Treaty, the gains that may be realized by Teijin Limited from the sale of its Filsyn shares are taxable in the Philippines, since Filsyn assets consist principally, which means more than 50%, of immovable property located in the Philippines. In view thereof, your request for exemption has to be, as it is hereby denied. cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue