BIR Ruling No. 231-61

July 26, 1961 BIR RULING NO. 231-61 Messrs. Sycip, Gorres, Velayo & Co. Certified Public Accountants 490 San Luis, Manila Gentlemen : Reference is made to your letter dated July 21, 1961, requesting the opinion of this Office as to whether or not the profit realized from the following transaction is subject to Philippine income tax; prcd "General Public Utilities Corporation (GPU) is a nonresident foreign corporation, not engaged in business in the Philippines. GPU has entered into an agreement dated June 8, 1961, under which it will sell to Meralco Securities Corporation (the purchaser), a corporation recently organized under Philippine law, the following securities of Manila Electric Company (Meralco): "a) Meralco first mortgage bonds, serious A, 6 per cent, due 1972, in the principal amount of P8,000,000; "b) Ten (10) Meralco series promissory notes in the aggregate principal amount of $3,338,450.90, payable to GPU or order maturing serially at six-month intervals, commencing September 11, 1963 and ending March 11, 1958, and bearing interest at the rate of six per cent (6%) per annum; "c) 350,000 shares of Meralco preferred stock; and "d) 6,000,000 shares of Meralco common stock. "The negotiations for the sale by GPU of the above investment in Meralco were conducted in the United States by A.F. Tegen, President, representing GPU, and Roberto Villanueva, representing the trustee committee for the purchaser. The final agreement between the parties was executed and delivered in the United States at Wilmington, Delaware, by Mr. Tegen, as president of GPU and Mr. Villanueva, as vice-chairman of the trustee committee for Meralco Securities Corporation. Thereafter, following the incorporation of the purchaser, notification of the adoption of the June 8, 1961 agreement by the purchaser was delivered to GPU in the United States; "The closing under the agreement is to take place in Wilmington, Delaware, at which GPU will transfer and deliver to the purchaser the certificates and other documents representing the investment in Meralco being sold, and the purchaser will deliver letters of credit reflecting the purchase price." Section 24 of the National Internal Revenue Code levies income taxes on foreign corporations only on income derived from sources within the Philippines. The question now to be resolved is whether or not the gain realized from the above transaction was derived from sources within the Philippines. The pertinent provisions or Section 37(c) of the Tax Code reads as follows: "SEC. 37(e) . . . 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." In accordance with the abovequoted provisions of the Tax Code, the gains realized from the sale of personal property are deemed income derived from the place of sale. Shares of stock of a corporation although they represent equities that may consist of real as well as personal properties are considered under applicable law and jurisprudence as Intangible personal properties. (Art. 417(2), Civil Code of the Phil.) Bonds and promissory notes are also classified as personal properties. In the instant case, it is represented that "the proposed sale was negotiated, the agreement for sale was made and the consummation of the transaction will all take place outside the Philippines and within the United States." Accordingly, the gain realized therefrom is deemed income derived from sources outside the Philippines, and is therefore not subject to Philippine income tax. aisadc Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue