Tax Consequences of the Proposed Transfer of Issued Shares of Stock

December 15, 1989 BIR RULING NO. 261-89 25 (b) (5) (c) 176 355-88 261-89 Gentlemen : This refers to your letter dated August 14, 1989 requesting a ruling on the tax consequences of the proposed transfer of your issued shares of stock from Neptune Agencies (PTE), LTD (NAPL) to Neptune Orient Lines, LTD. (NOL) both of which are foreign corporations duly organized and existing under and by virtue of the laws of Singapore: specifically, a confirmation of your opinion that the capital gains that will be derived from the proposed transfer, if any, is not taxable in the Philippines, pursuant to the provisions of Chapter IV, Section 20(5) of Revenue Regulations No. 7-82, implementing the RP-Singapore Tax Treaty. aisadc It is represented that you are a domestic corporation organized as a Management Company on October 5, 1983 with NAPL as one of the subscribers to your capital stock; that the Securities and Exchange Commission issued your Certificate of Incorporation on October 27, 1983; that initially, NAPL held 1,079,988 shares out of your outstanding capital stock of 3,600,000 shares; that subsequently, NAPL acquired through equity transfer from another stockholder, Rayomar Management, Inc., additional holdings of 360,000 shares bringing its total holdings to 1,439,998 shares or forty (40%) percent of your outstanding capital stock; that parenthetically, the par value of such share is one (P1.00) peso each; that NAPL is a wholly-owned subsidiary of NOL; that on June 26, 1989, your Corporate Secretary received notice of intention on the part of NAPL to irrevocably transfer to NOL all its "legal rights, benefits and interests" in the 1,439,998 shares of your outstanding capital stock; and that your Audited Financial Statement will show that your assets consist mainly of investment in shares of stocks of affiliated companies and other assets consist of long-term loans receivable, cash in bank, temporary investments, current portion of long-term loans receivable, notes receivable and accounts receivable. In other words, your assets do not include any immovable property situated in the Philippines or any interests, rights or participation therein. In reply, please be informed that your opinion is hereby confirmed. Article 13 of the RP-Singapore Tax Treaty provides, viz: "Article 13" GAINS FROM THE ALIENATION OF PROPERTY "1. Gains from the alienation of immovable property may be taxed in the Contracting State in which such property is situated. "2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing professional services, including such gains from the alienation of such permanent establishment (alone or together with the whole enterprise) or of such a fixed base may be taxed in the other State. However, gains derived by an enterprise of a Contracting State from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that State. "3. Gains from the alienation of shares of a company, the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that State. Gains from the alienation of an interest in a partnership or a trust, the property of which consists principally of immovable property situated in a Contracting State, may be taxed in the State. "4. Gains from the alienation of any property, other than those mentioned in paragraph 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident." The above proposed transaction clearly falls under paragraph (4). Hence, the capital gains, if any, which may be realized by Neptune Agencies (PTE), LTD are not taxable in the Philippines. cdt However, the aforesaid proposed transfer of shares of stock are subject to the documentary stamp tax imposed under Section 176 of the Tax Code, as amended, in the amount of fifty centavos on each P200.00 or fractional part thereof, of the par value of the shares transferred even if the transfer is effected abroad. (Sec. 20, Revenue Regulations No. 26, or the Revised Documentary Stamp Tax Regulations). cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner