Exemption of Sale of Its Shares from the Capital Gains Tax

August 15, 1988 BIR RULING NO. 387-88 25 (b) (5) (c) (j) 140-83 387-88 Gentlemen : This refers to your letter dated July 4, 1988 requesting confirmation of your opinion that the gains realized by APV Asia Pacific, Ltd. from the sale of its shares in APV Philippines, Inc. to APV Overseas Holdings Limited are exempt from the capital gains tax. It is represented that APV Asia Pacific, Ltd. is an Australian corporation not engaged in trade or business in the Philippines; that it currently owns all of the outstanding 131,219 shares of common stock in APV Philippines, Inc., a Philippine corporation; and that APV Asia Pacific sold these shareholdings to APV Overseas Holdings Limited, a British corporation not engaged in trade or business in the Philippines. In reply thereto, please be informed that said gains are exempt from the capital gains tax imposed by Section 25(b)(c)(i) of the Tax Code, pursuant to Article 13(e) of the RP-Australian Tax Treaty which provides, viz: "(3) Subject to the provisions of paragraph (1) income from the alienation of capital assets of an enterprise of one of the Contracting States or available to a resident of one of the Contracting States for the purpose of performing professional services or other independent activities shall be taxable only in that Contracting State , but where those assets form part of the business property of a permanent establishment or fixed base situated in the other Contracting State, such income may be taxed in that other state," (Emphasis ours) Under the foregoing provisions of the Tax Treaty, the gain derived from the sale of capital assets of an Australian enterprise, i.e., the shares of stocks of APV Asia Pacific in APV Philippines, Inc. are taxable only in Australia. cdti Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner