Sale of Land Located in RP by a Retired Filipino Citizen Taxable in RP

December 10, 1993 BIR RULING NO. 481-93 SALE OF LAND LOCATED IN RP BY A RETIRED FILIPINO CITIZEN TAXABLE IN RP 21 (e) 196 000-00 481-93 Ms. Asteria M. Gabriel-Reyes Liang, Malolos, Bulacan This refers to your letter dated October 28, 1993 stating that you are a Filipino citizen and a retired physician formerly connected with the State Hospital of New York at Long Island, U.S.A.; that your stay (residency) in the United States of America was a consequence of your admission to work in the said hospital; that after several years of service, you retired at the age of 60; that you are no longer working, neither are you engaged in business in the United States; that in order that you may not be a liability to the U.S. Government, and to augment your little pension, you were forced to sell your real property located in the Philippines, and use a portion of the proceeds for your financial support while you are still in America, until you finally get back to the Philippines where your relatives and your properties are; that you still consider the Philippines as your permanent and habitual abode; and that upon your retirement from U.S. employment, your fiscal residence would still be the Philippines where you come home every now and then. cdti It is further represented that the sale of your real property was consummated in the early part of 1993, and that you have paid the capital gains and documentary stamp taxes thereon to the Philippine government. In connection therewith, you now request for confirmation of your opinion that since the sale of your said real property classified as capital asset has already been subjected to the final capital gains tax and documentary stamp tax in the Philippines, pursuant to Articles 4(f) and 7 of the R.P.-U.S. Tax Treaty, any portion of the proceeds from such sale, may be brought out of the country and remitted to your account in the United States for your financial support while you are in the said foreign country, and since your permanent abode is the Philippines, the capital gains derived from such sale shall only be taxable in the Philippines where the real property is located pursuant to Article 4 in relation to Article 7 of the R.P.-U.S. Tax Treaty. In reply, please be informed that Articles 4 and 7 of the R.P.-U.S. Tax Treaty, provide thus "Article 4 SOURCE OF INCOME For purposes of this Convention: (1) . . . (1) . . . (1) . . . (4) Income from real property (including royalties) described in Article 7 (Income from Real Property) shall be treated as income from sources within a Contracting State only if such property is situated in the Contracting State." "Article 7 INCOME FROM REAL PROPERTY (1) Income from real property . . . and gains derived from the alienation of such property . . . may be taxed by the Contracting State in which such real property . . . are situated. (2) Paragraph (1) shall apply to income derived from the usufruct, direct use, letting or use in any other form of real property" Article 3 (Fiscal Residence) sets forth rules for determining the residence of individuals, corporation or other persons for purposes of the Convention. Residence is important because in general, only a resident of one of the Contracting States may qualify for the benefit of the Convention. A citizen of the United States or the Philippines is not automatically a resident of United States or the Philippines for purposes of the Convention. An individual's residence is determined on the basis of whether the individual is treated as a resident for purposes by a Contracting State. An individual who is a resident of both Contracting States will be deemed to be a resident of the Contracting State in which he has his permanent home, his center of vital interests (closest personal and economic relations, habitual abode, or his citizenship, in the order listed). It appears that as a Filipino citizen who has retired from employment in the United States, you have been coming home often to the Philippines and spending most of your life in this homeland, i.e.: Arrival Departure February 17, 1990 May 1, 1991 June 1991 August 21, 1991 May 22, 1992 June 22, 1992 July 1, 1992 July 23, 1992 August 8, 1992 December 1992 January 21, 1993 March 1993 April 1993 May 1993 It is very evident that for purposes of the R.P.-U.S. Tax Treaty your permanent abode is still the Philippines. Such being the case, the sale of your real property is taxable in the place where it is located, i.e. in the Philippines and is subject to capital gains tax and documentary stamp tax under Sections 21 (e) and 196, respectively, of the National Internal Revenue Code, as amended. Moreover, as a retired Filipino citizen not engaged in any trade or business in the United States, income from the sale of said real property which has never been used in business effectively connected with a permanent establishment in the United States to which any income may be attributable, shall remain taxable in the Philippines. Accordingly, and considering the foreign exchange deregulation policy of the government, a portion of the proceeds of the sale of your aforesaid property, the corresponding taxes thereon having been duly paid, can now be legally remitted from the Philippines to your account in the United States. cdta LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue