BIR Ruling [UN-029-96]

January 22, 1996 BIR RULING [UN-029-96] National Development Company Producers Bank Building 371 Sen. Gil J. Puyat Avenue Makati City Attention: Ms . Felicitas R . Lomotan Assistant General Manager Gentlemen : This refers to your letter dated July 1, 1994 stating that Asean Copper Products, Inc. (ACPI) was incorporated in 1994 as a joint venture company of the ASEAN member states; that it was organized under Philippine laws and duly registered with the Securities and Exchange Commission (SEC); that ACPI has an authorized capital stock of P42 Million with a paid-up capital of P10.5 Million broken down as follows: cdtech Paid-Up Capital ASEAN Partners Ownership Peso Equivalent US$ Indonesia 13 P1.365M US$97,500 Malaysia 13 1.365 97,500 Thailand 13 1.665 97,500 Singapore 1 0.105 7,500 Sub-Total 40 P4.200M US$300,000 Philippines 60 6.300M 450,000 Total 100 P10.500M US$750,000 ==== ========= ========= that the project was never implemented due to the large investment requirement and the inability of the Philippine Government to provide funds; that a final review of the project indicated that it is not viable so much so that the Philippine stockholder recommended the dissolution of the company and the return of the full investment of US$300,000 to the Asean Government partners; that while the Asean Government partners will receive their original US$ investments, there will be appreciation of their investment in Peso terms due to the devaluation of the Philippine currency, as follows: Original Dollar Investments US$300,000 Peso Equivalent In 1984 (P14/US$41) P4.2 Million Peso Equivalent In 1994 (P27/US$1) P8.1 Million Peso Investment Appreciation P3.9 Million Based on the foregoing, you are requesting our opinion on the following queries, viz: "1. Is the difference between the contributed capital of P4.2 Million (US$300,000 x P14/US$1) and the repatriated capital of P8.1 Million (US$300,000 x P27/US$1 in 1994), subject to tax? If so, what is the applicable tax? "2. Is there any preferential tax treatment considering that the investors are foreign governments (and not corporations) investing under the Asean concord." In reply, please be informed that the difference between the contributed capital of P4.2 Million (US$300,000 x P14/US$1 in 1984 and the repatriated capital of P8.1 Million (US$300,000 x P27/US$1 in 1994) or the amount of P3.9 Million is not subject to income tax since the same is a part of the repatriated capital or principal brought about by the devaluation of the Philippine peso and hence, not income as the term is defined in Section 28 of the Tax Code, as amended. Answer to question No. 2 is deemed unnecessary in view of our aforestated reply to question No. 1. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue