BIR Ruling [UN-257-95]

July 11, 1995 BIR RULING [UN-257-95] Quisumbing Torres & Evangelista 11th Floor, Pacific Star Building Makati Avenue cor. Sen. Gil J. Puyat Ave. Makati 1200, Metro Manila Attention: Attys . Jose R . Sandejas and Elizabeth B . Opena Gentlemen : This refers to your letter dated June 14, 1995 stating that your client, Bear Stearns International ltd. (Bear Stearns) is a corporation organized and existing under the laws of the United Kingdom; that Bear Stearns entered into a Purchase Agreement on June 2, 1995 with Pilipino Telephone Corporation (Piltel), a corporation duly organized and existing under the laws of the Philippines for the sale of shares of Piltel; that under the Purchase Agreement, Bear Stearns, as underwriter for the global offering of the shares, will resell the shares that it will have to purchase under the agreement. cdtech In connection therewith, you are requesting confirmation of your opinion that any gain which may be derived by Bear Stearns from the resale of Piltel shares under the Purchase Agreement will not be subject to Philippine capital gains tax under Article 12 of the RP-United Kingdom Tax Treaty. In reply thereto, please be informed that Article 12 of the RP-United Kingdom of Great Britain and Northern Ireland Tax Treaty provides, viz.: "ARTICLE 12" "Gains from the Alienation of Property "(1) Capital gains from the alienation of immovable property, as defined in paragraph (2) of Article 6, may be taxed in the Contracting State in which such property is situated. "(2) Capital 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. "(3) Notwithstanding the provisions of paragraph (2) of this Article, capital gains derived by a resident 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 and aircraft shall be taxable only in that Contracting State. "(4) Capital gains from the alienation of any property other than those mentioned in paragraph (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident. "xxx xxx xxx" It is clear from the aforequoted provisions that the capital gains from the alienation of any property other than those mentioned in paragraphs 1, 2, and 3 of Article 12 of the treaty shall be taxable only in the State where the alienator is a resident. Inasmuch as the resale of the aforesaid shares of stock is not among those mentioned in paragraphs 1, 2 and 3 of Article 12, the gains that may be realized by Bear Stearns from the resale of the Piltel shares under the Purchase Agreement are not subject to the capital gains tax under Section 24(e) (2) of the Tax Code, as amended but are subject to tax only in the United Kingdom. (BIR Ruling No. 195-90 dated October 9, 1990). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)