BIR Ruling [UN-260-95]

July 11, 1995 BIR RULING [UN-260-95] Pacis & Reyes Law Office Diner's Club Center Bldg. 114 Valero St. Salcedo Village Makati, Metro Manila Attention: Atty . Ma . Resa G . Saralones Gentlemen : This refers to your letter dated April 10, 1995 requesting for a confirmation of your opinion that the gain derived by A2 Telecommunications International Holding Co. Pte. Ltd., a Singaporean corporation, from the sale of its shares of stock in Republic Telecommunications Holding, Inc. (RETELCOM), a domestic corporation, is exempt from Philippine income tax. cd It is represented that A2 Telecommunications International Holding Co. Pte. Ltd. is a Singaporean corporation not registered with the Securities and Exchange Commission to engage in trade or business in the Philippines nor does it have a permanent establishment in the Philippines; that on January 2, 1995, the Singaporean corporation sold all of its right, title and interest in Four Hundred Million (400,000,000) Class B shares of the capital of real property located in the Philippines, for and in consideration of the sum of US Dollars Nineteen Million Eight Hundred Thirty Four Thousand Seven Hundred Ten (US$ 19,834,710.00) equivalent to Four Hundred Eighty Million Pesos (P480,000.00) to Korea Telecom, a corporation duly organized and existing under the laws of the Republic of Korea; and that it had accordingly paid the documentary stamp tax on the said transaction. In reply, please be informed that 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 enterprises of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed based available to a resident of a 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 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 that State. "4. Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2, and 3 shall be taxable only in the Contracting State of which the alienator is a resident." The foregoing transaction involving alienation of shares of stock in a domestic corporation does not fall under the aforequoted paragraphs 1 and 2. Neither does it fall under paragraph 3 because it has been ascertained from the latest financial statements of RETELCOM that its property does not consist principally, which means less than 50% of its real property interest is located in the Philippines. Such being the case, the foregoing transaction falls under the above-quoted paragraph 4 of the RP-Singapore Tax Treaty. Accordingly, the gains derived by A2 Telecommunications International Holding Co. Pte. Ltd., a Singaporean corporation not engaged in trade or business in the Philippines, from the sale of its Four hundred Million (400,000,000) Class B shares of capital stock of RETELCOM, is not subject to the capital gains tax under Section 25(b) (1), in relation to Sec. 25(b) (5) (C) (i) and 36(e) of the Tax Code, as amended, but is subject to tax only in Singapore. (BIR Ruling No. 067-90 dated April 30, 1990) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)