BIR Ruling [UN-296-95]

August 11, 1995 BIR RULING [UN-296-95] The Law Firm of Makalintal, Barot Torres I. Ibarra 2/F Benjamin Building Exchange Rd. cor. Meralco Ave. Ortigas Center, 1600 Pasig City Attention: Orencio F . Ibarra, Jr . Gentlemen : This refers to your letter dated June 13, 1995 requesting for a ruling exempting your client, Campagnie Generale Calbareon (CGC) from the payment of capital gains tax on the sale of P14,989 shares in Royal Cargo Corporation (Royal Cargo) in favor of Sceta International (Sceta) pursuant to Article 13 of the RP-France Tax Treaty. cdtech It is represented that CGC is a non-resident foreign corporation duly organized and existing under and by virtue of the laws of France; that CGC owns 14,989 shares in Royal Cargo, a domestic corporation; that CGC intends to sell its 14,989 shares to Sceta; that like CGC, Sceta is a non-resident foreign corporation duly organized and existing under and by virtue of the laws of France; that Royal Cargo is a corporation engaged in the business of freight-forwarding; that its assets do no consist principally of immovable property; that in fact, it is only renting the office space it is currently using; and that you are of the opinion that a gain from the sale of shares of a Philippine company, such as Royal Cargo in the instant case, is not taxable in the Philippines unless the assets of the Philippine company consist principally of "immovable property". e. g. more than 50% in real property. In reply, please be informed that gains which may be penalized by CGC from the intended sale of its shares of stock in Royal Cargo in favor of Sceta shall be taxable only in France pursuant in Article 13(G) of the RP-France Tax Treaty. Hence, said gain is not subject to Philippine tax. The provision of Article 13(1) of the RP-France Tax Treaty which provides that "Article 13 "CAPITAL GAINS "1. Gains from the alienation of immovable property, as defined in paragraph 8 of Articles 6 or from the alienation of shares of comparable interest in a real property cooperative or in a company the assets of which consist principally of immovable property , may be taxed in the Contracting State in which such property is situated." (Emphasis supplied) does not apply in this case. It is to be noted that under the above-quoted provisions of Article 13(1) of the RP-France Tax Treaty, the Philippines may tax the gains derived from the alienation of shares of comparable interest in real property cooperative or in company the assets of which consists principally of immovable property. "Principally" means more than 50% of the entire assets in terms of value. (Sec. 2, Revenue Regulations No. 4-86). The value of the assets of Royal Cargo, as represented does not consist principally of immovable property, which means less than 50% of the value of its total assets. (BIR Ruling No. 136-92 dated April 28, 1992) 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)