Ingenico Solutions Philippines, Inc.

March 11, 2020 ITAD BIR RULING NO. 034-20 Article 13 (Gains from the Alienation of Property) Philippines-Singapore tax treaty Ingenico Solutions Philippines, Inc. Units 2703-2704, 27th Floor, Pacific Star Building Sen. Gil Puyat Avenue corner Makati Avenue 1200 Makati City Attention: AAA _______________ Gentlemen : This refers to your tax treaty relief application filed on November 10, 2017 requesting confirmation that capital gains derived by Ingenico Payment Solutions (Singapore) Pte. Ltd. ("Ingenico Singapore") (formerly Nera Payment Solutions Pte. Ltd. ) from the transfer of its shares of stock in Ingenico Solutions Philippines, Inc. ("Ingenico Philippines") (formerly Nera Solutions Philippines, Inc. ) to Ingenico International (Singapore) Pte. Ltd. ("Ingenico International Singapore") are exempt from income tax pursuant to the Convention between the Republic of the Philippines and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Singapore tax treaty") . Ingenico Singapore is a corporation organized and existing under the laws of Singapore and a resident thereof based on its amended Articles of Constitution and Certificate of Residence issued by the Inland Revenue Authority of Singapore. It is engaged primarily in investment holding. It is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission. Ingenico International Singapore is also a corporation organized and existing under the laws of Singapore. On the other hand, Ingenico Philippines is a domestic corporation engaged in providing software solutions for electronic commerce and information technology related enterprises for banking, finance, and online commerce entities. It is a wholly-owned subsidiary of Ingenico Singapore . The ultimate parent of these companies is Ingenico Group S.A., a corporation organized and existing under the laws of France. Based on its Audited Financial Statements ("AFS") as of December 31, 2016, General Information Sheet as of July 21, 2017, and Corporate Secretary's Certificate, Ingenico Singapore holds 9,326,260 common shares of Ingenico Philippines accounting for 99.99% ownership in the company. Each share has a par value of P______ or a total of P _______________ . On August 21, 2017, Ingenico Singapore and Ingenico International Singapore agreed to amalgamate pursuant to Section 51 (D) of the Companies Act of Singapore. Upon amalgamation, the shares of Ingenico Singapore will be cancelled without payment or any other consideration, and Ingenico International Singapore will continue to operate as the "Amalgamated Company." The name of the Amalgamated Company shall remain as "Ingenico International (Singapore) Pte. Ltd." Effective September 1, 2017, the property of Ingenico Singapore will become the property of the Amalgamated Company, and the latter will become liable for the obligations of each amalgamating company. CAIHTE Based on the same AFS, the ratio of Ingenico Philippines ' real assets over its total assets ( i.e. , real property interest ) prior to the amalgamation is 56%, as computed below: A. Real assets a) Property and equipment P _________ b) Refundable deposit _______ c) Prepaid rent _______ Total _______ B. Total assets __________ C. Real property interest (A/B) 56% ========= Under Section 2 (b) of Revenue Regulations No. 4-86, 1 the property of a domestic corporation consists principally of real or immovable property if its real property interest is more than 50% , to wit: " SECTION 2. Definitions. For purposes of these regulations, the following terms and phrases shall be understood to mean xxx xxx xxx b) 'Principally,' 'wholly or principally,' 'directly principally' or 'attributable' more than fifty percent of the entire assets in terms of value; " (Underscoring supplied) Based on another Corporate Secretary's Certificate, the transaction subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, or judicial appeal. RULING A. Income tax In reply, please be informed that under Section 28 (B) (5) (c) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, capital gains derived by a nonresident foreign corporation from the disposition of unlisted shares of a domestic corporation are subject to income tax at the rate of 5% to 10%, thus: " SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. xxx xxx xxx (c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange: DETACa Not Over P100,000 5% On any amount in excess of P100,000 10%" However, under Section 32 (B) (5) of the Tax Code, such gains are exempt to the extent required by any treaty obligation binding upon the Philippine government, thus: " SEC. 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." In this connection, paragraph 3, Article 13 (Gains from the Alienation of Property) of the Philippines-Singapore tax treaty provides as follows: "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." Under Article 13, gains from the alienation of shares of a domestic corporation, the property of which consists principally of immovable property situated in the Philippines, may be taxed therein. Accordingly, pursuant to paragraph 3, Article 13 of the Philippines-Singapore tax treaty in relation to Section 2 (b) of Revenue Regulations No. 4-86, since Ingenico Philippines ' real property interest prior to the amalgamation is 56%, capital gains derived by Ingenico Singapore from the transfer of its shares in Ingenico Philippines to Ingenico International Singapore as a consequence of the amalgamation are subject to capital gains tax under Section 28 (B) (5) (c) of the Tax Code. B. Donor's tax Moreover, under Section 100 of the Tax Code, where property (other than real property) is transferred for less than adequate and full consideration in money or money's worth, the excess between the higher fair market value of the property and the lower consideration received by the transferor is deemed a gift subject to donor's tax, thus: " SEC. 100. Transfer for Less Than Adequate and Full Consideration. Where property, other than real property referred to in Section 24(D), is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the fair market value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year." Pursuant to the amalgamation, the shares of Ingenico Singapore will be cancelled without payment or any other consideration, and the property of Ingenico Singapore (including its shares in Ingenico Philippines ) will become the property of Ingenico International Singapore . The lack of payment or consideration for the transfer does not result in the imposition of donor's tax under Section 100 of the Tax Code. By the use of the term fair market value , Section 100 presupposes a transfer of property between a knowledgeable, willing, and unpressured buyer and a knowledgeable, willing, and unpressured seller in an open market, with the latter relinquishing its ownership over the property. In the instant case, since the amalgamating companies are wholly-owned subsidiaries of Ingenico Group S.A., the beneficial owner of the shares in Ingenico Philippines , prior to the amalgamation when the shares were held by Ingenico Singapore , and after the amalgamation when the shares are now held by Ingenico International Singapore , continues to be the ultimate parent, Ingenico Group S.A.; hence, no relinquishment of ownership. C. Documentary stamp tax Finally, under Section 175 of the Tax Code, the transfer of shares in Ingenico Philippines is subject to documentary stamp tax, to wit: " SEC. 175. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of Shares or Certificates of Stock. On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such stock, or to secure the future payment of money, or for the future transfer of any stock, there shall be collected a documentary stamp tax of Seventy-five centavos (P0.75) on each Two hundred pesos (P200), or fractional part thereof, of the par value of such stock: Provided, That only one tax shall be collected on each sale or transfer of stock from one hundred pesos (P200), n or fractional part thereof, of the par value of such stock: Provided, That only one tax shall be collected on each sale or transfer of stock from one person to another, regardless of whether or not a certificate of stock is issued, indorsed, or delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said stock." This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. ATICcS Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Determination of Whether the Assets of a Corporation Consist Principally of Real Property Interest under the Philippine Tax Treaties. n Note from the Publisher: Copied verbatim from the official document.