ITAD BIR Ruling No. 081-12

February 16, 2012 ITAD BIR RULING NO. 081-12 Sycip Salazar Hernandez and Gatmaitan Attorneys-at-Law SSHG Law Centre 105 Paseo de Roxas, Makati City Attention: Carina C. Laforteza Catherine C. Franco Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on January 2, 2007 requesting confirmation that gains derived by Goldman Sachs International ("Goldman Sachs") from the sale of its Depository Receipts to DKR Soundshore Oasis Holding Fund Ltd. ("DKR Soundshore") are exempt from income tax, pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains. On October 25, 2006, pursuant to a Confirmation of Assignment of Depository Receipts, Goldman Sachs, for and in consideration of Y16,052,583,405.00 (P6,926,689,739.25), sold to DKR Soundshore its 3,842,000 depository receipts issued by JP Morgan Stanley, convertible into 3,842,000 fully paid common shares of stock in Philippine Long Distance Telephone Company, Inc. ("PLDT"), each share or receipt with a par value of P5.00. The resulting net capital gain on this sale was P1,238,303,282.98. Relative thereto, please be informed that under Section III (2) of Revenue Memorandum Order No. 1-00 (Procedures for Processing Tax Treaty Relief Application) ("RMO 1-2000") , any availment of tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed at the International Tax Affairs Division ("ITAD") of this Bureau at least 15 days before the intended transaction or payment of income, thus: "III. Policies: In order to achieve the above-mentioned objectives, the following policies shall be observed. IDTSEH xxx xxx xxx 2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e. , payment of dividends, royalties, etc., accompanied by supporting documents justifying the relief. . ." (Emphasis ours) This condition was emphasized by the Court of Tax Appeals in Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 6382 dated June 7, 2005) where it ruled: "However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation. In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked. Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the persons or corporations duly entitled to the same. The Court notes that nowhere in the records of the case was it shown that petitioner indeed took the liberty of properly observing the provisions of the said order. Petitioner quotes various BIR, as well as ITAD, Rulings issued to several foreign corporations seeking for a tax relief from the office of the respondent. However, not any one of these rulings pertains to the petitioner. It must be stressed that BIR rulings are issued based on the facts and circumstances surrounding particular issue/issues in question and are resolved on a case-to-case basis. It would be thus erroneous to invoke the ruling of the respondent in specific cases, which have no bearing to the case of petitioner." (Emphasis ours) SHCaDA This decision was also upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement laid down in RMO 1-2000 is reiterated in subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (C.T.A. Case No. EB 456 dated May 29, 2009), CBK Power Company Ltd. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 6699, 6884 and 7166 dated March 29, 2010) and Manila North Tollways Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 7864 dated April 12, 2011). In view of the foregoing, since the consideration for the sale of the subject depository receipts convertible into PLDT shares was paid to Goldman Sachs on October 25, 2006 (the date of the Confirmation of Assignment) or earlier, but the subject TTRA was filed only on January 2, 2007 , this Office hereby DENIES the TTRA for having been filed beyond the fifteen-day period prescribed in the RMO. Consequently, the resulting net capital gain on the sale shall be subject to income tax at the rate provided under Section 28 (B) (5) (c) of the National Internal Revenue Code of 1997, as amended, to wit: "SEC. 28. Rates of Income Tax on Foreign Corporations. . . . (B) Tax on Nonresident Foreign Corporation. . . . (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. . . . (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: Not over P100,000 5% On any amount in excess of P100,000 10%." Please be guided accordingly. SCHTac Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue