ITAD BIR Ruling No. 367-12

October 31, 2012 ITAD BIR RULING NO. 367-12 Sycip Salazar Hernandez and Gatmaitan Attorneys-at-Law SSHG Law Centre 105 Paseo De Roxas Makati City Attention: Atty. Hector M. de Leon, Jr. Atty. Maria Teresa M. Ferrer Atty. Rosalyn S. Co. Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on June 21, 2010 requesting confirmation that capital gains derived by Aventis Holdings, Inc. ("Aventis Holdings") from the sale of its shares of stock in Sanofi-Aventis Philippines, Inc. ("Sanofi-Aventis Philippines") to Sanofi-Aventis Europe ("Sanofi-Aventis Europe") are exempt from income tax pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income . Aventis Holdings is a foreign corporation in the United States located at 3711 Kennett Pike, Suite 200, Greenville, Delaware, United States. It is not registered as a corporation or partnership in the Philippines. Sanofi-Aventis Europe is a foreign corporation in France located at 174 Avenue de France, Paris, France. On the other hand, Sanofi-Aventis Philippines is a domestic corporation located at 3rd Floor, Feliza Building, 108 V.A. Rufino Street, Legaspi Village, Makati City, Philippines. Aventis Holdings holds 534,358 common shares of stock of Sanofi-Aventis Philippines equivalent to 27.12 percent of the former's capital stock. These shares had an acquisition cost of $355,501.66, which were acquired on December 31, 2001 (492,983 shares at $280,092.00) and October 10, 2003 (41,375 shares at $75,409.66). On December 1, 2009, Aventis Holdings and Sanofi-Aventis Europe entered into a Share Transfer Agreement where Aventis Holdings transferred its 534,357 shares in Sanofi-Aventis Philippines to Sanofi-Aventis Europe , for a consideration of 7,630,000.00 euros. On June 17, 2010, the parties entered into an Amendment Agreement for the purpose of including one nominee share in the transfer thereby transferring 534,358 shares in Sanofi-Aventis Philippines to Sanofi-Aventis Europe . Based on the Acknowledgement issued by Aventis Holdings on March 23, 2012, it received the subject sum of 7,630,000.00 euros from Sanofi-Aventis Europe on December 1, 2009 . EHTIDA 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 fifteen 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: 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 is 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 . EHCDSI 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) This decision is upheld by the Supreme Court in Resolution G.R. No. 168531 on February 18, 2008. Furthermore, the requirement 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, 6844 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 transfer of the 534,358 shares in Sanofi-Aventis Philippines was paid by Sanofi-Aventis Europe to Aventis Holdings on December 1, 2009 , but the TTRA for this purpose was filed only on June 21, 2010 , this Office hereby DENIES relief on such gains derived by Aventis Holdings by reason of having the TTRA filed beyond the prescribed period under Section III (2) RMO 1-2000. Accordingly, said gains (difference between the consideration for and the acquisition cost of the shares) shall be subject to income tax under Section 28 (B) (5) (c) of the National Internal Revenue Code of 1997, as amended, which provides: "SEC. 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Nonresident Foreign Corporation . xxx xxx xxx (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation . DSIaAE 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: Not over P100,000 5% On any amount in excess of P100,000 10%." Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue