ITAD Ruling No. 017-00

January 28, 2000 ITAD RULING NO. 017-00 RP-Singapore Article 13 100-94261-89 Seria & Garcia Law Offices 122 Calbayog Street Mandaluyong City 1550 Attention: Atty . Agnes P . Serias-Garcia Gentlemen : This refers to your letter dated August 14, 1999, requesting confirmation on behalf of your clients Lim Kee Liew and Leong Lai Heng, that gains derived from the transfer of your clients shares of stocks in two Philippine companies are not subject to tax pursuant to the RP-Singapore Tax Treaty. It is represented that Lim Kee Liew and Leong Lai Heng, hereinafter referred to as the SELLERS, are non-resident citizens; that both sellers are subscribers to the capital stock of Asian Micro Manufacturing Philippines, Inc. (AMMPI) and ACI Industries, Inc. (ACI); that AMMPI and ACI are corporations duly organized and existing under Philippine laws; that AMMPI has an authorized capital stock of P 10,000,000.00 divided into 100,000 shares with a par value of P 100.00 per share, out of which P 7,265,800.00 had been subscribed and paid-up; that ACI Industries has an authorized capital stock of P 5,000,000.00 divided into 50,000 shares with a par value of P 100.00 per share, out of which P 1,250,000.00 had been subscribed and paid-up; that Mr. Lim subscribed to 36,328 shares and 2,500 share of the capital stocks of AMMPI and ACI, respectively, while Mdm. Leong subscribed to 36,327 shares of the 2,500 shares of the capital stocks of AMMPI and ACI, respectively; that on August 4, 1999 both SELLERS favor of Asian Micro Holdings Pte Ltd. (AMH), a Singaporean company, for and in consideration of shares in AMH equivalent to P 3,290,951.00 for Mr. Lim's, 36,328 shares in AMMPI and 2,499 shares in ACI; that the assets of AMMPI and ACI, as shown in their audited Balance Sheets dated June 30, 1999, do not consist principally of immovable property located in the Philippines; and that the Schedules of the Property and Equipment accounts for both corporations as of June 30, 1999 show that neither own any real property in the Philippines. prcd In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty, provides as follows: "Article 13 "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 enterprise of a Contracting State has in the other Contracting State or a movable property pertaining to a fixed base available to a resident of a Contracting State in the other 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 of such a fixed base may be taxed in the other State. However, gains derived by an enterprise of a Contracting 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 form 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. cdlex Considering that the properties of both AMMPI and ACI do not consist principally of immovable property located in the Philippines, the gains from the alienation of the shares of both companies are taxable only in Singapore. Accordingly, your opinion that the gains derived from the transfer of the subject shares of stocks are not subject to Philippine tax, is hereby confirmed. 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 rendered null and void. cdll Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group