ITAD Ruling No. 017-99

August 10, 1999 ITAD RULING NO. 017-99 RP-UK-Art. 12 RP-Netherlands-Art. 13 RP-Germany-Art. 13 000-00 G.K. Goh Securities (Phils.), Inc. 36/F C-C Rufino Plaza Tower, Ayala Avenue, Makati City Attention: Mr . Isidro R . Santos Vice President Gentlemen : This refers to your letter dated April 26, 1999, requesting confirmation of your opinion that sale of shares of stock by your non-resident foreign clients, particularly residents of United Kingdom (UK), Netherlands and Germany, are exempt from the stock transaction tax, pursuant to the RP tax treaties with UK, Netherlands and Germany. prcd In reply, please be informed that Article 12 of the RP-UK Tax Treaty provides as follows: "Article 12 Gains from the Alienation of Property 1. Capital gains from the alienation of immovable property, as defined in paragraph (2) of Article 6, may be taxed in the Contracting State in which such property is situated. 2. Capital 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 of 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 a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. 3. Notwithstanding the provisions of paragraph (2) of this Article, capital gains derived by a resident of a Contracting State from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft shall be taxable only in that Contracting State. LexLib 4. Capital gains from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident." Article 13 of the RP-Netherlands Tax Treaty provides as follows: "Article 13 Gains from the Alienation of Property 1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, may be taxed in the 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 one of the States has in the other State, or of movable property pertaining to a fixed base available to a resident of one of the States in the other 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. 3. Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of the States from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships or aircraft shall be taxable only in that State. 4. Gain from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3, shall be taxable only in the State of which the alienator is a resident." Article 13 of the RP-Germany Tax Treaty provides as follows: "Article 13 Capital Gains 1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, 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 of 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 a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. However, gains from the alienation of ships and aircraft operating in international traffic and movable property pertaining to the operation of such ships and aircraft, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. LexLib 3. Gains from the alienation of shares of a company which is a resident of a Contracting State may be taxed in that State. 4. Gains from the alienation of any property other than those mentioned in paragraphs 1 to 3 shall be taxable only in that Contracting State of which the alienator is a resident." Under the above-mentioned provisions of the RP-UK, RP-Netherlands, RP-Germany Tax Treaties, gains from the alienation of shares of stock shall be taxable only in the country of the alienator. Hence, the sale, barter or exchange of shares of stock listed and traded through the local stock exchange by residents of the Netherlands, Germany and UK is exempt from percentage tax under Sec. 127(A) of the Tax Code of 1997. However, in order to avail of the benefits of the tax treaty provision, each non-resident corporation/individual has to apply for tax treaty relief. Attached herewith is a copy of Revenue Memorandum Order 10-92 for your guidance. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue