ITAD Ruling No. 018-02

February 4, 2002 ITAD RULING NO. 018-02 RP-Netherlands Tax Treaty Art. 13 Tax Code of 1997 Sec. 176 DA-ITAD-72-01 Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza 8741 Paseo de Roxas Makati City Attention: Atty. Jane F. Asuncion Gentlemen : This refers to your letter dated August 27, 2001 on behalf of your client, UBS International Holdings, B.V. (UBS International), requesting confirmation of your opinion that any gain it may derive from the sale, assignment and transfer of its shares of stocks in UBS Warburg Securities Philippines, Inc. (UBS Warburg) shall be exempt from capital gains tax pursuant to the RP-Netherlands tax treaty. It is represented that UBS International (formerly SBC Warburg International Holdings BV) is a corporation duly organized and existing under the laws of the Netherlands with business address at Herengracht 564 1017 CH Amsterdam, The Netherlands; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission dated August 30, 2001; that UBS Warburg is a corporation duly organized and existing under and by the virtue of the laws of the Republic of the Philippines with SEC Reg. No. A1996-06452 and presently has an authorized capital stock of One Hundred Sixty Million Pesos (P160,000,000.00) with one million six hundred thousand (1,600,000) common shares at par value of One Hundred Pesos (P100.00) per share; that UBS International is the registered owner of one million two hundred ninety nine thousand nine hundred ninety five (1,299,995) common shares of stock in the amount of One Hundred Twenty Nine Million Nine Hundred Ninety nine Thousand Nine Hundred Ninety Five (P129,999,995.00) Pesos and is the beneficial owner of five (5) common shares of stock in the amount of Five Hundred Pesos (P500.00) (currently held in trust on its behalf by its nominee directors) of UBS Warburg; and pursuant to the Deed of Assignment dated June 13, 2001, UBS International sold, assigned and transferred its total shareholdings as evidenced by Certificate Nos. 01 10, 11 and 22 in UBS Warburg to UBS AG Zurich. In reply, please be informed that Article 13 of the RP-Netherlands tax treaty provides as follows: TSHcIa "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 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, 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) Gains 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. xxx xxx xxx" It is clear from the aforequoted provisions of the RP-Netherlands tax treaty that gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 shall be taxable only in the State where the alienator is a resident. Considering that the transfer of shares of stocks is not among those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by UBS International from the sale, assignment and transfer of its shares of stock in UBS Warburg shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax Code of 1997 but are subject to tax only in the Netherlands. (DA-ITAD 72-01). However, certificate of authority to register the said transaction in the books of UBS Warburg must be secured. Thus, UBS International, being a nonresident foreign corporation, is required to file, although not required to pay the capital gains tax, a Capital Gains Tax Return (BIR Form No. 1707) accompanied by copies of the Deed of Assignment and this ruling, with Revenue District Office No. 39 South-Quezon City (RDO 39), in order for the latter to issue the Certificate Authorizing Registration (CAR) of the said shares of stock in favor of UBS International. Moreover, the Deed of Assignment shall be subject to documentary stamp tax imposed under Section 176 of the Tax Code of 1997. Upon presentment of proof of payment of the documentary stamp tax, the Corporate Secretary of UBS Warburg shall register in the Stock and Transfer Book the transfer of shares from UBS International to UBS AG Zurich. This ruling is issued on the basis of the foregoing facts as represented. Thus, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be rendered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service