ITAD Ruling No. 026-02

March 7, 2002 ITAD RULING NO. 026-02 RP-Netherlands tax treaty Art. 13 Tax Code of 1997 Sec. 176 BIR Ruling No. ITAD-72-01 Quisumbing Torres Attorneys at Law 11th Floor, Pacific Star Building Makati cor. Sen. Gil J. Puyat Ave. 1299 Makati City Attention: Atty. Dennis G. Dimagiba Atty. Prudence A. Kasala Gentlemen : This refers to your letter dated December 19, 2001, on behalf of your client, Pillsbury Philippines, Inc. (PPI), requesting confirmation of your opinion that any gains realized by Selviac Nederland B.V. (Selviac) from the sale of its shares of stock in the following domestic companies: 1. Pillsbury Philippines Inc. (PPI), now known as Pillsbury Philippines International, Inc.; 2. Pillsbury Pure Foods Company, Inc. (PPFCI), now known as Pillsbury Philippines, Inc. and 3. HD Marketing and Distribution Philippines, Inc. (HDMD) to General Mills International Holdings LLC (GMIH) shall not be subject to Philippine income tax pursuant to the RP-Netherlands tax treaty. It is represented that Selviac is a corporation duly organized and existing under the laws of the Netherlands with principal business address at 36 Kabelweg, Amsterdam, The Netherlands 1014BA; 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 September 26, 2001; that GMIH is a corporation duly organized and existing under the laws of the United States of America; that PPI, PPFCI and HDMD are domestic corporations duly organized and existing under Philippine laws; that Selviac is the duly registered stockholder of record and owns one hundred percent (100%) of the outstanding capital stock of PPI and PPFCI, equivalent to eighty thousand (80,000) shares of stock, six (6) of which are nominal shares, and two hundred thousand (200,000) shares of stock, five (5) of which are nominal shares, both with a par value of One Hundred Pesos (P100.00) per share; that Selviac is also the duly registered stockholder of record and owns fifty percent (50%) of the outstanding capital stock of HDMD, equivalent to sixty thousand (60,000) shares of stock, four (4) of which are nominal shares, with a par value of Five Hundred Pesos (P500.00) per share; that on October 31, 2001, by virtue of the three Deeds of Assignment executed by Selviac and GMIH, Selviac ceded, transferred, and assigned to GMIH its right, title and interest in the aforementioned shares; including its nominal shares, in PPI, PPFCI, and HDMD; that Selviac's nominees will continue to serve in their new capacity as nominees of GMIH; and that on November 5, 2001, documentary stamp tax (DST), amounting to Four Hundred Five Thousand Pesos (P 405,000.00) on the transfer of the said shares were paid to Revenue District Office (RDO) No. 39 of the Bureau of Internal Revenue. In reply, please be informed that 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) 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." (Emphasis supplied) "xxx xxx xxx" It is clear from the aforequoted provisions of the said treaty that the capital 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 above transfer of shares of stocks is not among those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by Selviac from the transfer of its shares of stock in PPI, PPFCI and HDMD 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. (BIR Ruling No. ITAD-72-01 dated August 29, 2001) However, a certificate of authority to register the said transaction in the books of PPI, PPFCI and HDMD must be secured. Thus, Selviac, 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 Informal Capital Contribution Agreement and this ruling, with RDO No. 39-South-Quezon City, in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of Selviac. Finally, the three Deeds 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 PPI, PPFCI and HDMD shall register in the Stock and Transfer Book the shares from Selviac to GMIH. This ruling is issued on the basis of the foregoing facts as represented. 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