ITAD Ruling No. 036-01

March 21, 2001 ITAD RULING NO. 036-01 Article 13, RP-Netherlands Tax Treaty BIR Ruling No. 195-90 Law Office of A . M . Sison, Jr . & Associates Suite 2002-A Security Bank Centre 6776 Ayala Avenue, 1226 Makati City Attention: Antonio L . Cardio Gentlemen : This refers to your application for relief from double taxation dated February 12, 2001, filed on behalf of your client, CC AMATIL NETHERLANDS BV (CCAN), requesting for a ruling that the gains, if any, that CCAN may realize from the redemption/buyback by Coca Cola Bottlers Philippines, Inc. (CCBPI) of a portion of its outstanding common shares held by CCAN, and from the sale of CCAN of its remaining holding of common shares of CCBPI to San Miguel Corporation (SMC) or any of its subsidiaries or affiliates and to The Coca Cola Company (TCCC) or any of its subsidiaries or affiliates, may be taxed only in Netherlands, pursuant to Article 13 of the RP-Netherlands Tax Treaty. It is represented that CCAN is a corporation duly organized and existing under the laws of Netherlands with principal office at 101 CG Amsterdam, Herengracht 548, Netherlands; that it has no permanent establishment or fixed base in the Philippines; that it is not registered as a corporation / partnership licensed to do business in the Philippines, as per certification dated February 23, 2001 issued by the Securities and Exchange Commission; that it currently owns 1,480,337 common shares of CCBPI, including qualifying shares in the names of director nominees; that said shares have a par value of P1,000 per share or a total par value of P1,480,337,000.00; that of these common shares, 1,371,300 shares were purchased by CCAN for A$2,582,800,000 from Coca Cola Amatil Limited (CCA), a corporation organized in and a resident of Australia; that of the 1,371,300 shares, 1,350,000 shares were acquired by CCA in a share swap transaction; that the other 109,037 common shares were acquired by CCAN through direct subscription to the increase in authorized capital stock of CCBPI at the subscription price of A$215,000,000; that CCAN paid a total amount of A$2,797,800,000 for its shares in CCBPI; that CCBPI is a corporation duly organized and existing under the laws of the Philippines, with principal office at Feliza Building, 108 Herrera St., Legaspi Village, Makati City; that it is engaged in the business of manufacturing and wholesaling of non-alcoholic beverages; and that its total assets in the Philippines do not consist "wholly" or "principally" of real or immovable property; that as part of its plan to restructure its capital stock, CCBPI is contemplating on redeeming certain number of shares held by CCAN with market value in Australian Dollars as of the date of said redemption equivalent to CCBPI unrestricted retained earnings converted into Australian Dollars also as of the date of redemption; that the exact number of shares is not determinable at present as it will depend upon a number of variables which at the date of this request are not known with certainty; that the variables referred to include the amount of unrestricted retained earnings in CCBPI at the date of the redemption and the Australian Dollar/Philippine Peso; and that the principles to be applied in working out the number of shares are as follows: (1) the shares will be bought back at market value, (2) the total amount of buyback proceeds will be the amount of unrestricted retained earnings at the date of the buyback, and (3) the actual buyback proceeds will be paid in Australian Dollars. In reply, please be informed that Article 13 of the RP-Netherlands Tax Treaty provides as follows, to wit: "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. "5. The provisions of paragraph 4 shall not affect the right of each of the States to levy according to its domestic law a tax on gains from the alienation of any property derived by an individual who is a resident of the other State and has been a resident of the first-mentioned State at any time during the six years immediately preceding the alienation of the property. It is clear from the aforequoted provisions 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 sale of shares of stock is not among those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by CCAN from the sale of its shares of stock in CCBPI shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the National Internal Revenue Code (Tax Code) of 1997, but are subject to tax only in The Netherlands. (BIR Ruling No . 195-90 dated October 9, 1990) Moreover, Section 176 of the Tax Code of 1997 provides, viz : "SEC. 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock . On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of obligation, or shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any due-bill, certificate of obligation or stock, there shall be collected a documentary stamp tax of One peso and fifty centavos (P1.50) on each Two hundred pesos (P200), or fractional part thereof of the par value of such due-bill, certificate of obligation or stock: Provided, That only one tax shall be collected on each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said stock." IaHCAD The same Code provides that the corresponding documentary stamp taxes shall be levied, collected and paid, for and in respect of the transactions so had or accomplished, by the person making, signing, issuing, accepting, or transferring the document, instrument or paper wherever the same is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines. Thus, the burden of paying the documentary stamp tax is placed upon the parties to the contract and leaves the tax to be paid indifferently by either party, and accordingly, the party assuming payment of said tax under the contract becomes directly liable therefor. But if for one reason or another, the said tax is not paid, either party to the contract may be made liable to the tax. In view of the foregoing, the documentary stamp tax (including penalties thereto, if there are any) on the said transaction must be paid and the corresponding return thereon be filed by either of the parties to the transaction in accordance with the provisions of the Tax Code of 1997. This ruling shall be without force and effect unless and until an actual agreement or contract, which stipulations are found to be consistent with the representations made herein, has been entered into by the parties involved. Thus, upon reaching a binding agreement or contract between and among the parties in this case, the instrument must be presented to the International Tax Affairs Division of this Bureau within 15 days from its due execution for verification whether the representations made herein upon which this ruling is based are consonant with the actual facts of the transaction. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue