ITAD Ruling No. 041-00

February 10, 2000 ITAD RULING NO. 041-00 Art. 13, RP-Netherlands Tax Treaty ITAD 17-99 Picazo Buyco Tan Fider & Santos 8th, 6th and 4th Floors Singapore Airlines Bldg. 138 H.V. Dela Costa St. Salcedo Village, Makati City Attention: Atty . Gemma M . Santos M a d a m : This refers to your letter dated October 15, 1999 requesting a ruling to the effect that sale by Holland Pacific B.V. (HPBV) of it shares of stock in Metro Pacific Asset Holdings, Inc. (MPAH) and Metro Pacific Holdings, Inc. (MPHI), formerly F.P. Metro Holdings, Inc., is not subject to capital gain tax in the Philippines pursuant to RP-Netherlands Tax Treaty. cdlex It is represented that HPBV is a non-resident foreign corporation duly organized and existing under the laws of the Netherland; that HPBV is not registered as a corporation or a partnership in the Philippines per Securities and Exchange Commission certification dated October 12, 1999; that HPBV owns Two Million Four Hundred Thirty Six Thousand One Hundred Sixty (2,436,160) common shares of MPHI, a Philippine Corporation, having a par value of one hundred pesos (P100) per share and comprising 26.71% of the outstanding capital stock of MPHI; that HPBV acquired the MPHI shares by way of subscription out of an increase in authorized capital stock of MPHI; that HPBV likewise owns One Hundred Million ( 100,000,000) common shares of MPAH, having a par value of (P1.00) per share and comprising 40% of the outstanding capital stock of MPAH ; that on December 01, 1999 HPBV sold all of its shareholdings in MPHI and MPAH (collectively, the subject shares) to Intalink B.V. a corporation duly organized and existing under the laws of Netherlands. 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 based 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 or 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." LibLex It is clear from the aforequoted provisions of the RP-Netherlands Tax Treaty that 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 HPBV from the sale of its shares of stock in MPHI and MPAH, shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax Code, as amended, but are subject to tax only in the Netherlands. However, the said sale by HPBV to Intalink B.V. is subject to documentary stamp tax in accordance with Section 176 of the Tax Code; as amended. This ruling is being issued on the basis of the foregoing facts as represented, However, if upon investigation, it will be discovered that the facts are different, then this ruling shall be considered null and void. cdlex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group