ITAD Ruling No. 044-00

2000 ITAD RULING NO. 044-00 Mr. Wilfrido L. San President Anscor Insurance Brokers, Inc. Penthouse, Manila Bank Building # 6772 Ayala Avenue, Makati City 1229 S i r : This refers to your letter dated November 18, 1999 requesting, on behalf of Aon Overseas Holding, Ltd. (AON), for the issuance of a tax clearance or exemption certificate in connection with the assignment of AON of its common shares to Anscor Insurance Brokers, Inc.(AIB), pursuant to the RP-UK Tax Treaty. llcd It represented that AON is a corporation duly organized and existing under the laws of Great Britain, with office address at 6 Braham Street, London E1 8ED, and having no permanent establishment in the Philippines, as per certification dated August 24, 1999 issued by the Securities and Exchange Commission; that AIB is a corporation duly organized and existing under the laws of the Philippines; that AON was the registered owner of 50,000 shares of the capital stock issued by AIB; that on February 9, 1999, AON and AIB executed a Deed of Assignment whereby AON, as assignor, agreed to transfer, assign and convey all of its rights, title and interest over the said 50,000 shares to AIB; that as consideration for the assignment of the said shares, AIB paid AON the amount P5,064,000.00; and that the said transaction resulted in the redemption of the said shares by AIB. Based on the foregoing representation, it is your opinion that the said assignment of shares of stock by AON to AIB is not subject to the Philippine capital gains tax under the Tax Code of 1997, pursuant to Article 12 paragraph 4 of the RP-UK Tax Treaty. In reply, please be informed that Article 12 of the RP-UK Tax Treaty provides as follows: "Article 12 " Gain 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 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. LibLex "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. "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. xxx xxx xxx" It is clear from the aforequoted provision that the capital gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of Article 12 shall be taxable only in the State where the alienator is a resident. Inasmuch as the assignment or transfer of the subject shares of stock is not among those mentioned in said paragraphs 1, 2 and 3, the gains derived by AON, which is a resident of the United Kingdom (UK), from the assignment of its shares of stock to AIB are not subject to the capital gains tax imposed under Section 28 (B)(5)(c), but are subject to tax only in UK. (BIR Ruling No. 011-82) However, a certificate of authority to register the said transaction in the books of AIB must be secured. Thus, AON, being a nonresident foreign corporation, is required to file, but is 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. 51 - Pasay (RDO 51), in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of AIB. Moreover, Section 176 of the National Internal Revenue Code of 1997 (Tax Code) 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." LexLib 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 Philippines 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, both parties to the contract may be made liable to the tax. In view of the foregoing and based on the Deed of Assignment, 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 AIB in accordance with the provisions of the Tax Code. However, upon failure of AIB to do the same, AON may also be held liable to the tax. Upon presentment of proof of payment of the documentary stamp tax, the Corporate Secretary of AIB can register in the Stock and Transfer Book the shares from AON to AIB. This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. cdll Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group