ITAD Ruling No. 050-01

May 28, 2001 ITAD RULING NO. 050-01 Art. 13, RP-Netherlands ITAD-41-00 Punongbayan & Araullo 20th Floor, Tower I The Enterprise Center 6766 Ayala Avenue, Makati City Attention: Atty . Marivic C . Espaa Tax Partner Gentlemen : This refers to your letter dated March 13, 2001 requesting confirmation of your opinion that the gains realized from the sale of shares of stock in Blue Circle Philippines, Inc. (BCPI) by Blue Circle International Investments, BV (BCII) to its affiliate company, Blue Circle Global Investment Ltd. (BCGI) are not subject to capital gains tax pursuant to the RP-Netherlands Tax Treaty. CAcIES It is represented that BCII is a non-resident foreign corporation organized and existing under the laws of The Netherlands with principal office in Leidercorp (2351 AJ) The Netherlands, Hoofdstraat 2; that it is not registered as a corporation/partnership licensed to do business in the Philippines as per certification issued by the Securities & Exchange Commission dated February 28, 2001; that BCGI is a non-resident foreign corporation organized and existing under the laws of England with registered office at 84 Eccleston Square, London SW IV PX, United Kingdom; that BCPI is a corporation organized and existing under Philippine laws with principal office at 9th Floor 1004 Antel Corporate Center, 139 Valero Street, Salcedo Village, Makati City; and that on October 17, 2000, BCII executed a Share Transfer Agreement of its 52,581 shares of stock in BCPI in favor of BCGI for and in consideration of the amount of 2,275,748 (NLG5,051,089) 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 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 Based on the aforequoted provisions of the RP-Netherlands Tax Treaty, capital gains from the alienation of 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 alienation of shares of stock is not among those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by BCII, a resident of The Netherlands, from the sale of its shares of stock in BCPI to BCGI are taxable only in The Netherlands and therefore exempt from the capital gains tax imposed under Section 28(b)(5)(c) of the Tax Code of 1997. (ITAD 41-00 dated February 10, 2000) However, the said Share Transfer Agreement evidencing the sale shall be subject to documentary stamp tax in accordance with Section 176 of the Tax Code of 1997. This ruling is 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group