SyCip Salazar Hernandez & Gatmaitan

December 23, 1999 ITAD RULING NO. 052-99 RP-US Article 14 UN-074-2-22-95 SyCip Salazar Hernandez & Gatmaitan 105 Paseo de Roxas, City of Makati, 1226 Metro Manila Attention: Ernesto S . Taio, Jr . and June Vee D . Monteclaro Gentlemen : This refers to your letter dated September 3, 1999 applying on behalf of your client, CIGNA International Holdings, Ltd. (CIHL) for tax exemption on any gain that it may derive from its sale of shares of stocks in a domestic corporation to CIGNA Global Holdings, Inc. (CGHI),pursuant to the provisions of Article 14, paragraph (2) of the RP-US Tax Treaty. LibLex It is represented that CIHL is a corporation organized and existing under the laws of the United States and is not licensed to do business in the Philippines as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission dated August 24, 1999; that CGHI is a corporation also organized and existing under the laws of the United States and is not licensed to do business in the Philippines as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission dated August 24, 1999: that Philippine Health Care Providers, Inc. (the "Corporation") is a corporation organized and existing under Philippine laws; that CIHL owned 59,996 shares in the Corporation with a par value of P100.00 each; that the shares owned by CIHL are broken down as follows: 59,995 shares represented by stock certificate no. 080 and a qualifying share held in trust by an individual stockholder for CIHL represented by stock certificate no. 087; that on July 2, 1999, CIHL transferred the 59,995 shares owned by it in favor of CGHI and the one (1) share held in trust by Peter Charles O'Connor transferred to Robert S. Fry. In reply, please be informed that Article 14 of the RP-US Tax Treaty, states: "ARTICLE 14 "(1) Gains from the alienation of tangible personal (movable) property forming part of the business property of a permanent establishment which a resident of a Contracting State has in the other Contracting State or of tangible personal (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 independent personal 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. However, gains derived by a resident of a Contracting State from the alienation of ships, aircraft or containers operated by such resident in international traffic shall be taxable only in that State, and gains described in Article 13 (Royalties) shall be taxable only in accordance with the provisions of Article 13. cdll "(2) Gains from the alienation of any property other than those mentioned in paragraph (1) or in Article 7 (Income from Real Property) shall be taxable only in the Contracting State of which the alienator is a resident. On the other hand, the Reservation Clause of the RP-US Tax Treaty, in pertinent part, provides: "Article I (1) Notwithstanding the provisions of Article 14 relating to capital gains, both the United States and the Philippines may tax gain from the disposition of an interest in a corporation if its assets consists principally of real property interest located in that country. Likewise, both countries may tax gain from the disposition of an interest in a partnership, trust or estate to the extent that the gain is attributable to a real property interest in one of the countries. The term real property interest is to have the meaning it has under the law of the country in which the underlying real property is located. Note that under the Reservation Clause, the Philippines may tax the gains derived from the disposition of interests in a corporation if its assets consist principally of real property interest located in the Philippines. "Principally" means more than 50% of the entire assets in terms of value (Sec. 2, Revenue Regulations No. 4-86). The value of the real property interest of the Corporation located in the Philippines as appearing in its financial statements as of December 31, 1998 is only 21%,which is less than 50% of the value of its total assets. Such being the case, the gains which will be realized by CIHL from the sale of its shares of stock in the "Corporation" to CGHI shall be taxable only in the United States pursuant to the aforequoted provision of the RP-US Tax Treaty. Said gain will not be subject to Philippine income tax. This ruling is being issued on the basis of the foregoing facts as represented and will be considered null and void if upon investigation it will be disclosed that the facts are different. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group