ITAD Ruling No. 066-01

August 15, 2001 ITAD RULING NO. 066-01 Article 13 Philippines-Netherlands Tax Treaty BIR Ruling No. ITAD 11-01 DA-ITAD 066-01 Picazo Buyco Tan Fider & Santos Law Offices 4th 6th and 8th Floors, Singapore Airlines Building 138 H.V. dela Costa Street Salcedo Village, Makati City Attention: Atty . Charlie C . Yalung Atty . Rodell A . Molina Gentlemen : This refers to your letter dated May 18, 2001 requesting confirmation of your opinion that the sale by IRR Exhibitions Holdings B.V. (IIR Holdings) of its shares of stock in IIR Exhibitions Philippines Inc. (IRR Philippines) to the Institute for International Research (IIR) B.V. (Institute) is exempt from capital gains tax imposed under Section 25(B)(5)(c) of the National Internal Revenue Code of 1997 (NIRC of 1997) , pursuant to Article 13 (Gains from the Alienation of Property) of the Philippines-Netherlands Tax Treaty. It is represented that IIR Holdings and the Institute are companies organized and registered under the laws of the Netherlands with the same registered office at Strawinskylaan 335, 1077XX Amsterdam, Netherlands; that IIR Holdings is not registered as a corporation or partnership licensed to do business in the Philippines as per certification issued by the Securities and Exchange Commission dated April 3, 2001; that IRR Philippines is a company organized and registered under the laws of the Philippines with registered office at Antel 2000 Corporate Centre, 121 Valero corner Herrera Street, Salcedo Village, Makati City, Philippines; that, on December 22, 1999, a Sale and Purchase Agreement was entered into by and between IIR Holdings and the Institute wherein IIR Holdings in consideration of the amount of US$ 422,091.00, sold its 52,682 shares of stock in IIR Philippines to the Institute each share of stock having a par value of Ph P100.00. In reply, please be informed that Article 13 of the Philippines-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 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 It is clear from the aforequoted provisions 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 capital gains derived by IIR Holdings on the sale of its shares of stock in IRR Philippines to the Institute are not among those mentioned in the foregoing paragraphs, such gains shall be taxable only in the Netherlands, where the alienator is a resident, and, therefore, exempt from Philippine capital gains tax imposed under Section 25(B)(5)(c) of the NIRC of 1997 . (BIR Ruling No. ITAD 11-01 dated February 14, 2001.) Although the gains derived by IIR Holdings on the sale of its shares of stock in IIR Philippines to the Institute are exempt from capital gains tax, the sale, however, is subject to the documentary stamp tax imposed under Section 176 of the NIRC of 1997, 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 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." Moreover, Section 201 of the NI RC of 1997 mentions: "SEC. 201 Effect of Failure to Stamp Taxable Document . An instrument, document or paper which is required by law to be stamped and which has been signed, issued, accepted or transferred without being duly stamped, shall not be recorded, nor shall it or any copy thereof or any record of transfer of the same be admitted or used in evidence in any court until the requisite stamp or stamps shall have been affixed thereto and cancelled. xxx xxx xxx Since the corresponding documentary stamp tax on the transfer (including penalties thereon) amounting to PhP 63,193.65 was paid to the Bureau of Internal Revenue (Revenue District Office No. 39 South, Quezon City) on September 12, 2000 as evidenced by Development Bank of the Philippines (Quezon Avenue Branch) Official Receipt No. 2936341-00, the Corporate Secretary of IIR Philippines , upon a presentation to him of the Certificate Authorizing Registration, is authorized to record in the Stock and Transfer Book of IRR Philippines the transfer of IIR Philippines shares of stock from IRR Holdings to the Institute , cancel stock certificates previously issued to IIR Holdings , and issue new stock certificates in the name of the Institute . This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed 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