ITAD Ruling No. 069-01

August 16, 2001 ITAD RULING NO. 069-01 Art. 13, RP-Singapore; BIR Ruling No. ITAD-133-00; DA-ITAD 069-01 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated December 28, 2000 requesting for confirmation of your opinion that the gains derived from the sale of shares of stocks of Tetra Pak (Philippines), Inc. ("TPPI") by Tetra Pak Jurong Pte. Ltd. (Singapore) ("TP Jurong") to its parent company Tetra Pak International S.A. (Switzerland) ("TP Switzerland") are not subject to capital gains tax pursuant to the RP-Singapore Tax Treaty. It is represented that TP Jurong is a non-resident foreign corporation duly organized and existing under the laws of Singapore with principal office at 19 Gul Lane Singapore; that TP Jurong is not registered as a corporation/partnership licensed to do business in the Philippines per certification issued by the Securities & Exchange Commission dated December 11, 2000; that TPPI is a domestic corporation duly organized and existing under the laws of the Philippines with principal office at 16 Jupiter Street, Bel-Air, Makati City; that per certificate issued by the Corporate Secretary of TPPI, TP Jurong is the registered owner of 20,420 shares of stock of TPPI which constitutes 10 per cent of the outstanding capital stock thereof; that in December, 2000, TP Jurong transferred its 20,420 shares in TPPI in favor of TP Switzerland, a non-resident foreign corporation organized and existing under the laws of Switzerland, for and in consideration of P3,342,282 as evidenced by the Deed of Absolute Sale & Transfer dated December, 2000. In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty provides as follows: CcTHaD "ARTICLE 13 GAINS FROM THE ALIENATION OF PROPERTY xxx xxx xxx "3. Gains from the alienation of shares of a company, the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that State. Gains from the alienation of an interest in a partnership or a trust, the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that State. xxx xxx xxx Paragraph 3 of the aforequoted Article grants the Philippines the right to tax gains derived from the disposition of interest in a corporation if its assets consist principally of real property interests located in the Philippines. Section 2 of Revenue Regulations No. 4-86 provides guidance on the meaning of "consisting principally of real property interest": "SEC. 2. Definitions For purposes of these Regulations, the following terms and phrases shall be understood to mean (a) 'Real Property Interest' interest on properties enumerated in Section 3 which are not, however, exclusive of others that are similarly situated. As used in the treaties and in the Regulations, it shall be understood to include real properties as understood under Philippine Laws; (b) 'Principally, 'wholly or principally', 'directly principally' or 'attributable ' more than 50% of the entire assets in terms of value: xxx xxx xxx" Based on the Audited Financial Statements of TPPI ending December 31, 2000 and 1999, only six decimal point ninety eight per cent (6.98%) of the total assets thereof constitute immovable property. Hence, this Office confirms your opinion as it hereby holds that the gains realized by TP Jurong from the sale of its shares of stock in TPPI to TP Switzerland are not subject to Philippine income tax (BIR Ruling No. ITAD-133-00).1 Although exempt, the said sale, however, is subject to the documentary stamp tax imposed under 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