ITAD Ruling No. 072-01

August 29, 2001 ITAD RULING NO. 072-01 RP-Netherlands Tax Treaty Art. 13 Tax Code of 1997 Sec. 176 BIR Ruling No. ITAD-41-00 BIR Ruling No. ITAD-44-00 DA-ITAD - 072-01 Punongbayan & Araullo The Enterprise Center 6766 Ayala Avenue 1200 Makati City Attention: Atty. Vic C. Mamalateo Tax Partner Gentlemen : This refers to your letter dated May 25, 2001 on behalf of your client, Compaq Computer International B.V. (CCIBV), requesting confirmation of your opinion that any gain it may derive from the transfer of its shares of stock in Compaq Computer Philippines Incorporated (CCPI) to its affiliate company, Compaq Computer (The Hague) B.V. (CCBV The Hague) shall be exempt from tax in the Philippines. It is represented that CCIBV is a corporation duly organized and existing under the laws of the Netherlands with business address at St. Teusnismolenweg 15, 6534 AG Nijimegen, The Netherlands; that it is not registered as a corporation or partnership licensed to do business in the Philippines as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission dated May 22, 2001; that CCIBV is a registered owner of 615,195 shares in CCPI, a domestic corporation with office address at 15th Floor, Citibank Tower Valero cor. Villar Sts., Salcedo Village, Makati City; that pursuant to a global restructuring being undertaken by the Compaq Group of Companies, CCIBV executed a contract denominated as Informal Capital Contribution Agreement dated December 19, 2001 transferring all of all its shares in CCPI to CCBV The Hague; and that on May 15, 2001, the documentary stamp tax due on the transaction amounting to Six Hundred Nine Thousand Five Hundred Five Pesos and 6/100 (P609,505.06) was paid (inclusive of surcharge and other charges). In reply, please be informed that Article 13 of the RP-Netherlands Tax Treaty provides as follow: "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. ISaTCD xxx xxx xxx It is clear from the aforequoted provisions of the RP-Netherlands Tax Treaty 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 transfer of shares of stocks is not among those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by CCIBV from the transfer of its shares of stock in CCPI shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax Code of 1997 but are subject to tax only in the Netherlands. (BIR Ruling No. ITAD-41-00) However, a certificate of authority to register the said transaction in the books of CCPI must be secured. Thus, CCIBV, being a nonresident foreign corporation, is required to file, although not required to pay the capital gains tax, a Capital Gains Tax Return (BIR Form No. 1707) accompanied by copies of the Informal Capital Contribution Agreement and this ruling, with Revenue District Office No. 39 South Quezon City (RDO 39), in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of CCIBV. Moreover, the Informal Capital Contribution Agreement shall be subject to documentary stamp tax imposed under Section 176 of the Tax Code of 1997. Upon presentment of proof of payment of the documentary stamp tax, the Corporate Secretary of CCPI shall register in the Stock and Transfer Book the shares from CCIBV to CCRV The Hague. This ruling is 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 rendered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group