ITAD Ruling No. 095-01

October 19, 2001 ITAD RULING NO. 095-01 RP-UK Tax Treaty Article 12 Sec. 176 of the 1997 Tax Code BIR Ruling No. 011-82 BIR Ruling No. ITAD 44-00 Punongbayan and Araullo 20th Floor, Tower I The Enterprise Center 6766 Ayala Avenue, Makati City 1200 Attention: Vic C. Mamalateo Tax Partner Gentlemen : This refers to your letter dated March 14, 2001, requesting confirmation of your opinion that sale/transfer by Foseco Transnational Ltd. (Foseco) of its shareholdings in Burmah Castrol Philippines, Inc. (BCPI) to Castrol Ltd. (Castrol) is not subject to Philippine income tax pursuant to the RP-United Kingdom Tax Treaty. It is represented that Foseco and Castrol are corporations organized and existing under the laws of United Kingdom with the same business address at Burmah Castrol House, Piper's Way, Swindon, Wiltshire SN3 1RE, United Kingdom; that Foseco 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 February 28, 2001; that BCPI is a corporation organized and existing under Philippine laws with office address at 2nd Floor, Adamson Centre, 121 Leviste Street, Salcedo Village, Makati City; that as of December 31, 2000, BCPI has a total subscribed and paid-up capital of P105,000,000.00 consisting of 1,050,000 shares broken down as follows: NAME NO. OF SHARES Foseco Transnational Ltd. 1,049,995 Michael D. Miller 1 Danieper Carlos 1 Chris Bennett 1 Eusebio V. Tan 1 Ma. Velia C. Sulit 1 that on February 22, 2001, Foseco and Castrol executed a Share Transfer Agreement for the transfer of the 1,049,995 shares of stocks in BCPI from Foseco to Castrol; that in consideration of the said transfer, the sum of 2,277,582 shall be paid as a non-interest bearing intercompany loan by Foseco to Castrol; that the assets of BCPI located in the Philippines do not consist principally of immovable property as shown in its latest Audited Financial Statements for the year ended December 31, 1999. In reply, please be informed that Article 12 of the RP-United Kingdom Tax Treaty provides as follows: "Article 12 "GAINS FROM THE ALIENATION OF PROPERTY "1. Capital gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, may be taxed in the Contracting State in which such property is situated. "2. Capital gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State of 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 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 of this Article, capital gains derived by a resident of a Contracting State from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft shall be taxable only in that Contracting State. "4. Capital gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of this Article shall be taxable only in the Contracting State of which the alienator is a resident. xxx xxx xxx It is clear from the aforequoted provision that the capital gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of Article 12 shall be taxable only in the State where the alienator is a resident. Inasmuch as the assignment or transfer of the subject shares of stock is not among those mentioned in said paragraphs 1, 2 and 3, the gains derived by Foseco, which is a resident of the United Kingdom (UK), from the sale/transfer of its shares of stock to Castrol are not subject to the capital gains tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997, but are subject to tax only in UK. (BIR Ruling 011-82) However, a certificate of authority to register the said transaction in the books of BCPI must be secured. Thus, Foseco, being a non resident 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 said Agreement and this ruling, with Revenue District Office No. 51-Pasay City (RDO 51), in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of Castrol. (BIR Ruling No. ITAD 44-00) Moreover, notwithstanding this exemption, the said Agreement shall be subject to the 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 BCPI shall register in the Stock and Transfer Book the shares from Foseco to Castrol. This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it will be disclosed that the actual facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service