ITAD Ruling No. 105-01

October 29, 2001 ITAD RULING NO. 105-01 RP-Singapore Unnumbered Ruling dtd. April 19, 1999 Mr. J. A. Osana Partner Tax Division SGV & CO. 6760 Ayala Avenue 1226 Makati City Gentlemen : This refers to your letter dated May 8, 2000 requesting for a modification of the unnumbered BIR Ruling dated April 19, 1999, signed by the Commissioner of Internal Revenue, confirming your opinion that the sale by First Capital Assets (Pte) Ltd. (FCAL) of Singapore of its shares in First Capital Assets (Phils.) Inc. (FCAPI), [now Guoco Assets Phils., Inc. (GAPI),] to Guoco Group Limited (GGL) is not subject to capital gains tax. The requested modification of the ruling is to the effect that the sale of the GAPI shares is made in favor of Guoco Assets Pte., Ltd. (GAPL) and not Guoco Group Limited (GGL) of Bermuda, which is merely an agent of GAPL. It is represented that FCAL is a non-resident foreign corporation organized and existing under the laws of Singapore with office address at 20 Collyer Quay #11-01, Tung Centre, Singapore; that FCAL does not have a permanent establishment or fixed base in the Philippines; that GAPI is a domestic corporation duly organized under Philippine laws with address at 17/F BA-Lepanto Building, 8747 Paseo de Roxas, Makati City; that GAPI is a wholly-owned subsidiary of FCAL with a subscribed and paid-up capital of 1,210,000 shares having an aggregate par value of P121,000,000.00; that GAPL is a corporation organized under the laws of Singapore whose parent company is GGL, a corporation organized under the laws of Bermuda; that GGL and GAPL entered into a Memorandum of Understanding whereby the parties agreed that GGL shall negotiate and sign, for and on behalf of GAPL, for the purchase of the entire shareholdings of FCAL in GAPI; that by virtue of the Sale and Purchase Agreement executed on July 24, 1992 between FCAL and GGL, the former conveyed and transferred to the latter its 1,210,000 shares for a consideration of US$8,600,000.00, that at the time of transfer of shares from FCAL to GGL, the assets of GAPI do not consist principally of real property interest located in the Philippines (per June 30, 1992 Audited Financial Statement, the total assets of GAPI is P360,484,236.00 which consisted of Cash, Accounts Receivable, and Investments in the amount of P13,289,666.00, P95,000.00 and P347,099,795.00 respectively, clearly showing that GAPI has no real property interest located in the Philippines); and that GAPL is the real and actual buyer of the GAPI shares and that GGL merely acted as an agent for GAPL. In reply, please be informed that Article 13, paragraph 3 of the RP-Singapore tax treaty, provides as follows, viz : "Article 13 "Gains from the Alienation of Property "(1) . . . "(2) . . . "(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." (Emphasis supplied) Moreover, in implementing the above tax treaty provision, Revenue Regulations (RR) No. 4-86 provides: "Section 1. Objective Under Philippine Tax Treaties, capital gains derived by residents of the other Contracting State from the disposition of a share or of an interest in a Philippine Corporation are taxable in the Philippines only if the assets of such corporation consists principally of real property interest located in the Philippines . . . (Emphasis supplied) "Section 2. Definitions for purposes of this regulation, the following terms and phrases shall be understood to mean "(a) ' Real Property Interest ' interests on properties enumerated in Section 3 which are not, however, exclusive of others that are similarly situated, As used in the treaties and in this 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 fifty percent of the entire assets in terms of value ; . ." (Emphasis supplied) Verification of the documents presented which consisted among others of the affidavit executed by the Corporate Secretary of FCAPI/GAPI, Ms. Daisy L. Parker, together with the relevant documents referred therein, disclosed that GGL acted merely as an agent of GAPL. In view of the foregoing and considering that the property of GAPI does not consist principally of immovable property, the sale by FCAL of its shares in FCAPI (now GAPI) to GAPL (the principal buyer as represented by GUOCO) is not subject to capital gains tax, pursuant to Article 13 of the RP-Singapore Tax Treaty. However, the Sale and Purchase Agreement is subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1977, as amended. Thus, the above stated unnumbered BIR Ruling dated April 19, 1999 is hereby modified accordingly. This ruling is issued on the basis of the foregoing facts as presented. However, if upon investigation it shall 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