ITAD Ruling No. 106-02

May 28, 2002 ITAD RULING NO. 106-02 Art. 13, RP-Singapore Tax Treaty BIR Ruling DA-ITAD 101-01 Sycip, Salazar, Hernandez & Gatmaitan SYCIPLAW-All Asia Capital Center 105 Paseo de Roxas, Makati City Attention: Mr. Hector M. de Leon, Jr. Mr. Benedicto P. Panigbatan Gentlemen : This refers to your letter dated March 4, 2002, requesting confirmation of your opinion to the effect that the gains derived by EBWORX, LTD. (Ebworx Singapore) from the transfer of its shares in EBWORX PHILIPPINES, INC. formerly "Solutions Exchange, Inc.," (Ebworx Philippines) to MS. REMEDIOS M. CAMERINO are not subject to capital gains tax pursuant to the RP-Singapore tax treaty. It is represented that Ebworx Singapore is a corporation duly organized under the laws of Singapore with business address at 36 Robinson Road, #18-01 City House, Singapore; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated January 15, 2002; that it is the registered owner of One Hundred Thirty Two Thousand Six Hundred (132,600) shares of stock in Ebworx Philippines; that Ebworx Philippines is a domestic corporation with business address at Unit 2501, 25/F Antel Corporate Center, 139 Valero St., Salcedo Village, Makati City; and that on January 7, 2002, by virtue of the Deed of Absolute Sale of Shares of Stock executed by Ebworx Singapore and Ms. Remedies M. Camerino, Ebworx Singapore sold, transferred and conveyed to Ms. Camerino the total of 132,600 shares of stock with a par value of Philippine Pesos: Twenty (PhP20.00) per share for and in consideration of the sum of Singapore Dollars: One Million Eighty Nine Thousand Seven Hundred Eighty and 75/100 (S$1,089,780.75). In reply, please be informed that Article 13 of the RP-Singapore tax treaty provides as follows: "Article 13 GAINS FROM THE ALIENATION OF PROPERTY 1. Gains from the alienation of immovable property may be taxed in the Contracting 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 a Contracting State has in the other Contracting State or 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 permanent establishment (alone or together with the whole enterprise) or of such a fixed base may be taxed in the other State. However, gains derived by an enterprise 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 or aircraft, shall be taxable only in that State. 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. 4. Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident. (emphasis supplied) xxx xxx xxx" Based on the foregoing, the gains realized by Ebworx Singapore from the transfer of its shares of stock in Ebworx Philippines to Ms. Camerino are generally taxable in Singapore. However, under the aforequoted provision of paragraph 3 supra , the Philippines may tax the gains derived from the disposition of interest in a corporation if its entire assets consist principally of real property interest located in the Philippines. "Real Property Interest" means interest on properties enumerated in Section 3 of the Revenue Regulations No. 4-86 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. Moreover, "Principally" meals more than 50% of the entire assets in terms of value (Section 2(a) and (b), Revenue Regulations No. 4-86). Verification of the audited Financial Statements as of December 31, 1999, 2000 and 2001 of Ebworx Philippines disclosed that it has no real property interest located in the Philippines, thereby making the assets of Ebworx Philippines not principally consisted of real property interest located in the Philippines. Consequently, this Office is of the opinion and so holds that the gains derived by Ebworx Singapore shall be taxable only in Singapore since, pursuant to paragraph 4 of the said Article, "any capital gains from the alienation of any property, other those mentioned in paragraphs 1, 2 and 3 of Article 13 of the RP-Singapore tax treaty shall be taxable only in the Contracting State of which the alienator is a resident." (BIR Ruling No. ITAD 101-01 dated October 26, 2001) However, the transfer of stocks of Ebworx Philippines by Ebworx Singapore to Ms. Camerino shall be 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 facts as represented. However, if upon investigation it shall 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service