ITAD Ruling No. 113-00

August 28, 2000 ITAD RULING NO. 113-00 RP-UK-Article 12 NIRC Sec. 28 Sec. 127 Sec. 176 011-82 ITAD 44-00 17-99 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: J . A . Osana Tax Division Gentlemen : This refers to your letter dated June 5, 2000 requesting, on behalf of Philippine Shell Petroleum Corporation (PSPC), confirmation that pursuant to RP-UK tax treaty, the sale by Shell Petroleum Corporation (SPCO) of shares of stock of PSPC, whether through or outside the facilities of the Philippine Stock Exchange is exempt from capital gains tax imposed under Section 28(B)(5)(c) and from the stock transaction tax imposed under Section 127(A), but subject to documentary stamp tax imposed under Section 176, all of the 1997 Tax Code. It is represented that SPCO is a corporation duly organized and existing under the laws of United Kingdom, with office address at Shell Center London, SEI 7NA; that it is not registered as a corporation or partnership in the Philippines, as per certification dated May 31, 2000 issued by the Securities and Exchange Commission; that PSPC is a corporation duly organized and existing under the laws of the Philippines; that SPCO was the registered owner of Four Hundred Sixty Three Million Nine Hundred Eighty Eight Thousand Nine Hundred Ninety Eight (463,988,998) shares in PSPC, including seven (7) shares in the name of nominees, with a par value of P1.00 per share, with an aggregate value of Four Hundred Sixty Three Million Nine Hundred Eighty Eight Thousand Nine Hundred Ninety Eight pesos (P463,988,998); that PSPC is required to offer at least ten percent (10%) of its common stock to the public by virtue of the Republic Act No. 8479, Section 22, otherwise known as the Downstream Oil Industry Deregulation Act of 1998; and that in compliance thereof, PSPC is planning to sell its common shares of stocks with a par value of P1.00 per share, either, by primary offering (involving unissued common shares of stock) or by secondary offering (involving outstanding common shares of stock). In reply, please be informed that Article 12 of the RP-UK 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. AHDcCT 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 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 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 that 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 SPCO, which is a resident of the United Kingdom (UK), from the assignment of its shares of stock to PSPC are not subject to the capital gains tax imposed under Section 28(B)(5)(c), but are subject to tax only in UK. (BIR Ruling No. 011-82) However, a certificate of authority to register the said transaction in the books of PSPC must be secured. Thus, SPCO, being a nonresident foreign corporation, is not required to pay the capital gains tax, but is required to file a Capital Gains Tax Return (BIR Form No. 1707) accompanied by copies of the Deed of Assignment and this ruling, with Revenue District Office No. 51 Pasay (RDO) 51), in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of PSPC. aATHIE Moreover, notwithstanding this exemption, the sale of shares of stock is subject to the documentary stamp tax in accordance with Section 176 of the Tax Code of 1997. Upon presentment of proof of payment of the documentary stamp tax, the Corporate Secretary of PSPC can register in the Stock and Transfer Book the shares from SPCO to whoever the buyer is. This ruling is being 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. (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group