ITAD Ruling No. 118-00

August 29, 2000 ITAD RULING NO. 118-00 Article 13-RP-United Kingdom ITAD 41-00 Joaquin Cunanan & Co. 14th Floor Multinational Bancorporation Centre 6805 Ayala Ave., Makati City Attention: George J . Lavadia Principal Tax Corporate Services Gentlemen : This refers to your letter dated January 25, 2000, requesting for a confirmation of your opinion that sale/transfer by Biwater Overseas Limited (BOL) of its share holdings in Subic Water and Sewerage Company Inc., (SWSCI) to Biwater B.V. (BBV) is not subject to Philippine income/withholding tax pursuant to the RP-United Kingdom Tax Treaty. EcTDCI It is represented that BOL is a corporation organized and existing under the laws of United Kingdom; that SWSCI a corporation organized and existing under the laws of the Philippines, is 99% owned by BOL; that BOL is not registered as a corporation or partnership in the Philippines per Securities and Exchange Commission Certification dated March 22, 2000; that on October 19, 1999, BOL sold its shares in SWSCI to BBV, a corporation organized and existing under the laws of Netherlands, whose registered office is in Amsterdam. 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 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 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 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 alienation is a resident." It is clear from the aforequoted provisions of the RP-United Kingdom 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 sale of shares of stock is not among those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by BOL from the sale of its shares of stock in SWSCI shall not be subject to Philippine income tax imposed under Section 28(B)(5)(c) of the Tax Code, as amended, but are subject to tax only in the United Kingdom. However, the said sale by BOL to BBV is subject to Philippine documentary stamp tax in accordance with Section 176 of the Tax Code; as amended. This ruling is being issued on the basis of the foregoing facts as represented, however, if upon investigation, it will be discovered that the facts are different, then this ruling shall be considered null and void. cSTHAC Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group