ITAD Ruling No. 165-02

September 23, 2002 ITAD RULING NO. 165-02 RP-Netherlands Article 13 BIR Ruling No. ITAD-01-02 Quisumbing Torres 11th Floor, Pacific Star Bldg. Makati Avenue cor Gil Puyat Avenue Makati City, Philippines Attention: Atty. Jose R. Sandejas Atty. Jaime V. Cruz Gentlemen : This refers to your application for relief from double taxation dated May 9, 2002 on behalf of your client Merisant Netherlands B.V. (Merisant B.V.), requesting confirmation of your opinion that the gain to be realized from the sale of shares of stock by Merisant B.V. of its shares of stock in Merisant Sweetener (Philippines) (Merisant Phils) to Merisant Company 1 Srl (Merisant Srl) shall not be subject to Philippine income tax under Section 27(D)(2) of the 1997 Tax Code pursuant to the RP-Netherlands tax treaty. It is represented that Merisant B.V. is a corporation duly organized and existing under the laws of The Netherlands, with principal office located at Orlyplein 85, 1043 DS, Amsterdam, The Netherlands; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated April 16, 2002; that Merisant Phils is a corporation organized and existing under the laws of the Republic of the Philippines; that its current Stockholder of Record as of March 5, 2002, as certified by its Corporate Secretary, provides as follows: Name of Stockholder No. of Shares Percentage of Subscribed Ownership (%) Merisant Netherlands B.V. 455,496 49.9900 United Laboratories, Inc. 455497 49.9900 Kenneth Jones 1 0.0028 Carl William Warchausky 1 0.0028 John Winston Ludovice 1 0.0028 Jose Sandejas 1 0.0028 Joselito Campos, Jr. 1 0.0028 Carlos Ejercito 1 0.0028 Delfin Samson, Jr. 1 0.0028 TOTAL 911,000 100.00 ====== ====== that Merisant B.V. is the owner of 455,496 Class "A" shares of Merisant Phils with a par value of Ten Pesos (P10) per share, or a total par value of Four Million Five Hundred Fifty Four Thousand Nine Hundred and Sixty Pesos (P4,554,960); that Merisant B.V. is the beneficial owner of four (4) Class "A" shares (Nominee Shares) registered separately in the names of and held in trust individually by Kenneth W. Jones, Carl W. Warschausky, John Winston O. Ludovice and Jose R. Sandejas; that Merisant Srl is a corporation organized and existing under the laws of Switzerland with address at Dynafisc S.A., Rue de la Promenade-Noire 1, 2000 Neuchatel, Switzerland; that a Deed of Assignment dated March 5, 2002 was executed whereby Merisant B.V., agrees to transfer the shares and to cede, transfer and assign all its rights, title and interest including the nominee shares to Merisant Srl "the assignee"; that Merisant Srl, for and in consideration of the shares, shall pay the amount of Php P4,555,000; In reply, please be informed that Article 13 of the RP-Netherlands tax treaty provides as follows: CTHDcS "Article 13 "GAINS FROM THE ALIENATION OF PROPERTY "1. 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. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of one of the States has in the other State, or of movable property pertaining to a fixed base available to a resident of one of the States in the other 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. "3. Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of the States 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. "4. Gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3, shall be taxable only in the State of which the alienator is a resident. xxx xxx xxx." It is clear from the aforequoted Article 13 of the RP-Netherlands tax treaty that capital gains derived from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 thereof shall be taxable only in the State where the alienator is a resident. Inasmuch as the assignment or transfer of shares of stock is not among those mentioned in said paragraphs 1, 2 and 3, the gain derived by Merisant B.V., a resident of The Netherlands, from the sale/transfer of its shares of stock in Merisant Phils is not subject to the capital gains tax imposed under Section 27(D)(2) of the 1997 Tax Code, but is subject to tax only in The Netherlands. ( BIR Ruling Nos. ITAD 036-01, 011-01 and 008-01 ) However, a certificate of authority to register said transaction in the books of Merisant Phils must be secured. Thus, Merisant B.V., while not required to pay capital gains tax, 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. 39 South Quezon City (RDO 39), for the issuance of a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of Merisant Srl. ( BIR Ruling No. ITAD 44-00 ) Finally, notwithstanding the exemption from capital gains tax, Merisant B.V. is required to pay the documentary stamp tax due on said transaction and file the corresponding return thereon pursuant to Section 176 of the 1997 Tax Code. This ruling is issued based on the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the parties herein are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service