ITAD Ruling No. 181-02

October 15, 2002 ITAD RULING NO. 181-02 RP-Netherlands tax treaty Art. 13 BIR Ruling No. ITAD-41-00 BIR Ruling No. DA-ITAD-181-02 Punongbayan & Araullo The Enterprise Center 6766 Ayala Avenue 1200 Makati City Attention: Marivic C. Espao Tax Partner Gentlemen : This refers to your application for relief from double taxation dated September 5, 2002, requesting confirmation of your opinion that any gain that Hewlett-Packard Europe B.V. ("HP Europe BV") may derive from the transfer of its shares of stock in Hewlett-Packard Philippines Corp. ("HP Phils.") to its wholly-owned company, Hewlett-Packard Eindhoven B.V. ("HP Eindhoven BV") shall be exempt from income tax in the Philippines. It is represented that HP Europe BV is a corporation duly organized and existing under the laws of the Netherlands with business address at Startbaan 16, 1187 XR Amstelveen, 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 as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission dated September 4, 2002; that HP Europe BV is the registered owner of 127,895 shares in HP Phils.; that HP Phils. is a corporation organized and existing under the laws of the Philippines with office address at 10th Floor, Rufino Pacific Tower, 6784 Ayala Avenue, Makati City; that pursuant to a global restructuring being undertaken by the Hewlett-Packard group of companies, HP Europe BV shall be executing a Deed of Assignment transferring all of its shares in HP Phils. to HP Eindhoven BV as additional capital contribution. In reply, please be informed that Article 13 of the RP-Netherlands tax treaty provides as follow: "Article 13 "GAINS FROM THE ALIENATION OF PROPERTY "(1) Gains from the alienation of immovable property, are 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 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, 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 provisions of the RP-Netherlands 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 transfer of shares of stocks is not among those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by HP Europe BV from the transfer of its shares of stock in HP Phils. shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax Code of 1997. ( BIR Ruling No. ITAD-41-00 ) SAHIaD However, a certificate of authority to register the said transaction in the books of HP Phils. must be secured. Thus, HP Europe BV, being a nonresident foreign corporation, is required to file, although not required to pay the capital gains tax, 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), in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of HP Eindhoven BV. Finally, notwithstanding the exemption from capital gains tax, the documentary stamp tax due on the said transaction must be paid and the corresponding return thereon be filed by HP Europe BV 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 HP Phils. shall register in the Stock and Transfer Book the transfer of the said shares from HP Europe BV to HP Eindhoven BV. This ruling is issued on the basis of the facts as represented. If upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service