ITAD Ruling No. 184-00

December 7, 2000 ITAD RULING NO. 184-00 RP-Singapore Article 13 RR 7-82 ITAD 24-99 & 27-99 Alba Romeo & Co. Certified Public Accountants 7th Floor, Don Chua Lamko Bldg., H.V. dela Costa St., Salcedo Village Makati City Gentlemen : This refers to your letter dated May 9, 2000 requesting confirmation of your opinion that any gain realized by Mssrs. Glenn Anthony Rodriguez and James Tan Jin Woo from the sale of its IDS Logistics, Inc. (IDS) shares to LI and FUNG Distribution (Asia), Ltd. shall be taxable only in Singapore pursuant to RR 7-82 dated August 11, 1982 Chapter IV Section 20(5) and Article 13 of the RP-Singapore Tax Treaty. It is represented that Mssrs. Rodriguez and Tan are residents of Singapore with office address at IDS Logistics Services Pte., Ltd., 58 Toh Guan Road, Singapore, 608829; that each of them own 24,999 IDS shares; that IDS is a corporation duly organized and existing under the Philippine laws, with principal office at Bldg. 1033, Naval Supply Depot Compound, Subic Bay Freeport Zone, Subic, Zambales; that the 1998 and 1999 audited financial statement of IDS reported that its assets consist, among others, property and equipment located in the Philippines valued at P4.5M and P2M or 7% and 6% of its total assets amounting to P63.3M and P33.7M, respectively; that on April, 2000 they sold their IDS shares to LI & FUNG Distribution (Asia), Ltd., a corporation registered under the laws of the British Virgin Islands. In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty provides: "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. IDSETA "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." Any gain realized by Mssrs. Rodriguez and Tan from the sale of their IDS shares of stock to LI & FUNG Distribution (Asia) Ltd. shall be taxable only 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 interest in a corporation consist principally of real property interest located in the Philippines. "Real Property Interest" means interest on properties enumerated in Section 3 of 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" means more than 50% of the entire assets in terms of value. (Sec. 2(a) and (b). Revenue Regulations No. 4-86). Verification of the 1998 and 1999 Audited Financial Statements of IDS disclosed that its net property and equipment represent less than 50% of its entire assets thereby declaring the assets of IDS not consisted principally of real property interest located in the Philippines. Accordingly, your opinion that the sale of Mssrs. Rodriguez and Tan of their shares of stock in IDS to LI & FUNG Distribution Ltd. is not subject to Philippine income tax is hereby confirmed. However, such sale shall be subjected to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. (BIR Ruling No. 007-96/24-99 and 27-99) This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. DCHIAS Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group