ITAD Ruling No. 186-02

October 21, 2002 ITAD RULING NO. 186-02 RP-France Tax Treaty Art. 13 Tax Code of 1997 Sec. 176 BIR Ruling No. DA-ITAD-68-02 Punongbayan & Araullo 20th Floor, Tower I The Enterprise Center 6766 Ayala Avenue 1200 Makati City Attention: Atty. Marivic C. Espao Tax Partner Gentlemen : This refers to your application for relief from double taxation dated July 03, 2000, on behalf of Application Des Gaz S.A. (ADG), requesting confirmation of your opinion that the capital gains derived by ADG from the sale of its shares of stocks in Camping Gaz Philippines, Inc. (CGPI) are exempt from Philippine capital gains tax, pursuant to the RP-France tax treaty. It is represented that ADG is a corporation duly organized and existing under the laws of the Republic of France with business address at Le Favier, Route de Brignais PT55, 69563 St., Genis Laval Cedex, France; that ADG is registered and licensed to establish a Regional or Area Headquarters in the Philippines per BOI-SEC Reg. No. FM-004 issued by the Securities and Exchange Commission dated February 1, 1999 which activities shall be limited to acting as supervision, communication and coordination center for its affiliates, subsidiaries, branches or exclusive agents in the region; that ADG is a registered owner of sixteen thousand three hundred eighteen (16,318) shares of stock with a par value of P1,000.00 per share in CGPI, a corporation duly organized and existing under the laws of the Republic of the Philippines, representing 68% of the total outstanding capital stock; that pursuant to a Share Sale and Purchase Agreement executed on December 22, 1999, ADG transferred all its shares of stocks in CGPI under Certificate Nos. 9, 14 and 12 to Total Petroleum Philippines Corporation (TPPC); and that TPPC is a corporation organized and existing under the laws of Republic of the Philippines with business address at 31st Floor Urban Bank Plaza, Corner Sen. Gil Puyat & Don Chino Roces Avenues, Makati City. In reply, please be informed that Article 13 of the RP-France tax treaty provides viz : "Article 13 "CAPITAL GAINS "1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6 or from the alienation of shares or comparable interest in a real property cooperative or in a company the assets of which consist principally 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 a 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. "3. Gains from the alienation of any property other than those mentioned in paragraphs 1 and 2, shall be taxable only in the Contracting State of which the alienator is a resident. "xxx xxx xxx" In the case, the gains realized by ADG from the sale of its shares of stock in CGPI to TPPC are taxable in France. However, paragraph 1 of the aforequoted provisions grant the Philippines the right to tax gains derived from the disposition of interest in a corporation if its assets consist principally of real property interests 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 ). Upon examination of the 31 December 1999 Audited Financial Statements of CGPI and upon CGPI's certification which was submitted to this Office on September 27, 2002 that the cylinder included in its property plant and equipment are movable property, it is verified that its immovable properties located in the Philippines is 1.84% of the total assets, thereby making the assets of CGPI not consisted principally of real property interest located in the Philippines. Hence, the gains from the sale of 16,318 shares of stock in CGPI to TPPC are not taxable in the Philippines. ( BIR Ruling No. DA-ITAD 68-02 dated April 24, 2002 .) Accordingly, this Office is of the opinion and so holds that any gain derived by ADG from the sale of its shares of stock in CGPI to TPPC is not subject to capital gains tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997, pursuant to Article 13 of the RP-France tax treaty. Furthermore, a certificate of authority to register the said transaction in the books of CGPI must be secured. Thus, ADG, being the a non-resident 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 Share Sale and Purchase Agreement and this ruling, with the 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 TPPC. It is hereby noted that based on the 24 July 2000 Memorandum of Revenue Officer, Jose de Mesa, Jr., the documentary stamp tax due on 16,320 shares based on its par value was paid in the amount of P122,400.00 in Makati on January, 2000, as showed in attached copy of BIR Form 2000. Upon presentment of such proof of payment of the documentary stamp tax in accordance with Section 176 of the 1997 Tax Code and CAR in favor of TPPC, the Corporate Secretary of CGPI shall register in the Stock and Transfer Book the ADG shares in the name of TPPC. This ruling is issued on the basis of the foregoing 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