ITAD Ruling No. 192-00

December 7, 2000 ITAD RULING NO. 192-00 RP-Singapore Article 13 NIRC-Sec. 170 BIR Ruling ITAD-17-00 Sampoena Asia Ltd. Pte. 350 Orchard road #19-04/06 Shaw House, Singapore 0923 Attention: Manolito B . Dagatan Authorized Representative Gentlemen : This refers to your letter dated October 9, 2000 for confirmation that the sale by SAMPOERNA ASIA LTD. PTE. (hereinafter referred to as Sampoerna Asia) of its shareholdings in STERLING TOBACCO CORPORATION (hereinafter referred to as STC) to SAMPOERNA INTERNATIONAL PTE. LTD. (hereinafter referred to as Sampoerna International) is not subject to capital gains tax pursuant to RP-Singapore Tax Treaty. It is represented that Sampoerna Asia is a corporation organized and existing under the laws of Singapore with office address at 350 Orchard Road #19-08 Shaw House, Singapore 238868 and is not licensed to do business in the Philippines as evidenced by the Certificate of Non-Registration issued by the Securities and Exchange Commission dated October 2, 2000; that Sampoerna Asia owned the Nine Hundred Ninety Six Thousand and Ninety Seven (996,097) shares of stocks which represents the 59% of the entire outstanding capital stock of STC, a corporation organized and existing in the Philippines with office address at 305-307 Jose Rizal Street, Mandaluyong City; and that on September 14, 2000, Sampoerna Asia sold its shares of stocks to Sampoerna International, a corporation organized and existing under the laws of Singapore, for and in consideration of the sum of Twelve Million and Three Hundred Thousand US Dollars (US$12,300,000.00) for the following Stock Certificates: Stock Certificate No. No. of Shares Total Par Value 272 675,320 P41,802,308.00 286 84,412 5,225,102.80 287 3 185.70 290 236,360 14,630,684.00 292 1 61.90 293 1 61.90 996,097 P61,658,404.30 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. ESTDIA "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 based 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 or 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 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. Paragraph 3 of the aforequoted Article grants the Philippines the right to tax gains derived from the disposition of interest in a corporation if its assets consist principally of real property interest located in the Philippines. Section 3 of Revenue Regulations No. 4-86 provides guidance on the meaning of "consisting principally of real property interest". "SEC. 2 Definitions . For purposes of these Regulations, the following terms and phrases shall be understood to mean "a) 'Real Property Interest' interest on properties enumerated in Section 3 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: aASDTE "b) 'Principally', "wholly or principally', 'directly principally' or 'attributable' more than 50% of the entire assets in terms of value Verification of the interim financial statements as of August 10, 2000 of STC disclosed that its real property interest located in the Philippines is only 45% of its total assets, thereby making the assets of STC not principally consisted of real property interest located in the Philippines. Accordingly, your opinion that the gains derived from the sale/transfer of the shares of stock by Sampoerna Asia to Sampoerna International are not subject to Philippine tax, is hereby confirmed. However, the Deed of Absolute Sale shall be subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. (BIR Ruling No. 007-96 dated January 18, 1996) This ruling is issued based on the foregoing facts as represented. However, if upon investigation, it shall be disclosed or discovered that the facts are different, then this ruling shall be considered null and void. TcEaAS Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group