ITAD Ruling No. 206-02

November 27, 2002 ITAD RULING NO. 206-02 RP-Singapore Tax Treaty Art. 12 Tax Code of 1997 Sec. 176; BIR Ruling No. DA-ITAD 113-01 British Gas Asia Pacific Holdings Pte. 83 Clemenceau Avenue #14-08 UE Square (Shell House) Singapore 239920 Attention: Mr . Graham Hall Director Gentlemen : This refers to your application for relief from double taxation dated August 16, 2002 on behalf of British Gas Asia Pacific Holdings Pte. Ltd. (BG Singapore), requesting confirmation of your opinion that the gains to be realized from the sale by BG Singapore of its stocks in BG Consolidated Holdings Phil. Inc. (BG Phils) to Lisbon Star Philippines Holdings Inc. (Lisbon Star Phils) shall not be subject to Philippine income tax pursuant to the RP-Singapore tax treaty. It is represented that BG Singapore is a corporation organized and existing under the laws of Singapore with business address at 83 Clemenceau Avenue #14-08 UE Square (Shell House) Singapore 239920100; 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 July 22, 2002; that BG Singapore is the legal and registered owner of 100% shares of stock of BG Phils whose assets do not consist principally of immovable property located in the Philippines as shown in its audited financial statements as of December 31, 2000 and 2001; that BG Phils is a corporation organized and existing under the laws of the Philippines with address at Unit 805, West Tower, PSE Centre, Exchange Road, Ortigas Center, Pasig City, Philippines; that as of July 18, 2002 BG Phils has a total number of 672,838 shares subscribed broken as follows: Name Number of Shares Subscribed British Gas Asia Pacific 672,833 Alan Derek Fisher 1 Anthony Barker 1 Melvyn Hill 1 Stefan Ricketts 1 Ma. Cristina Aboy 1 TOTAL 672,838 and that BG Singapore intends to sell all of its outstanding shares of stock in BG Phils in favor of Lisbon Star Phils. 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. ISAaTH "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 paragraph 1, 2 and 3 shall be taxable only in the Contracting State of which the alienator is a resident." Accordingly, capital gains derived by BG Singapore from its transfer of shares of stock to Lisbon Star Phils is generally taxable in Singapore. However, paragraph 3 of the same 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 interests located in the Philippines. "Real Property Interest" means 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. (a) and (b), Revenue Regulations No. 4-86). Verification of the 2000 and 2001 Audited Financial Statement of BG Phils disclosed that its assets do not consist of immovable property located in the Philippines, thereby making the assets of BG Phils not principally consisted of real property interest located in the Philippines. Consequently, the gains if any, to be derived by BG Singapore shall be taxable only in Singapore pursuant to paragraph 4 of the said Article, which states that "any capital gains from the alienation of any property, other than those mentioned in paragraph 1, 2 and 3 of Article 13 of the RP-Singapore tax treaty shall be taxable only in the contracting state of which the alienator is a resident." Accordingly, your opinion that the intended sale of BG Singapore to Lisbon Star Phil of its shares of stock in BG Phils is not subject to capital gains tax is hereby confirmed. ( DA-ITAD No . 113-01 dated November 8, 2001 ) However, upon the execution of the Stock Purchase Agreement covering the intended sale of the subject shares of stock between BG Singapore and Lisbon Star Phils, the same shall be subject to the documentary stamp tax imposed under Section 176 of the National Internal Revenue Code of 1997. 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 herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service