ITAD Ruling No. 218-02

December 27, 2002 ITAD RULING NO. 218-02 Article 13, RP-Netherlands Tax Treaty NIRC-SEC. 176 BIR Ruling No. DA-ITAD-165-02 Jardine Lloyd Thompson Insurance Brokers, Inc . 25th Floor, Philamlife Tower 8767 Paseo de Roxas, Makati City Attention: Marise V. Marquez Corporate Secretary Gentlemen : This refers to your letter dated September 6, 2002 on behalf of JMIB Holdings BV (JMIB) requesting for exemption from payment of taxes in the Philippines for the gains derived by JMIB from the sale of its shares of stocks in Jardine Lloyd Thompson Insurance Brokers, Inc. (JLT) to JLT Asia Holdings B.V. (JLT Asia) pursuant to Article 13 of the RP-Netherlands tax treaty. It is represented that JMIB and JLT Asia are private companies with limited liability incorporated under the laws of Netherlands with the same office address at Diepenbrockstraat 19, 1077 VX Amsterdam, The Netherlands; that both are not registered either as corporations or as partnerships and have not been licensed to do business in the Philippines per certifications issued by the Securities and Exchange Commission (SEC) dated June 5, 2002 and November 5, 2002, respectively; that JMIB is the legal owner of 1,090,908 shares with par value of PHP 10 per share, which shares of stock make up the entire issued share capital of JLT, a Philippine corporation organized and existing under the laws of the Republic of the Philippines; that on November 19, 1999, the following shareholdings of JMIB in JLT were sold to JLT Asia: Issued in the name of Stock Nos. of Value of Date of Issuance Certificate No. Shares Shares JMIB Holdings B.V. 34 149,997 1,499,970 June 5, 1992 -do- 045 150,000 1,500,000 June 19, 1995 -do- 049 256,022 2,560,220 Nov. 14, 1997 Richard N.C. Austen * 053 1 10 May 15, 1998 Aloysius B. Colayco * 055 1 10 Nov. 11, 1998 Gil E. Cortez * 056 1 10 Nov. 11, 1998 Gordon Allan Joseph * 059 1 10 Jan. 15, 1999 Erramon Aboitiz * 060 1 10 May 7, 1999 Geoffrey Lapish * 061 1 10 Feb. 22, 1999 Armand F. Braun, Jr. * 062 1 10 May 7, 1999 Johny F. Magbanua 063 1 10 May 20, 1999 JMIB Holdings B.V. 064 337 3,370 May 20, 1999 -do- 065 267,272 2,672,720 May 21, 1999 -do- 066 267,272 2,672,720 Sept. 24, 1999 TOTAL 1,090,908 10,909,080 * Nominee directors beneficial owner is JMIB Holdings B.V. as evidenced by the Declaration of Trust duly signed by the directors. that JMIB for and in consideration of NLG 31,500,000 sold, assigned, transferred and conveyed, absolutely and in perpetuity, in favor of JLT Asia, all its rights, titles and interest in and to all the shares of stock, free from all liens and encumbrances. In reply, please be informed that Article 13 of the RP-Netherlands tax treaty provides as follows: aATEDS "Article 13 "GAINS FROM THE ALIENATION OF PROPERTY "1. Gains from the alienation of immovable property, as 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 permanent establishment (along 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 Article 13 of the RP-Netherlands tax treaty that capital gains derived from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 thereof shall be taxable only in the State where the alienator is a resident. Inasmuch as the assignment or transfer of shares of stock is not among those mentioned in said paragraphs 1, 2 and 3, the gain derived by JMIB, a resident of The Netherlands, from the sale/transfer of its shares of stock in JLT is not subject to the capital gains tax imposed under Section 27(D)(2) of the 1997 Tax Code, but is subject to tax only in the Netherlands. ( BIR Ruling No. DA-ITAD-165-02 dated September 23, 2002 ) However, a certificate of authority to register said transaction in the books of JLT Asia Holdings B.V. must be secured. Thus, JMIB Holdings B.V., while not required to pay capital gains tax, is required to file a Capital Gains Tax Return (BIR Form No. 1707) accompanied by copies of the Deed of Sale and this ruling, with 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 JLT Asia Holding B.V. Finally, notwithstanding the exemption from capital gains tax, JMIB is required to pay the documentary stamp tax due on said transaction and file the corresponding return thereon pursuant to Section 176 of the 1997 Tax Code. 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