ITAD Ruling No. 224-02

December 27, 2002 ITAD RULING NO. 224-02 RP-UK Tax Treaty Art. 12 Tax Code of 1997 Sec. 176 BIR Ruling No. DA-ITAD-111-01 Sycip Salazar Hernandez & Gatmaitan SycipLaw-All Asia Capital Center 105 Paseo de Roxas, Makati City 1226 Attention: Atty. Rafael Encarnacion Atty. Ma. Elizabeth Peralta-Loriega Atty. Jennifer L. Pasic-Lomibao Gentlemen : This refers to your application for relief from double taxation dated August 5, 2002 on behalf of your client, The Boots Company PLC ("TBC"), requesting confirmation of your opinion that the gain realized by TBC for the transfer of its shares of stock in The Boots Company (Philippines) Inc. ("TBC Phils") to Boots Holding (BHI) Limited, ("BHI") is exempt from Philippine income tax pursuant to Article 12 of the RP-UK tax treaty. It is represented that TBC is a corporation duly organized and existing under the laws of England and Wales with business address at Nottingham, NG2 3AA; that TBC is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per Certificate of Non-Registration issued by the Securities and Exchange Commission dated June 21, 2002; that BHI is a corporation duly organized and existing under the laws of England and Wales with business address at 1 Thane Road West, Nottingham, NG2 3AA; that TBC Phils is a corporation organized and existing under the laws of the Philippines with registered office address at 4th Floor, Ferros Building, 176 Salcedo Street, Legaspi Village, Makati City; that TBC is a registered owner of the following shares of stock in TBC Phils: (1) 649,993 common shares with a par value of P100 each which are in the name of TBC, and (2) 7 common shares with a par value of P100 each which are on trust for TBC; and that on July 5, 2002, TBC entered into a Deed of Assignment of Shares of Stock with BHI wherein TBC assigns and transfers the shares in exchange of subscription of common shares in BHI. In reply, please be informed that Article 12 of the RP-UK tax treaty provides as follows: "Article 12 "Gains from the Alienation of Property "1. Capital gains from the alienation of immovable property, as defined in paragraph (2) of Article 6, may be taxed in the Contracting State in which such property is situated. "2. Capital 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. "3. Notwithstanding the provisions of paragraph (2) of this Article, capital gains derived by a resident 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 and aircraft shall be taxable only in that Contracting State. cSaADC "4. Capital gains from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident. "xxx xxx xxx" It is clear from the aforequoted provision that the capital gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of Article 12 shall be taxable only in the State where the alienator is a resident. Inasmuch as the transfer of the subject shares of stock is not among those mentioned in paragraphs 1, 2 and 3, the gains derived by TBC, a resident of the England, from the transfer of shares of stock in TBC Phils are not subject to the capital gains tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997. However, the Deed of Assignment of Shares of Stock shall be subject to documentary stamp tax pursuant to Section 176 of the same Tax Code. ( BIR Ruling No. 111-01 ) Accordingly, a certificate of authority to register the said transaction in the books of TBC Phils must be secured. Thus, TBC, being 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 Deed of Assignment of Shares of Stock and this ruling, with Revenue District Office No. 39 South Quezon City (RDO 39), in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of BHI. Upon presentation of the aforesaid Capital Gains Tax Return as filed, the CAR, as well as the proof of payment of the documentary stamp tax due thereon, the corporate secretary of TBC Phils shall be authorized to register the said shares from TBC to BHI in the Stock and Transfer Book and to issue a new certificate in the name of BHI. This ruling is issued on the basis of 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