Guidelines on the Free Skills Training for the Minimum Wage Earners and Unemployed

July 30, 1998 BIR RULING [DA-355-98] SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . P . Noel Gentlemen : This refers to your letter dated July 16, 1998 requesting for a ruling that the sale by your client, Bank America International Financial Corporation (BIFC), of its shares of stock in a domestic corporation is not subject to capital gains tax pursuant to Article 14(2) of the RP-US Tax Treaty. cdLL It is represented that BIFC is a corporation organized and existing under and by virtue of the laws of the United States of America with office address at 555 California Street, San Francisco, California, USA; that it is the legal owner of 19,500,126 shares of stock in Bank of America Savings Bank (BSAB), a domestic savings and mortgage bank corporation; that sometime in 1998, BIFC and the House of Investments, Inc. will execute a Deed of Absolute Sale of Shares wherein the former will sell to the latter the 19,500,126 shares of stock in BSAB; and that as of December 31, 1997, the real property interest of BSAB located in the Philippines was valued at an aggregate amount of P584,122,046.00 or 7.67% of the total resources or assets of the bank. In reply, please be informed that the gains which will be realized by BIFC from its sale of shares of stock in BSAB to House of Investments, Inc. shall be taxable only in the United States to which the alienator is a resident pursuant to Article 14(2) of the RP-US Tax Treaty. Hence, said gain will not be subject to Philippine income tax. The Reservation Clause of the RP-US Tax Treaty, pertinent portion of which is quoted hereunder as follows: "ARTICLE I "Notwithstanding the provisions of Article 14 of the Convention relating to capital gains, both the Philippines and the United States may tax gains from the disposition of an interest in a corporation if its assets consist principally of real property interest located in that country. Likewise, both countries may tax gains from the disposition of an interest in a partnership, trust or estate to the extent the gain is attributable to a real property interest in one of the countries. The term "real property interest" is to have the meaning it has under the law of the country in which the underlying real property is located ." (emphasis supplied) does not apply in this case. It is to be noted that under the Reservation clause, the Philippines may tax the gains derived from the disposition of interests in a corporation if its assets consist principally of real property interest located in the Philippines. The term "principally" means more than 50% of the entire assets in terms of value. (Sec. 2, Revenue Regulations No. 4-86) The value of the real property interest of BSAB located in the Philippines as shown in its Financial Statements as of December 31, 1997 was only 7.67% which is less than 50% of the value of its total assets. (BIR Ruling No. UN074-95 dated February 22, 1995) Accordingly, the gains, if any, to be realized by BIFC from the sale of its shares of stock in BSAB to House of Investments, Inc. are not subject to Philippine income tax but subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997. LLpr This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)