REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE. Article 13 (Gains from the Alienation of Property) Philippines-Netherlands tax treat BIR Ruling No. ITAD _03€-17 Date; November 9, 2017 ISLA LIPANA & CO. 29th Floor, Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Ms. Roselle K. Yu Executive Director, Tax Ms. Chiara Feliz Gutierrez Assistant Manager Atty. Maria Isidra May Kintanar Senior Consultant, Tax Gentlemen: This refers to your tax treaty relief application filed on January 3, 2014 requesting confirmation that any gain derived by Asia Outsourcing Netherlands BV (‘Asia Outsourcing Netherlands’) from the redemption of redeemable preferred Shares of stock held by it in Asia Outsourcing Philippines Holdings, Inc. (“Asia Outsourcing Philippines”) is exempt from income tax pursuant to the Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (‘Philippines-Netherlands tax treaty’), FACTS Asia Outsourcing Netherlands is a foreign corporation and a resident of the Netherlands based on its Deed of Incorporation and Declaration of Residence issued by the Tax and Customs Administration of the Netherlands on November 25, 2013. It isnot registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on October 23, 2013. On the other hand, Asia Outsourcing Philippines is a domestic corporation organized and existing under Philippine laws. Based on Asia Outsourcing Philippines’ Articles of Incorporation, General Information Sheet, and Corporate Secretary's Certificates dated December 16, 2013, Asia Outsoureing Netherlands is the registered owner of 191,494,839 redeemable preferred shares of Asia Outsourcing Philippines under Stock Certificate No. 1 issued on April 22, 2013. These shares are acquired by original issuance. On November 26, 2013, the Board of Directors of Asia Outsourcing Philippines approved a resolution authorizing the redemption of 8,200,000 of those shares at redemption price of 34.06 pesos per share. The redemption date is December 17, 2013. 34.0008 Asia Outsourcing Netherlands BV Page 104 =a O88)?Based on Corporate Secretary's Certificate dated December 16, 2013, the income subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, or Judicial appeal. RULING In reply, please be informed that under Section 28(B)(5\(c) of the National Internal Revenue Code of 1997, as amended (“Tax Code”), net €apital gains derived by a foreign corporation not engaged in trade or business in the Philippines is subject to income tax at the rate of 5 or 10 percent: “SEC. 28. Rates of Income Tax on Foreign Corporations. ~ xxx xxx xxx (8) Tax on Nonresident Foreign Corporation. ~ (9) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. - XxX XxX XxX (¢) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. = A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange: Not Over P 100,000. . z 5% (On any amount in excess of 100,000. 10%" However, under Section 32(B)(5) of the Tax Code, such gains are exempt or Partially exempt to the extent required by any treaty obligation on the Philippines, to wit: “SEC. 32. Gross Income. - xxx XxX XxX (B) Exclusions from Gross Income. ~ The following items shall not be included in gross income and shall be exempt from taxation under this Title: (5) Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines.” Relative thereto, paragraph 4, Article 13 of the Philippines-Netherlands tax treaty provides as follows: icra itas Os 7 menaer“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 (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, gains derived by an enterprise of one of the States from the alienation of ships and aircraft operated in international traffic 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 Contracting State of which the alienator is a resident.” Under paragraph 4 of Article 13, gains from the alienation of property other than that referred to in paragraph 1 (immovable property), 2 (movable property including a permanent establishment) or 3 (ships and aircraft) derived by a resident of the Netherlands are taxable only in the Netherlands. This being so, since alienation of shares of stock of a company is not among those contemplated under paragraphs 1, 2 and 3 of Article 13, any gain derived by Asia Outsourcing Netherlands from the redemption of the 8,200,000 redeemable preferred shares held by it in Asia Outsourcing Philippines is exempt from capital gains tax pursuant to paragraph 4, Article 13 of the Philippines-Netherlands tax treaty. Moreover, since the 191,494,839 redeemable preferred shares in Asia Outsourcing Philippines are acquired by Asia Outsourcing Netherlands by original issuance and not as stock dividends, any gain derived therefrom shall constitute as capital gains and not taxable dividends as contemplated in Section 73 of the Tax Code below: “Sec. 73. Distribution of dividends or assets by corporations. — (b) Stock dividends — A stock dividend representing the transfer of surplus to capital account shall not be subject to tax. However, if a corporation cancels or redeems stock issued as a dividend at such time and in such manner as to make the distribution and cancellation or redemption, in_whole or in part, essentially equivalent to the distribution of a taxable dividend, the amount so distributed in redemption or cancellation of the stock shall be considered as taxable income to the extent it represents a distribution of earnings or profits accumulated after March first, nineteen hundred and thirteen.” (Emphasis ours) BIR Ralng Netherlands BV Page 9 0f 4 OSs. 17In the case of stock dividends, they are in reality cash dividends since they are taken out of the retained earnings of the declaring company. However, instead of cash which might be important to the company, it temporarily issues stock dividends which provides the recipients an ownership or additional ownership in the company. Therefore, should these stock dividends be redeemed, they should be treated as taxable dividends and not capital gains. Finally, documentary stamp tax amounting to 30,750.00 pesos and processing and certification fee amounting to 5,000.00 pesos are paid by Asia Outsourcing Netherlands to the Bureau of Internal Revenue on January 2 and 3, 2014, as evidenced by BIR Forms 2000-OT (Documentary Stamp Tax Declaration /Return) and 0605 (Payment Form) and corresponding bank receipts. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, A roniston CAESAR R. DULAY Commissioner of Internal Revenue = oi? bes "4.0008 asia outsourcing netherlands ov 14,0008 Ania ontmarcing thangs BY BIR Raling Wo FTAD Passer 7