Ordinance Amending Section 99 of Ordinance No. 19, S. 2008 or the Batangas City Revenue Code of 2009

June 3, 2009 BIR RULING [DA-(C-079) 266-09] Sec. 28 (B) (5) (b); 008-00 Punongbayan & Araullo, CPAs Tower 1, The Enterprise Center 6766 Ayala Avenue, Makati City Attention: Raymond S. Gallardo Partner Gentlemen : This refers to your letter dated March 31, 2009 wherein you requested for confirmation of our opinion that the dividends to be paid to Allegiance Marketing Pty. Ltd. ("Allegiance Marketing") , a company organized and existing under the laws of Australia, by Accor Advantage Plus Philippines, Inc. ("Accor Advantage") are subject to 15% final withholding tax provided under the 1997 Tax Code, as amended. CacISA It is represented that Allegiance Marketing Pty. Ltd. is a nonresident foreign corporation duly organized and existing under the laws of Australia with principal office at Level 30 Angel Place, 123 Pitt Street, Sydney NSW 2000 Australia; that Allegiance Marketing is not registered as a corporation or partnership licensed to do business in the Philippines, as confirmed by the certification issued by the Securities and Exchange Commission dated March 24, 2009; that Accor Advantage Plus Philippines, Inc. is a corporation organized and existing under the laws of the Philippines with principal office at Sofitel Philippine Plaza, CCP Complex, Roxas Boulevard, Pasay City; that Accor Advantage has an authorized capital stock of Php10,000,000.00, divided into ten thousand (10,000) shares with a par value of P1,000.00 per share; that Allegiance Marketing, a registered shareholder of Accor Advantage, holds 9,995 shares which represents 99.95% of the outstanding capital stock of Accor Advantage; that at the special meeting of the Board of Directors of Accor Advantage held on July 8, 2008, it was resolved that a cash dividend of Php615.00 per share, which shall be payable in US Dollar currency out of its unrestricted retained earnings, be declared payable to all stockholders of record as of December 31, 2007. Based on the foregoing facts, it is requested that a ruling be issued confirming your opinion that the dividends remitted by Accor Advantage to Allegiance Marketing are subject to 15% final tax pursuant to Section 28 (B) [5] (b) of the 1997 Tax Code, as amended. HIACEa In reply, please be informed that Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997 (NIRC of 1997), as amended, provides: "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. xxx xxx xxx (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. xxx xxx xxx (b) Intercorporate Dividends. A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirty-five percent (35%) in 1997, thirty-four percent (34%) in 1998, thirty-three percent (33%) in 1999, and thirty-two percent (32%) thereafter on corporations and the fifteen percent (15%) tax on dividends as provided in this subparagraph: . . ." Applying the above provision, the dividends received by Allegiance Marketing from Accor Advantage shall be taxed at 15% subject to the condition that Australia shall allow a credit against the tax due from Allegiance Marketing's corporate taxes deemed to have been paid in the Philippines equivalent to 17% (now 15%) which represents the difference between the regular tax (32%, now 30%) on corporations and the tax (15%) on dividends. In view of the representation that pursuant to Australia's Income Tax Assessment Act of 1936, where an Australian company owns more than 10% interest in an overseas entity, the dividend paid to the Australian company will be exempt from Australian tax, no Philippine-sourced dividend income will be subject to tax in Australia against which a tax rebate may be claimed. (ITAD Ruling No. 33-04 dated April 2, 2004) . Hence, the fact that Australia will not impose any tax on the dividends received by Allegiance Marketing from Accor Advantage should be considered as a full satisfaction of the given condition under Section 28 (B) (5) (b) of the NIRC, as amended. Such view has been repeatedly upheld by the BIR in its rulings, to exemplify: 1) DA ITAD BIR RULING NO. 020-07, February 15, 2007 Similar to the instant case, the BIR held that the dividends remitted by MCC, a domestic corporation, to ANZ Funds, a non-resident foreign corporation in Australia, are subject to the preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the NIRC of 1997 as amended by R.A. No. 9337. 2) ITAD RULING NO. 33-04, April 2, 2004 The BIR ruled that the dividends received by MFP, a corporation organized and existing under the laws of Australia, from PMF, a domestic, are subject to the preferential rate of 15% pursuant to Section 28 (B) [5] (b) of the NIRC of 1997. 3) BIR RULING NO. 008-00, January 5, 2000 In BIR Ruling No. 008-00, it was ruled that SGS Philippines, Inc. is subject to the preferential tax rate of 15% withholding tax on the dividends remitted to its foreign parent company, Societe Generale de Surveillance of Switzerland, a non-resident foreign corporation, subject to the condition that Switzerland in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 18% which represents the difference between the regular income tax (33%) on corporations for the taxable year 1999 and the 15% tax on dividends. Otherwise, to run counter to the very spirit and intent of said law will definitely affect the foreign corporations' interest here and discourage them from investing capital in our country. The same ruling states that "similarly situated in the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc. No. L-68375 dated April 15, 1998 where the Supreme Court ruled . . . since the Swiss Government does not impose any tax on the dividends to be received by the said parent corporation in the Philippines, the condition imposed under the above-mentioned section is satisfied. Accordingly, the withholding tax rate of 15% is hereby affirmed." IcTEaC Accordingly, the BIR ruled that SGS Philippines, Inc., being a subsidiary of Societe Generale de Surveillance is subject to the preferential tax rate of 15% withholding tax on dividends pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997. 4) BIR RULING NO. 208-89, September 28, 1989 It was similarly ruled that dividends received by non-resident foreign corporations from a domestic corporation shall be subject to a withholding tax of 15% of the dividends received subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends. Thus, if the country of domicile of the recipient corporation allows as credit against the tax imposable by it an amount equivalent to 20% of the dividends remitted to corporations domiciled therein, the dividends so remitted are subject to a withholding tax at the rate of 15% only. DSEIcT Based on the foregoing, we confirm your opinion that the dividends paid to Allegiance Marketing Pty. Ltd., a company organized and existing under the laws of Australia, by Accor Advantage are subject to 15% final withholding tax provided under the 1997 Tax Code, as amended. It must be emphasized, however, that in line with Revenue Memorandum Circular No. 80-91, the preferential tax rate of 15% imposed under the said Section 28 (B) (5) (b) may be availed of only when the following documentation requirements are punctiliously complied with within a reasonable time: a) to show that the dividends received by Allegiance Marketing Pty. Ltd., from Accor Advantage were not among the items considered in arriving at the income tax due from Allegiance Marketing Pty. Ltd.; b) to present the income tax return of Allegiance Marketing Pty. Ltd., for the taxable year when the subject dividends were received; and c) to submit any authenticated document showing that the Australian Government did not impose any tax on the subject dividends. THcaDA Otherwise, the general tax rate of 35% shall be applied. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service