BIR Ruling No. 383-15

October 29, 2015 BIR RULING NO. 383-15 Section 28 (B) (5) (b) of 1997 NIRC Angara Abello Concepcion Regala and Cruz 22/F, ACCRALAW Tower 2nd Avenue corner 30th Street Crescent Park West, Bonifacio Global City 0399 Taguig, Metro Manila Attention: Ruby Rose J. Yusi Nesly Joy S. Javier Kathrina Grace F. Matibag Counsels Gentlemen : This refers to your letter dated April 26, 2013 requesting confirmation of your opinion that the cash dividends paid by your client, Samsonite Philippines, Inc. ("Samsonite") to Delilah Europe Investments S.a.r.l. ("LuxCo") in 2011 and 2012 is subject to final withholding tax ("FWT") at the rate of fifteen percent (15%) pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997, as amended. It is represented that Samsonite with Taxpayer's Identification No. 007-115- 811-000, is corporation duly registered with the Securities and Exchange Commission (SEC) under Company Registration No. CN200814029 dated September 9, 2008; and that the primary purpose for which it was incorporated is to engage in the importation, distribution, marketing and sale, both wholesale and retail, of all types of luggage and bags, including but not limited to suitcases, garment bags, brief cases, computer bags, backpacks, casual bangs, hand bags, travel accessories and such other products of similar nature; that Samsonite has its office address at 2/F ENZO Bldg. Buendia Avenue, Makati City; that it has an authorized capital stock of Sixty One Million Six Hundred Thousand (61,600,000) shares with a par value of One Peso (P1.00) per share, all of which are issued and outstanding; that on the other hand, LuxCo is a corporation organized and existing under the Laws of Luxembourg with office address at 20, Avenue Monterey, L-2163, Luxembourg; that LuxCo is the registered owner of Thirty Six Million Nine Hundred Fifty Nine Thousand Nine Hundred Ninety Seven (36,959,997) shares of Samsonite representing sixty percent (60%) of Samsonite's total outstanding stock which it directly and continuously holds since 2010; that Samsonite's Board of Directors declared cash dividends on the following dates: Date of Amount Pay out date Payee declaration May 11, 2011 P0.32467532 per share On or before May Stockholders of 31, 2011 record as of May 11, 2011 May 7, 2012 P0.4545 for each of the On or before June Shareholders of Sixty One Million Six 8, 2012 record as of Hundred Thousand May 18, 2012 (61,600,000) fully paid and issued shares or a total sum of Twenty Eight Million Pesos (P28,000,000.00) that the aforesaid dividend declarations are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of Samsonite or LuxCo.; and that in support of this request the following documents were submitted: 1) Original consularized letter dated December 21, 2012 issued by the Bureau d'imposition Socits 6 of Luxembourg; 2) Original consularized Certificate of Residence issued by the Bureau d'imposition Socits 6 of Luxembourg; 3) Certified true copy of the Samsonite's Articles of Incorporations; 4) Certified true copy of the Certificate of Non-registration of Luxco issued by the SEC; 5) Certified true copy of the Corporate Secretary's Certificate attesting to the Board Resolutions of Samsonite dated May 25, 2011 and May 28, 2012 declaring dividends to its stockholders; and 6) Copy of the BIR Certificate of Registration of Samsonite. In reply, please be informed that Section 28 (B) (5) (b) of the Tax Code of 1997, as amended, provides that "(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 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 twenty percent (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%), on dividends as provided in this subparagraph: Provided, That effective January 1, 2009, the credit against the tax due shall be equivalent to fifteen percent (15%), which represents the difference between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends." Based on the foregoing Section, inter-corporate dividends received by a non-resident foreign corporation from a domestic corporation and collected and paid in accordance with Section 57 (A) of the Tax Code are subject to a final tax rate of 15% of the total amount thereof, subject to the condition that the country in which the non-resident foreign corporation is domiciled allows a tax credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to the rate of twenty (20%) [fifteen (15%) percent beginning 1 January 2009] of such dividend. In the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc. (G.R. No. L-68375 dated April 15, 1988) the Supreme Court ruled that "In the instant case, Switzerland did not impose any tax on the dividends received by Glaro. Accordingly, Wander claims that full credit is granted and not merely credit equivalent to 20%. Petitioner, on the other hand, avers the tax sparing credit is applicable only if the country of the parent corporation allows a foreign tax credit not only for the 15 percentage-point portion actually paid but also for the equivalent twenty percentage-point portion spared, waived or otherwise deemed as if paid in the Philippines; that private respondent does not cite anywhere a Swiss law to the effect that in case where a foreign tax, such as the Philippine 35% dividend tax, is spared, waived or otherwise considered as if paid in whole or in part by the foreign country, a Swiss foreign-tax credit would be allowed for the whole or for the part, as the case may be, of the foreign tax so spared or waived or considered as if paid by the foreign country. xxx xxx xxx Besides, it is significant to note that the conclusion reached by respondent Court is but a confirmation of the May 19, 1977 ruling of petitioner that "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." In the instant case, Bureau d'imposition Socits (Tax Authorities of Luxembourg) has certified LuxCo as a resident of the Grand-duchy of Luxembourg; that in its December 21, 2012 Letter to the Bureau of Internal Revenue, it certified that under the Luxembourg Income Tax Law ("L.I.R."), the dividend income received by an entity in Luxembourg (such as LuxCo) from a non-resident entity (such as Samsonite Philippines) is exempt from corporate income tax in Luxembourg, provided that the L.I.R. provisions are complied, and held: "Considering that: LuxCo is a fully taxable organism with a collective character which is a resident of Luxembourg and which takes one of the forms listed in the annex of Article 166 (10) L.I.R.; Samsonite Philippines is a joint-stock company which is fully taxable at a rate of 30% with the tax basis determined in a manner similar to that employed by Luxembourg; LuxCo has held a direct and continuous shareholding in Samsonite Philippines since 2010; and LuxCo has held 60% of Samsonite Philippine since 2010 up to this date. LuxCo is therefore exempt from corporate income tax and municipal business tax on the dividend income received from Samsonite in 2010 and 2011. LuxCo will also benefit from the participation exemption regime with respect to any future dividend income from Samsonite Philippines provided that all the conditions described in 1 to 4 are met." IN VIEW OF THE FOREGOING, this Office holds that the portion of cash dividends declared by Samsonite on May 11, 2011 and May 7, 2012 to be received by LuxCo on or before the respective pay out dates May 31, 2011 and June 8, 2012, are subject to the 15% final withholding tax as prescribed under Section 28 (B) (5) (b) of the Tax Code of 1997, as amended. 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue