10% Withholding Tax on the Dividends Payable by BASF Phils. to BASF AG

November 24, 1988 BIR RULING NO. 559-88 24 000-00 559-88 Gentlemen : This refers to your letter dated September 6, 1988 requesting confirmation of your opinion that dividends payable by BASF Philippines, Inc. (BASF, Phils.), a domestic corporation, to BASF AKTIENGESELLSCHAFT (BASF AG), a German corporation, which owns 100% of its outstanding capital stock, are subject to Philippine withholding tax at the rate of 10% pursuant to Article 10 of the RP-Germany Tax Treaty. It is represented that BASF Phils. is a corporation organized and existing under the laws of the Philippines with principal office at Emerald Building, Emerald Avenue, Pasig, Metro Manila; that it is engaged in the business of production, manufacture, exportation, importation and wholesale of basic chemicals and chemical products; that BASF Phils. is wholly owned by BASF AG; that BASF Phils. has an authorized capital stock of P1,700,000 divided into 1,700,000 shares, 1,200,000 of which has been subscribed and fully paid; that of the 1,200,000 shares subscribed and outstanding, BASF AG owns 1,199,998 shares; that BASF AG is a corporation organized and existing under the laws of the Federal Republic of Germany with principal office at Ludwigshafan, Rhein, Germany; that it is a non-resident foreign corporation not engaged in trade or business in the Philippines; and that it owns 99.99% of the outstanding capital stock of BASF Phils. cdti In reply, please be informed that Article 10 of the RP-West Germany Tax Treaty provides, viz: "Article 10 DIVIDENDS 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other state. 2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but the tax so charged shall not exceed: a) 10 percent of the gross amount of the dividends if the recipient is a company (excluding partnership) which owns directly at least 25 per cent of the capital of the company paying the dividends; b) in all other case, 15 percent of the gross amount of dividends. 3. . . . 4. . . . 5. . . . 6. . . . 7. . . . Accordingly, your opinion that dividends payable by BASF Phils. to BASF AG which owns 100% of the outstanding stock of the former are subject to Philippine withholding tax at the rate of 10% pursuant to Article 10 of the RP-Germany Tax Treaty is hereby confirmed. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner