DA ITAD BIR Ruling No. 082-07

July 11, 2007 DA ITAD BIR RULING NO. 082-07 Article 10 (2) (a), Philippines-Netherlands tax treaty; BIR Ruling No. ITAD-029-01 SyCip Salazar Hernandez & Gatmaitan Attorneys-at-Law 105 Paseo de Roxas Makati City 1226 Metro Manila Philippines Attention: Hector M. de Leon, Jr. Anna Cristina V. Collantes-Garcia Claire L. C. Salva-Sia Gentlemen : This refers to your application for tax treaty relief dated May 22, 2006, on behalf of your client, CLSA Exchange Capital, Inc., (CLSA ExCap), requesting confirmation of your opinion that the cash dividends to be paid by CLSA ExCap to CLSA BV are subject to the preferential tax rate of 10% pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. It is represented that CLSA BV with address at Strawinskylaan 3501, 1077 ZX Amsterdam, the Netherlands is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty, per Certification dated January 17, 2006 issued by the Inspector of the Tax and Customs Administration of the Netherlands; that it is not registered either as a corporation or as a partnership in the Philippines per certification dated March 20, 2006 issued by the Securities and Exchange Commission; that CLSA ExCap is a corporation duly organized and existing under and by virtue of Philippine laws, with principal office address at 3rd Floor, Corporate Business Center, 151 Paseo de Roxas, Makati City, Philippines. It is further represented that a total of One Million Four Hundred Ninety Seven Thousand Four Hundred Ninety Seven (1,497,497) shares of CLSA ExCap have been subscribed and paid-up out of the Three Million (3,000,000) authorized capital stock of CLSA ExCap; that as of March 29, 2006, CLSA BV is the beneficial owner of approximately sixty percent (60%) of the shares of CLSA ExCap or Eight Hundred Ninety Eight Thousand Four Hundred Ninety Eight (898,498) shares with a par value of One Hundred Pesos (PhP100), such shareholding having a total value of Eighty Nine Million Eight Hundred Forty Nine Thousand Eight Hundred Pesos (PhP89,849,800.00); and that on December 7, 2005, the Board of Directors of CLSA ExCap unanimously approved and declared cash dividends in the amount of Ninety Four Thousand Three Hundred Sixty Seven Dollars and Thirty Four Cents (US$94,367.34) in favor of stockholders of record as of March 30, 2005 and appropriated such amount out of retained earnings of CLSA ExCap as of December 31, 2004 in accordance with the proportion of the stock ownership of each stockholder. In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows, viz: "Article 10 DIVIDENDS 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the recipient is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10 per cent of the capital of the company paying the dividends; b) 15 per cent of the gross amount of the dividends in all other cases. EaSCAH xxx xxx xxx 5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as income from debt-claims participating in profits and income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. xxx xxx xxx" Based on the above-cited provisions, the 10 percent preferential tax rate on dividends applies whenever the beneficial owner of the dividends owns at least 10 percent of the capital of the paying company. In all other cases the 15 percent preferential tax rate applies. Such being the case and considering that CLSA BV holds more than 10% of the capital of CLSA ExCap, this Office is of the opinion and so holds that the dividend payments by CLSA ExCap pertaining to CLSA BV shall be subject to the preferential tax rate of 10 percent, based on the gross amount of dividends, pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. ( BIR Ruling No. ITAD 029-01 dated March 12, 2001 ) 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service