DA ITAD BIR Ruling No. 093-07

September 24, 2007 DA ITAD BIR RULING NO. 093-07 Article 9, Philippines-United Kingdom of Great Britain and Northern Ireland tax treaty BIR Ruling No. ITAD-187-00 Ong Meneses Gonzales & Gupit Law Offices Suite 1515 Cityland 10 Tower 1, 6815 Ayala Avenue Makati City 1226, Philippines Attention: Mr. Francisco B. Gonzales V. Tax Counsel Gentlemen : This refers to your application for tax treaty dated 4 December 2006, on behalf of your clients, Instone International Limited (Instone UK) and Instone Philippines, Inc. (Instone Phil), requesting confirmation of your opinion that the dividends declared and paid by Instone Phil to Instone UK, are subject to the preferential tax rate of 15%, pursuant to Article 9 of the Convention between the Government of the Republic of the Philippines and Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (Philippines-UK tax treaty). It is represented that Instone UK is a corporation organized and existing under the laws of the United Kingdom with registered office at 69 Kings Road, Brentwood CM14 438, United Kingdom; that it is not registered either as a corporation or as a partnership in the Philippines per certification dated 5 October 2006 issued by the Securities and Exchange Commission; that Instone Phil is a corporation duly organized and existing under Philippine laws with principal office address at 8th Floor, 1st E-bank Building, 8737 Paseo cor. Makati Ave., Makati City, Philippines. It is further represented that out of a total number of Twenty Million common shares in Instone Phil, Instone UK has a shareholding of Nineteen Million Nine Hundred Ninety-Nine Thousand Nine Hundred Ninety-Five (19,999,995) common shares in Instone Phil with a par value of One Peso (PhP1.00) per share, amounting to Nineteen Million Nine Hundred Ninety-Nine Thousand Nine Hundred Ninety-Five Pesos (PhP19,999,995) as of 30 July 2006; that the five (5) remaining shares in Instone Philip which are under the name of Michael Andrew Murphy, Richard Parotte, Catherine Han, Francisco B. Gonzales V and Atty. Bernard Bandonnel are held in trust for Instone UK; that the percentage ownership of Instone UK to the total subscribed stock of Instone Phil amounts to One Hundred percent (10%) of the total subscribed stock of Twenty Million Pesos (PhP20,000,000.00) with a par value of PhP1.00 each; that on 2 December 2006, the Board of Directors of Instone Phil declared cash dividends in the amount of Seven Million Two Hundred Thousand Pesos (PhP7,200,000.00) to all stockholders of record, fifty percent (50%) of which is payable on 8 December 2006, and another fifty percent (50%) payable on 15 December 2006; that the recipient of the dividends shall be primarily Instone UK; and that the issue/s or transaction subject of the above request for ruling is 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 the taxpayer/s involved. HAEDIS In reply, please be informed that Article 9 of the Philippines-UK tax treaty provides as follows, viz: " Article 9 Dividends 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; b) in all other cases, 25% of the gross amount of the dividends. xxx xxx xxx 4. The term 'dividends' as used in this Article means income from shares, or other rights, not being debt-claims, participating in profits, as well as income from corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. xxx xxx xxx" Based on the above-cited provisions, the 15% preferential tax rate on dividends shall apply whenever the recipient, who is the beneficial owner of the dividends, owns at least 10% of the voting power of the paying company. In all other cases, 25% preferential tax rate shall apply. Such being the case and considering that Instone UK actually holds approximately 99.99% of the subscribed common shares of Instone Phil, this Office is of the opinion and so holds that the dividend payments by Instone Phil to Instone UK shall be subject to the preferential tax rate of 15% based on the gross amount of dividends, pursuant to Article 9 (1) (a) of the Philippines-UK tax treaty. (BIR Ruling No. ITAD-187-00 dated December 7, 2000) CHcTIA 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.) GREGORIO V. CABANTAC Deputy Commissioner