DA ITAD BIR Ruling No. 108-07

November 16, 2007 DA ITAD BIR RULING NO. 108-07 Article 10, Philippines-Netherlands tax treaty; BIR Ruling No. ITAD 029-01 Trilux Electronics & Luminaires, Inc. Special Economic Zone Laguna International & Industrial Park Block 5, Lot 7, CNB Street, 4024 Mamplasan Bian Laguna, Philippines Attention: Mr. Roger Balicao Gentlemen : This refers to your application for tax treaty relief dated July 14, 2006, requesting confirmation that the cash dividends to be paid by Trilux Electronics and Luminaires, Inc. (Trilux Philippines) to Trilux International Holding B.V. (Trilux Netherlands) are subject to the preferential tax rate of 10% pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. THIcCA It is represented that Trilux Netherlands is a nonresident foreign corporation organized and existing under the laws of the Netherlands with office address at Hardwareweg 5, NL-3821 BL Amersfoort, the Netherlands; that it is not registered either as a corporation or as a partnership in the Philippines per certification dated December 7, 2005 issued by the Securities and Exchange Commission; that Trilux Philippines is a corporation duly organized and existing under and by virtue of Philippine laws, with principal office address at Block 5, Lot 7, Laguna International & Industrial Park, Mamplasan, Bian Laguna, Philippines. ICTaEH It is further represented that as of October 31, 2005, Trilux Netherlands is the registered owner of approximately 99.98% of the total outstanding shares of Trilux Philippines or Thirty Thousand (30,000) common shares with a par value of One Thousand Pesos (PhP1,000.00), such shareholding having a total value of Thirty Million Pesos (PhP30,000,000.00); that on November 7, 2005, the Board of Directors of Trilux Philippines declared cash dividends at the rate of US$33.33333 for each outstanding share, provided that the total amount of cash dividends will not exceed the amount equivalent to One Million One Hundred Thousand US Dollars (US$1,100,000.00), out of the unrestricted retained earnings of Trilux Philippines as of October 31, 2005, in favor of the stockholders of record as of November 10, 2005; 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. cDCEHa In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows: "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; ECTIHa b) 15 per cent of the gross amount of the dividends in all other cases. 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. EACIcH xxx xxx xxx" Based on the above-cited provision, 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 Trilux Netherlands holds 99.98% of the total outstanding shares subscribed in Trilux Philippines the value of which is at least 10% of the capital of Trilux Philippines, this Office is of the opinion and so holds that the dividend payments by Trilux Philippines to Trilux Netherlands 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. ADTEaI Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner