DA ITAD BIR Ruling No. 119-07

December 6, 2007 DA ITAD BIR RULING NO. 119-07 Article 10, Philippines-Sweden tax treaty; BIR Ruling No. 070-81; DA ITAD-118-04 AstraZeneca Pharmaceuticals (Phils.), Inc. AstraZeneca Building Km 14 South Superhighway Paraaque City 1700 Philippines Attention: Josephine L. Carpio Finance Director Gentlemen : This refers to your application for relief from double taxation dated August 1, 2005, requesting confirmation of your opinion that the dividends paid by AstraZeneca Pharmaceuticals (Phils.), Inc. (AZP) to AstraZeneca AB (AAB) are subject to the preferential tax rate of 10% pursuant to Article 10 of the Philippines-Sweden tax treaty. caDTSE It is represented that AAB, formerly Astra AB is a nonresident foreign corporation organized and existing under the laws of Sweden with address at S-151 85 Sodertalje, Sweden; that it is not registered either as a corporation or a partnership licensed to do business in the Philippines per certification dated July 22, 2005 issued by the Securities and Exchange Commission; that AZP is a corporation organized and existing under laws of the Philippines, with office address at AstraZeneca Building, Km. 14, Edison Avenue, South Superhighway, Paraaque, Metro Manila; that as of December 31, 2004, AAB owns and holds Two Million Ninety Four Thousand Nine Hundred Seventy (2,094,970) shares in AZP equivalent to a total value of Two Hundred Nine Million Four Hundred Ninety Seven Thousand Pesos (PhP209,497,000), representing approximately 99.98% of the total outstanding and issued shares of AZP; and that on July 8, 2005, the Board of Directors of AZP declared cash dividends in the aggregate amount of Two Hundred Million Pesos (PhP200,000,000.00) to all stockholders of record as of December 31, 2004 to be distributed in proportion to their respective stockholdings, payable on September 6, 2005. IaEHSD In reply, please be informed that Article 10 of the Philippines-Sweden tax treaty provides as follows, 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 also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax to charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (excluding partnerships) which holds directly at least 25 percent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. HDICSa This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. 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 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% preferential tax rate on dividends shall apply whenever the recipient, who is the beneficial owner of the dividends, owns at least 25% of the capital of the paying company. In all other cases, the 15% preferential tax rate shall apply. Such being the case and considering that AAB holds approximately 99.98% of the total outstanding and issued shares equivalent to a total value of Two Hundred Nine Million Four Hundred Ninety-Seven Thousand Pesos (PhP209,497,000) which is more than 25% of the capital of AZP, this Office is of the opinion and so holds that the dividend payments by AZP to AAB shall be subject to the preferential tax rate of 10% of the gross amount of dividends, pursuant to Article 10 (2) (a) of the Philippines-Sweden tax treaty. (BIR Ruling No. 070-81 dated April 8, 1981; DA-ITAD-118-04 dated October 27, 2004) 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. HDCAaS Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner