Omnibus Guidelines on the Suspension of LGU Imposition and Collection of Illegal Fees and Taxes Relative to the Transport of Goods and Products

May 2, 2002 ITAD RULING NO. 077-02 RP-US Tax Treaty; Article 11 BIR Ruling No. 056-98 H & Q Philippine Ventures, Inc. 22nd Floor Equitable PCIBank Tower 2, Makati Avenue Makati City Attention: Ms. Susie D. Jaucian Gentlemen : This refers to your letter dated March 23, 2001, requesting for the application of a preferential tax rate on the dividends to be paid by H & Q Philippine Ventures, Inc. (H & Q) to Mr. Gordon S. Macklin pursuant to the RP-US tax treaty. It is represented that Mr. Macklin is a US resident with Taxpayer Identification Number 282-24-0987 as certified by the Department of the Treasury, Internal Revenue Service, Philadelphia, RA 19255 dated July 27, 2001; that H & Q is a domestic corporation with office address at 22nd Floor Equitable PCIBank Tower 2, Makati Avenue, Makati City; that H & Q has issued eleven million (11,000,000) preferred shares and fifty thousand (50,000) common shares to its shareholders as certified by H & Q's corporate secretary per list of shareholders dated March 15, 2001; that out of the eleven million (11,000,000) preferred shares, Mr. Macklin holds twenty eight thousand two hundred thirty three (28,233) shares; and that on March 15, 2001, H & Q declared cash dividend in the amount of Fifty Six Million Pesos (P56,000,000.00) or Twenty Four Pesos (P24.00) per share in favor of all common shareholders and Four Pesos and Seven Centavos (P4.07 rounded figure) per share in favor of all preferred shareholders. In reply, please be informed that Article 11 of the RP-US tax treaty provides, viz : "Article 11 Dividends "1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. "2. The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed "a) 25 percent of the gross amount of the dividend; or "b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. "xxx xxx xxx "5. The term "dividends "as used in this Convention means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the corporation making the distribution is a resident." Pursuant to paragraph 2(a) of the above-quoted Article of the RP-US tax treaty, H & Q's dividend remittance to Mr. Macklin, being a resident of the US, is subject to a preferential tax rate of twenty five (25%) percent of the gross amount of the dividend. aSTECA This ruling is issued based on the foregoing facts as represented. If upon investigation it shall be disclosed that the said facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service