Request for Review of BIR Ruling No. ITAD-367-12 Issued on 31 October 2012

May 7, 2014 DOF OPINION 1st Indorsement Respectfully referred to Hon. Kim S. Jacinto-Henares, the Commissioner of the Bureau of Internal Revenue (BIR), for appropriate action, the attached case docket of the Request for Review of BIR Ruling No. ITAD-367-12 (Request) filed with this Department on 16 January 2013 by Aventis Holdings, Inc. (Aventis Holdings), a corporation organized and existing under the laws of the State of Delaware, United States of America. The Request seeks the review of BIR Ruling No. ITAD-367-12 issued on 31 October 2012, which denied Aventis Holdings' Tax Treaty Relief Application (TTRA) dated 18 June 2010, filed with the BIR-International Tax Affairs Division (BIR-ITAD) on 21 June 2010. Aventis Holdings' TTRA sought confirmation from the BIR-ITAD that the capital gains derived by Aventis Holdings from the sale of its shares of stock in Sanofi-Aventis Philippines, Inc. (Sanofi-Aventis Philippines) to Sanofi-Aventis Europe (Sanofi-Aventis Europe), are exempt from income tax pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income , signed on 01 October 1976 (RP-US Tax Treaty). As basis for the denial, the BIR-ITAD cites Revenue Memorandum Order (RMO) No. 1-2000, which provides therein that any availment of the tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed with the BIR-ITAD at least fifteen (15) days before the transaction. BIR Ruling No. ITAD-367-12 stated that since the consideration for the transfer of shares of stocks owned in Sanofi-Aventis Philippines was paid by Sanofi-Aventis Europe to Aventis Holdings on 01 December 2009, but the TTRA was filed only on 21 June 2010, then the RP-US Tax Treaty relief sought may not be granted. For having been filed beyond the 15-day prescribed period provided in RMO 1-2000, the TTRA seeking confirmation that the capital gains derived by Aventis from the transaction is not subject to Philippine income tax, was denied by the BIR-ITAD. acHITE In connection therewith, we take note of the ruling of the Supreme Court in the case of Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue , G.R. No. 188550 dated 19 August 2013, which has already attained finality. Said case dealt with the validity of the particular subject requirement under RMO No. 1-2000 that any availment of a tax treaty relief must be preceded by an application with BIR-ITAD at least fifteen (15) days before the transaction. In ruling that the RMO must not be strictly construed as to deprive persons of the benefit of a tax treaty, the Supreme Court held that in conformity with the generally accepted principle in international law of pacta sunt servanda , ". . . laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements ." The Supreme Court further stated that, "Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. . . . At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief." In view of the said Decision and Resolution of the Supreme Court, we respectfully refer the Request for Review of BIR Ruling No. ITAD-367-12 filed by Aventis Holdings, Inc. to your Office, for appropriate action. Thank you for your attention. (SGD.) CARLO A. CARAG Undersecretary Revenue Operations and Legal Affairs Group