Request for Review of BIR ITAD Ruling No. 275-11

March 20 , 2012 DOF OPINION Caguioa & Gatmaytan 30th Floor 88 Corporate Center Sedeno corner Valero Streets Salcedo Village, Makati City 1227 Attention: Atty. Alfredo Benjamin S. Caguioa Atty. Norma Margarita B. Patacsil Atty. Anthony Mark A. Gutierrez Atty. Lyra Miragrace C. Flores SUBJECT : Request for Review of BIR ITAD Ruling No. 275-11 Gentlemen : This is in reference to your request for review, on behalf of your client, Holcim Philippines, Inc. ("Holcim"), which is representing Holderfin B.V. ("Holderfin"), of Bureau of Internal Revenue ("BIR") Ruling No. ITAD 275-11 dated 18 November 2011, which denied the Tax Treaty Relief Application ("TTRA") filed by Holcim on 01 July 2010 for application of the preferential tax rate of ten percent (10%) to dividends declared by Holcim payable to Holderfin for having been filed beyond the fifteen (15)-day period prescribed by Section III (2) of Revenue Memorandum Order No. 1-2000 ("RMO 1-2000"), to wit: "In view of the foregoing, since the dividends received by Holderfin B.V. were paid on June 25, 2010, and the subject TTRA was only filed on July 1, 2010 in violation of Section III(2) of RMO 1-2000, this Office hereby DENIES the TTRA for having been filed beyond the 15-day period prescribed by the RMO. Consequently, the subject dividends shall be subject to income tax at the rate of 30% as provided under Section 28(B)(1) of the 1997 National Internal Revenue Code, as amended." As culled from the records, the facts are as follows: Holderfin is a corporation organized and existing under the laws of Netherlands. It is not registered as a corporation or partnership in the Philippines. On the other hand, Holcim is a corporation existing under the laws of the Philippines. On 01 July 2010, Holderfin filed its TTRA with the BIR ITAD to request confirmation that the dividends to be paid by Holcim to Holderfin are subject to a preferential tax rate of ten percent (10%) pursuant to the Convention between the Republic of the Philippines and the Kingdom of Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("RP-Netherlands Tax Treaty"), effective 01 January 1992. acHETI Based on the Secretary's Certificate dated 07 June 2010 issued by the Corporate Secretary of Holcim, its Board of Directors declared cash dividends in the amount of Php0.40 per share in favor of stockholders of record as of 03 June 2010, payable not later than 25 June 2010. Per the documents submitted, it appears that, as of 30 January 2011, Holderfin is the holder of 1,168,450,997 shares of stock of Holcim, which is equivalent to 18.11% of the total and outstanding 6,452,099,144 common shares of stock of Holcim, as shown on the Secretary's Certificate dated 01 February 2011. Holcim requested the review of BIR Ruling No. ITAD 275-11 before this Office, and alleged that it complied with the requirements of RMO 1-2000 when it filed its TTRA on 01 July 2010 because Holcim actually paid the dividends on 16 July 2010. The reason given for the delay in the payment of the dividends was attributed to the delay in the arrival of the consularized documents that Holcim attached to the TTRA it filed. It was further alleged that since the consularized documents only arrived on 25 June 2010, Holcim withheld payment of the dividends until after fifteen (15) days from the date it was able to file the TTRA on 01 July 2010. Thus, although the Secretary's Certificate dated 07 June 2010 stated that the dividends were to be paid not later than 25 June 2010, Holcim delayed the payment of such dividends in order to comply with the prescribed period of fifteen (15) days pursuant to RMO 1-2000. After a careful review of the case records, we see no reason to depart from the findings and conclusions of the BIR. We note that the RP-Netherlands Tax Treaty provides the following rules with respect to dividends: "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% 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 percent of the capital of the company paying the dividends; cSaATC b) 15% 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." Based on the afore-quoted provisions of the RP-Netherlands Tax Treaty, dividends paid by a company which is a resident of the Philippines to a company who is a resident of the Netherlands shall be taxed in the Philippines in the afore-quoted amounts, subject to the conditions specified in the RP-Netherlands Tax Treaty. Thus, the dividends paid to a resident company of the Netherlands, will be taxed in the Philippines at a preferential rate not exceeding ten percent (10%) of the gross amount of dividends if the recipient is a company which owns at least ten percent (10%) of the capital of the company paying the dividends, and at a rate not exceeding fifteen percent (15%), in all other cases. In order to implement the proper exercise of the grant of the afore-mentioned preferential tax rates under the RP-Netherlands Tax Treaty, the BIR issued RMO 1-2000 which prescribes the procedure to be followed in availing tax treaty reliefs. In the said RMO 1-2000, in cases of tax treaty relief availment from double taxation, the BIR adopted the policy and procedure of requiring the filing of a TTRA with the ITAD at least fifteen (15) days before the transaction, such as the payment of dividends, thus: "III. Policies: In order to achieve the above-mentioned objectives, the following policies shall be observed: 1. The processing for tax treaty relief shall be transferred from Law Division to the International Tax Affairs Division (ITAD) in accordance with the approved memorandum dated March 23, 1999. 2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction, i.e., payment of dividends, royalties, etc., accompanied by supporting documents justifying the relief. Consequently, BIR Form Nos. TC 001 and TC 002 prescribed under RMO 10-92 are hereby declared obsolete. EHScCA xxx xxx xxx IV. Procedures: The following procedures are to be observed in the processing of the tax treaty relief application: 1. Taxpayer 1.1 Accomplish the new BIR Form 0901 Application for Relief from Double Taxation. 1.2 File BIR Form 0901 with ITAD at least 15 days before the transaction i.e., payment of dividends, royalties, etc., with all the supporting documents justifying the relief sought. . . ." 1 In order to avail of any tax treaty relief under any Philippine tax treaty, the applicant must file a duly accomplished TTRA, using the prescribed BIR Form, at least fifteen (15) days prior to the occurrence of the transaction, which may be the payment of dividends, royalties, etc., and such TTRA must also be accompanied with the complete supporting documents. In the case of Holderfin, it claims to have been paid cash dividends on 16 July 2010. However, the Secretary's Certificate dated 07 June 2010 attached to the TTRA filed on 01 July 2010 showed that the dividends were to be paid not later than 25 June 2010. Based on the supporting documents filed with the TTRA, it appears that the TTRA was filed five (5) days after the scheduled date of payment of the dividends on 25 June 2010, and is twenty (20) days later than the date on which it should have filed the TTRA in order to avail of the tax treaty relief pursuant to the provisions of RMO 1-2000. Thus, BIR arrived at the conclusion that in order for the TTRA of Holderfin to have been considered timely filed in accordance with RMO 1-2000, Holderfin should have filed the same on 10 June 2010, which is at least fifteen (15) days prior to the intended date of payment of the dividends on 25 June 2010. In its request for review, Holderfin contends that the factual circumstances, as culled from the documents it filed with the TTRA and upon which the BIR based its ITAD Ruling No. 275-11, appear to be different than from that which actually occurred. Holderfin presented documents showing purported wire transfers, representing cash dividends to Holderfin, debiting the account of Holcim in Deutsche Bank AG-Manila Branch in favor of the account of Holderfin. aASDTE It is worthy to note that the alleged circumstances were not presented by Holderfin while its request for a ruling was still pending with the BIR. The records show that from the time it filed its TTRA on 01 July 2010, it has been submitting additional supporting documents requested by the BIR until its last submission on 01 September 2011. It should be emphasized that Holderfin is now alleging that the cash dividends were paid to it on 16 July 2010 but this fact was not presented to the BIR, notwithstanding its knowledge of the provisions of RMO 1-2000 requiring the filing of the TTRA at least fifteen (15) days before the payment of dividends. On the other hand, the documents that Holderfin submitted to support its position are only copies of wire transfer documents, which are not even certified and, thus, appear to be self-serving. Moreover, Holderfin should have presented proof that Holcim had withheld payment for the purpose of complying with the fifteen (15)-day period under RMO 1-2000. Had Holderfin endeavored to provide such proof, the instant case would have been avoided. It is the duty of Holcim to apprise the BIR of any information that it deems important to obtain approval of its TTRA which was then pending with the BIR. Applying the provisions of RMO 1-2000, it is clear that, based on the supporting documents submitted together with the TTRA on 01 July 2010, the TTRA was filed beyond the period prescribed in RMO 1-2000. Consequently, the TTRA of Holcim should be denied and the dividends paid by Holcim to Holderfin on 16 July 2010 should be subject to the regular income tax at the rate of thirty percent (30%) of the gross amount thereof, in accordance with Section 28 (B) (1) (a) 2 of the NIRC. Based on the foregoing, we hereby affirm the ruling of the Commissioner in its entirety. The dividends paid by Holcim to Holderfin on 16 July 2010 will be subject to regular income tax at the rate of thirty percent (30%) of the gross amount thereof, pursuant to Section 28 (B) (1) (a) of NIRC, as amended. Very truly yours, (SGD.) CESAR V. PURISIMA Secretary Footnotes 1. Emphasis supplied. 2. Section 28 of the NIRC provides: "SECTION 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. (1) In General. Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph 5 (C): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%) . . . ." [Emphasis supplied]