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November 9, 2004 ITAD RULING NO. 126-04 Article 10, Philippines-Netherlands tax treaty BIR Ruling No. DA ITAD 028-99 Castillo Laman Tan Pantaleon & San Jose The Valero Tower, 122 Valero St. Salcedo Village, 1227 Makati City Philippines Attention: Maria Victoria D . Sarmiento Gentlemen : This refers to your application for tax treaty relief dated August 25, 2004, on behalf of your client DSM Nutritional Products Philippines Inc. (DSM Phil), formerly Roche Vitamins Philippines, Inc., requesting confirmation of your opinion that the dividends payable by DSM Phil to its parent company, Koninklijke DSMNV (DSMNV), are subject to the preferential tax rate of 10% pursuant to Article 10(2)(a) of the Philippines-Netherlands tax treaty. It is represented that DSM N.V. is a nonresident foreign corporation organized and existing under the laws of the Netherlands with address at 6411 TE Heerlen, the Netherlands, Het Overloon 1; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per certification dated May 7, 2004 issued by the Securities and Exchange Commission; that DSM Phil is a corporation organized and existing under laws of the Philippines, with office address at 2252 Don Chino Roces Avenue, Makati City, Philippines; that DSM NV holds Ninety Nine Thousand Nine Hundred Ninety Five (99,995) shares or a total of Nine Million Nine Hundred Ninety Nine Thousand Five Hundred Pesos (Php9,999,500.00) which constitute 99.5% of the total outstanding and voting shares of DSM Phil; that as of March 31, 2004 and to date, the authorized capital stock of DSM Phil is Forty Million Pesos (Php40,000,000.00) divided into 400,000 shares with par value of Php100.00 each, out of which 100,000 shares have been subscribed and fully paid; and that at a special meeting held on May 3, 2004, the Board of Directors of DSM Phil unanimously approved and declared cash dividends in the amount of Php122.79455 per outstanding share or a total amount of Php12,279,455.00 to the stockholders of record as of March 31, 2004, payable on or before May 10, 2004 out of the retained earnings as of December 31, 2003. In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows, viz : "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. EADCHS 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; b) 15 per cent of the gross amount of the dividends in all other cases. "xxx xxx xxx" "4. 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 that distribution is a resident. "xxx xxx xxx" Based on the above-cited provisions, the 10 percent preferential tax rate on dividends apply whenever the beneficial owner/recipient of the dividend owns at least 10 percent of the outstanding voting shares of the paying company. In all other cases the 15 percent preferential tax rate applies. Such being the case and considering that DSM N.V. holds 99.5% percent of the capital of DSM Phil, this Office is of the opinion and so holds that the dividend payments by DSM Phil to DSM N.V. 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. DA ITAD 028-99 dated October 7, 1999) This ruling is issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service