ITAD BIR Ruling No. 001-15

January 9, 2015 ITAD BIR RULING NO. 001-15 Article 10, Philippines-Denmark tax treaty SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Antonette C. Tionko Principal, Tax Services Gentlemen : This refers to your tax treaty relief application filed on May 3, 2013, requesting confirmation that dividends paid by DMCI Holdings Incorporated ("DMCI Philippines") to Emerging Markets Aktier ("EMA Denmark") are subject to 15 percent preferential tax rate pursuant to Article 10 of the Convention between the Republic of the Philippines and the Kingdom Government of Denmark for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Denmark tax treaty") . It is represented that EMA Denmark, with principal address at Otto Monsteds Plads 9 1780, Copenhagen V, Denmark is a corporation organized and existing under the laws of Denmark, and is a resident of Denmark within the meaning of the Philippines-Denmark tax treaty per the Certificate of Residence issued by the Tax Authorities of Denmark on April 17, 2013; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated May 2, 2013; and that on the other hand, DMCI Philippines is a corporation duly organized and existing under the laws of the Philippines, with principal office address at 3rd Floor, Dacon Building, 2281 Chino Roces Avenue, Makati City. It is further represented, that at the meeting of the Board of Directors of DMCI Philippines held on April 11, 2013, a resolution was approved declaring cash dividends in the amount of Php1.20 per outstanding common share and a special cash dividends of Php1.00 per outstanding common share, payable to all stockholders of record as of April 26, 2013, payable on May 10, 2013; that based on the Corporate Secretary's Certificate of DMCI Philippines issued on June 7, 2013 and as of the date of payment of the subject dividends, EMA Denmark owns a total of 784,600 shares as of April 26, 2013 which represents 0.029546% ownership in DMCI Philippines ; and that based on a Bank Certification such dividends was remitted to EMA Denmark on May 10, 2013. It is finally represented, based on the Sworn Statement issued by the Corporate Secretary of DMCI Philippines on April 30, 2013, that the dividends subject of this ruling are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. SaITHC In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to income derived in the Philippines by a nonresident foreign corporation. It 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 interest, 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%) . . . ." However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: "Section 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." In relation thereto, Article 10 of the Philippines-Denmark tax treaty, which you invoked, may apply to the instant case. It provides: "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 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 so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 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. EaHcDS The competent authorities of the Contracting States may by mutual agreement settle the mode of application of these limitations. 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 laws of the State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of Denmark may be taxed in the Philippines at a rate (a) 10% of the gross amount of the dividends if the beneficial owner is a company which holds directly 25% of the capital of the company paying the dividends; and (b) 15% of the gross amount of dividends in all other cases. Accordingly, considering that EMA Denmark is a company which holds 0.029546% of the outstanding capital stock of DMCI Philippines , this Office is of the opinion and so holds that the dividends paid by DMCI Philippines to EMA Denmark are subject to the preferential tax rate of 15 percent of the gross amount of the dividends pursuant to Article 10 (2) (b) of the Philippines-Denmark tax treaty. This ruling is issued on the basis of the foregoing 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue