ITAD BIR Ruling No. 003-16

February 2, 2016 ITAD BIR RULING NO. 003-16 Article 10 (7), Philippines-Netherlands tax treaty R. G. Manabat & Co. The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226 Attention: Maria Georgina J. Soberano Principal, Tax Gentlemen : This refers to your tax treaty relief application filed on December 9, 2014, on behalf of Masin-AES Pte. Ltd. ("Masin-Netherlands") , requesting for a ruling that the profits to be remitted to Masin-Netherlands by its Philippine branch office are subject to final withholding tax at the preferential rate of 10 percent, pursuant to Article 10 (7) of the Convention between the Republic of the Philippines and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . It is represented that Masin-Netherlands is a corporation duly organized and incorporated in Singapore but moved its seat of management and control of company in the Netherlands on 2013; that based on the Certificate of Residence issued on November 12, 2014 by the Tax and Customs Administration of the Netherlands, Masin-Netherlands is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty for the year 2014; that Masin-Netherlands has a branch office in the Philippines registered with the Philippine Securities and Exchange Commission under since June 20, 2007 ("Masin-Netherlands-Philippine Branch") ; that per the Certificate issued by the Branch Head and President & CEO of Masin-Netherlands-Philippine Branch dated December 9, 2014, Masin-Netherlands-Philippine Branch declared branch profits from the total profits derived from its Philippine operations as of December 9, 2014 in the amount of USD41,879,571 and to remit such branch profits to its Head Office not earlier than December 11, 2014. It is finally represented per the Certificate of no pending case issued by Masin-Netherlands-Philippine Branch dated November 20, 2014, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, or judicial appeal. In reply, please be informed that Section 28 of the National Internal Revenue Code (Tax Code) of 1997, as amended, provides, viz. : HSAcaE "SEC. 28. Rates of Income Tax on Foreign Corporations. . . . (A) Tax on Resident Foreign Corporations. . . . (5) Tax on Branch Profits Remittances. Any profit remitted by a branch to its head office shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof (except those activities which are registered with the Philippine Economic Zone Authority). The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this Code: Provided, That interests, dividends, rents, royalties, including remuneration for technical services, salaries wages, premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines. xxx xxx xxx" However, Article 10 (7) of the Philippines-Netherlands tax treaty provides, to wit : "Article 10 Dividends xxx xxx xxx 7. If a resident of one of the States has a permanent establishment in the other State, this permanent establishment may be subject to an additional tax on the profits remitted by that permanent establishment to its head office in accordance with the law of the last-mentioned State, but the additional tax so charged shall not exceed 10 per cent of the amount of the remitted profits. This provision shall not apply to profits mentioned in Article 8." (underscoring supplied) Under Article 5 (2) of the same treaty, the term "permanent establishment" includes a branch, to wit : "Article 5 Permanent Establishment xxx xxx xxx 2. The term 'permanent establishment' includes especially: a) a place of management; b) a branch ; c) an office; d) a factory; e) a workshop; f) a mine, quarry or other place of exploration or extraction of natural resources; g) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or activity continues for a period of more than 183 days; h) the furnishing of services including consultancy services by an enterprise through an employee or other personnel where activities of that nature continue (for the same or a connected project) for a period or periods exceeding in the aggregate 183 days within any twelve-month period. . . ." (Emphasis provided) HESIcT In view of the above provisions, a branch profit remittance tax is a levy on the act of remittance by a branch to its head office for income derived from sources within the Philippines. Generally, branch profit remittance tax of 15 percent is imposed on any profit remitted by a branch office to its head office. However, under the Philippines-Netherlands tax treaty, a resident of Netherlands is entitled to avail of the preferential branch profit remittance tax rate of 10 percent of the amount of the remitted profits. Thus, this office is of the opinion and so holds that remittance of Masin-Netherlands-Philippine Branch , a resident of the Netherlands for tax treaty purposes, to its Head Office is subject to branch profit remittance tax at 10 percent on the total profits applied or earmarked for remittance without any deduction for the tax component thereof, pursuant to Article 10 (7), in relation to Article 5 (2) (b) of the Philippines-Netherlands tax treaty. This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it shall be disclosed that the actual facts are different, this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue