ITAD BIR Ruling No. 006-15

January 13, 2015 ITAD BIR RULING NO. 006-15 Article 10, Philippines-Netherlands Tax Treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Mr. Alexander B. Cabrera Chairman and Senior Partner Gentlemen : This refers to your tax treaty relief application dated December 3, 2013, on behalf of BRENNTAG (HOLDING) BV ("BHBV"), requesting confirmation that the dividends paid by BRENNTAG INGREDIENTS, INC. ("BII") to BHBV are subject to 10 percent preferential tax rate pursuant to the Convention between the Kingdom of the Netherlands and the Republic of the Philippines 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 BHBV, with address at Donker Duyvisweg 44, 3316 BM Dordrecht, the Netherlands, is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty based on the Certificate of Residence issued by the Director-General of Tax and Customs Administration of the Netherlands dated September 30, 2013; that based on its amended Articles of Association, BHBV is company incorporated under the laws of the Netherlands with share capital divided into shares with a nominal value of ninety euro cents (EUR0.90) each, numbered from 1 onwards; that BHBV is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on October 30, 2013; and that, on the other hand, BII is a domestic corporation duly organized and existing under Philippine laws, located at the 4th Floor, Builders Centre Building, 170 Salcedo St., Legaspi Village, Makati City. It is further represented that on May 27, 2013, the BII Board of Directors declared cash dividends in the total amount of Php60,000,000.00 to all stockholders of record as of December 31, 2012 payable on December 5, 2013; that as of May 27, 2013, BHBV legally and beneficially owns 1,200,000 of the outstanding common shares in BII, including 8 nominee shares, with par value of Php100.00 per share or a total par value of Php120,000,000.00; that such shares were acquired by BHBV on May 28 and July 6, 2012 as evidenced by Secretary's Certificate issued by BII dated November 12, 2013; and that said dividends were remitted by BII to BHBV on December 10, 2013 as certified by Metrobank on December 23, 2013. It is finally represented, based on the Sworn Statement issued by BII on November 18, 2013, that the transaction subject of the request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal of the taxpayer/s involved. EHTSCD In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (Tax Code of 1997), as amended, applies, in general, to dividends 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 . . ., dividends, . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides that any income may be exempt from tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "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. xxx xxx xxx" With respect to a treaty, what you invoke for this purpose Article 10 of the Philippines-Netherlands tax treaty. It provides: "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 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. AEcTCD 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. 6. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of one of the States, carries on business in the other State, of which the company paying the dividends is a resident, through a permanent establishment situated therein or performs in that other State professional services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be subject to income tax in the Philippines, but the rate of tax that may be imposed thereon shall not exceed: (a) 10 percent of the gross amount of dividends if the recipient of the dividends 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; and (b) 15 percent of the gross amount of the dividends in all other cases. Accordingly, inasmuch as BHBV is a private company in the Netherlands the capital of which is wholly divided into shares, and since BHBV holds directly 100% percent of the capital of BII (which is actually more than the required minimum shareholding of 10 percent), such dividends to be paid by BII to BHBV are subject to income tax in the Philippines at the rate of 10 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. This ruling is issued on the basis of the 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