ITAD BIR Ruling No. 009-10

June 3, 2010 ITAD BIR RULING NO. 009-10 Article 10 (2) (a), Philippines-Switzerland tax treaty Manabat Delgado Amper & Co. 5th Floor, Salamin Building 197 Salcedo St., Legaspi Village Makati City 1229 Attention: Richard R. Lapres Partner, Tax and Corporate Gentlemen : This refers to your letter dated September 9, 2008, on behalf of your client, UBS Securities Philippines, Inc . (UBS-Philippines), requesting confirmation of your opinion that the dividends paid by UBS-Philippines to UBS AG (UBS-Switzerland) shall be taxed at the preferential tax rate of ten percent (10%), pursuant to Article 10 (2) (a) of the Philippines-Switzerland tax treaty. ITScHa It is represented that UBS-Switzerland is a corporation organized and existing under the laws of Switzerland with principal address at Bahnhofstrasse 45 8001 Zurich Switzerland per Certificate of Residence issued on February 1, 2008; that it is not registered either as a corporation or as a partnership in the Philippines per certification issued by the Securities and Exchange Commission dated September 8, 2008; that UBS-Philippines is a corporation organized and existing under the laws of the Philippines with principal address at 19th Floor, Tower 1 Exchange Plaza, Ayala Avenue corner Paseo de Roxas, Makati City. It is further represented that UBS-Switzerland is a major stockholder of UBS-Philippines with a shareholding of 1,899,995 shares with a par value of 189,999,500.00, as of December 31, 2007; that at the Second Quarter Meeting of the Board of Directors of UBS-Philippines held on August 22, 2008, it was resolved in relation to Resolution No. 08-08 dated June 30, 2008 with respect to the declaration of dividends in the amount of One Hundred Ten Million Pesos (PhP110,000,000.00) from its unrestricted retained earnings as shown in their audited financial statements as of December 31, 2007 to all stockholders as of June 30, 2008, and the dividend rate shall be PhP57.8947 per share; that the dividends shall be payable in 2 tranches with the initial amount of Thirty-Four Million Seven Hundred Thirty-Six Thousand Eight Hundred Twenty Pesos (PhP34,736,820.00) to be paid not later than August 30, 2008 while Seventy-Five Million Two Hundred Sixty Three Thousand One Hundred Eighty Pesos (PhP75,263,180.00) shall be payable not later than December 31, 2008; that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal per certification issued by UBS-Philippines dated 3 September 2008. 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 dividends received by a nonresident foreign corporation which 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%)." 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. xxx xxx xxx" Thus, the provisions of Article 10 of the Philippines-Switzerland tax treaty, which you invoke, may apply to the instant case. It provides "Article 10 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. CaHAcT 2. However, such dividends may also 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 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 beneficial owner is a company (excluding partnerships) which holds directly at least 10 per cent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 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 taxation law of that State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions of Article 10, dividends paid by a Philippine corporation to a resident of Switzerland may be taxed at a rate not exceeding 10% of the gross amount of dividends if the recipient is a company which holds directly at least 10% of the capital of the Philippine corporation; and 15% if the shareholdings of the recipient company is below 10% of the capital of the paying company. In view thereof, since UBS-Switzerland directly owns more than 10% of the capital stock of UBS-Philippines, this Office is of the opinion and so holds that the dividend payments by UBS-Philippines to UBS-Switzerland are subject to 10% preferential tax rate pursuant to Article 10 (2) (a) of the Philippines-Switzerland 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. EcSCHD Very truly yours, (SGD.) JOEL L. TAN-TORRES Commissioner of Internal Revenue