ITAD BIR Ruling No. 014-11

January 20, 2011 ITAD BIR RULING NO. 014-11 Article 10 Philippines-Netherlands tax treaty; BIR Ruling No. ITAD 56-10; BIR Ruling No. ITAD 46-10; BIR Ruling No. ITAD 37-10 SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Luis Jose P. Ferrer Partner, Tax Advisory and Advocacy Group Gentlemen : This refers to your application for tax treaty relief dated November 3, 2010, on behalf of your client, Nike Philippines, Inc. ("NPI"), requesting confirmation that cash dividends to be paid by NPI to Nike Laser Holding B.V. ("Nike BV") are subject to a 10 percent preferential tax rate under Article 10 (2) (a) of 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"). IcTEAD It is represented that Nike BV is a corporation organized and existing under the laws of the Netherlands and is a resident of the Netherlands, based on its Deed of Incorporation and on its Declaration of Residence dated September 27, 2010 issued by the Tax and Customs Administration of the Netherlands; that Nike BV has an authorized capital amounting to Ninety Thousand Euros (Eur90,000.00), divided into nine hundred (900) shares, with a par value of One Hundred Euros (Eur100.00) per share; that Nike BV is situated at Colosseum 1, 1213 NL Hilversum, the Netherlands; that it is not registered as a corporation or as a partnership in the Philippines, per Certification of Non-Registration dated October 22, 2010 issued by the Securities and Exchange Commission; and, that, on the other hand, NPI is a corporation organized and existing under the laws of the Philippines, with office address at 10th Floor, The Marajo Tower, 312 26th Street corner Fourth Avenue, Bonifacio Global City, Taguig City, Philippines. It is further represented that the Board of Directors of NPI, during its special meeting on November 3, 2010, unanimously approved the declaration of cash dividends in the amount of Two Hundred and Twenty Five Million Pesos (PhP225,000,000.00), to be distributed among the stockholders of record of NPI as of May 31, 2010, in proportion to their respective shareholdings as of that date, and to be paid on or before November 8, 2010, based on the Minutes of that meeting and on the Certificate issued by the Assistant Corporate Secretary of NPI on November 3, 2010; that as of May 31, 2010, NPI has an outstanding capital stock of Seven Million Seven Hundred and Eighty Thousand Pesos (PhP7,780,000.00), divided into seventy-seven thousand and eight hundred (77,800) common shares, with a par value of One Hundred Pesos (PhP100.00) per share; and, that as of May 31, 2010, being the date of record for the stockholders of NPI entitled to such dividends, Nike BV holds seventy-seven thousand seven hundred and ninety-five (77,795) of these shares in NPI, and the remaining five (5) shares held in trust by five individual nominees for Nike BV. It is finally represented that the dividends subject of the application for tax treaty relief are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Sworn Statement dated October 20, 2010 issued by the Financial Controller of NPI. 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: 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" Based on the above-cited provisions, a preferential tax rate of 10 percent on dividends applies when the beneficial owner 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. In all other cases, a 15 percent preferential tax rate applies. This being the case, and since Nike BV is a company in the Netherlands the capital of which is divided into shares holding directly at least 10 percent of the capital of NPI (in fact, Nike BV holds 99.99 percent of the outstanding capital stock of NPI), this Office is of the opinion and so holds that such dividend payments by NPI to Nike BV are 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. ITAD 056-10 dated October 22, 2010; BIR Ruling No. ITAD 046-10 dated October 5, 2010; BIR Ruling No. ITAD 037-10 dated September 16, 2010). SDEHIa 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 of Internal Revenue