Shell Philippines Exploration B.V.

February 21, 2018 ITAD BIR RULING NO. 017-18 Article 10 (Dividends) Philippines- Netherlands tax treaty Shell Philippines Exploration B.V. 19th Floor, Asian Star Building Asean Drive, Filinvest Corporate City Alabang, Muntinlupa City Attention: AAA _______________ Gentlemen : This refers to your tax treaty relief application filed on June 18, 2013 requesting confirmation, among others, that branch profits remitted by the branch office of Shell Philippines Exploration B.V. ( "Shell Philippines" ) to its head office are subject to income tax at the rate of 10 percent 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") . TEHIaD FACTS Shell Philippines is a foreign corporation and a resident of the Netherlands based on its Articles of Association and Declaration of Residence issued by Tax Administration of Rivierenland. Based on the Certificate of Corporate Filing/Information issued by the Securities and Exchange Commission, Shell Philippines has a permanent establishment in the Philippines in the nature of a branch office ( Shell Philippines Branch Office ) which is licensed to undertake its contract of joint venture entered into with Occidental Petroleum in the exploration and production of hydrocarbons offshore N.W. Palawan as approved by the Office of the Energy Affairs. The branch is located within the Philippines. Based on an affidavit issued by Shell Philippines Branch Office on June 18, 2013, it will remit branch profits to its head office in the Netherlands on June 27, 2013 amounting US$__________. Based on a certification issued by Citibank N.A. Manila on November 18, 2013, this amount was remitted to Shell Philippines on June 27, 2013. RULING In reply, please be informed that under Section 28 (A) (5) of the National Internal Revenue Code of 1997 ( "Tax Code" ), as amended, branch profits remitted abroad by a branch office of a foreign corporation engaged in trade or business are subject to income tax at the rate of 15 percent, to wit: "SEC. 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporation. xxx xxx xxx (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 will 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." However, under Section 32 (B) (5) of the Tax Code, such income is exempt or partially exempt to the extent required by any treaty obligation on the Philippines, to wit: " SEC. 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." For this purpose, you invoke paragraph 7, Article 10 (Dividends) of the Philippines-Netherlands tax treaty, which reads: "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 percent of the amount of the remitted profits. This provision shall not apply to profits mentioned in Article 8." Under this provision, profits remitted by a permanent establishment situated in the Philippines to its head office in the Netherlands are subject to tax at the rate of 10 percent. Accordingly, such branch profits remitted by Shell Philippines Branch Office to Shell Philippines are subject to tax at the rate of 10 percent pursuant to paragraph 7, Article 10 of the Philippine-Netherlands tax treaty. On the other hand, with respect to your request that you need not secure a ruling on remittance of branch profits by Shell Philippines Branch Office to Shell Philippines in the future, we hereby grant this request. We consider the following in this decision: DETACa 1. Unlike dividends whose preferential treatment is based on the percentage of stockholding and, in some cases, the period of stockholding, branch profits do not warrant any similar conditions for the treatment. 2. The taxable event for dividends is the declaration of this income by the directors of the domestic company. A similar approval is not necessarily present for branch profits where the head office has the exclusive decision to repatriate profits from the situs country of its branch office or permanent establishment. 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.) CAESAR R. DULAY Commissioner of Internal Revenue