Isla Lipana & Co.

February 7, 2020 ITAD BIR RULING NO. 017-20 Article 10 (7), Philippines-Netherlands tax treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: AAA ________________ Gentlemen : This refers to your tax treaty relief application filed on May 4, 2017 requesting confirmation that profits remitted to Quezon Power, Inc. (" Quezon Power-Netherlands ") by Quezon Power, Inc.-Philippine Branch (" Quezon Power-Philippines ") are subject to income tax at the preferential rate of 10 percent pursuant to 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 "). HTcADC It is represented that Quezon Power-Netherlands is foreign corporation organized and existing under the laws of the Netherlands and a resident thereof based on its Certificate of Residence issued by the Tax Administration Office of Rotterdam in the Netherlands; that Quezon Power-Netherlands is licensed by the Securities and Exchange Commission to establish a branch office in the Philippines; that the primary purpose of the branch office is to develop, implement, design, engineer, and arrange for financing, a 440 megawatt coal-fired power plant to be located in Quezon Province, Philippines; and that the branch office referred herein is Quezon Power-Philippines , with registered office at Octagon Centre, Pasig City, Philippines. It is further represented that, on separate occasions, the Board of Directors of Quezon Power-Netherlands formally approved the remittance of branch profits by Quezon Power-Philippines to Quezon Power-Netherlands , to wit: Date of Declaration Gross amount of branch profits Date of outward remittance December 23, 2016 US$___________ December 23, 2016 June 13, 2017 US$ _________ June 10, 2017 July 10, 2018 US$ _________ July 13, 2018 October 4, 2018 US$ _________ October 8, 2018 It is finally represented that the income subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or judicial appeal, based on a sworn statement issued by Quezon Power-Netherlands . In reply, please be informed that Section 28 (A) (5) of the National Internal Revenue Code (Tax Code) of 1997, as amended, provides that profits remitted by a branch office to its head office abroad are subject to branch profits remittance tax at the rate of 15 percent, thus: CAIHTE "SEC 28. Rates of Income Tax on Foreign Corporations. (A) Tax on Resident Foreign Corporations. 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 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, paragraph 7, Article 10 of the Philippines-Netherlands tax treaty provides that branch profits remitted by a permanent establishment in the Philippines to its head office in the Netherlands are subject to tax at the lower rate of 10 percent, 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 paragraph 2 (b), Article 5 of the same tax treaty, the term " permanent establishment " includes a branch office, to wit : " Article 5 PERMANENT ESTABLISHMENT xxx xxx xxx 2. The term 'permanent establishment' includes especially: a) a place of management; b) a branch ; xxx xxx xxx" In view of the above provisions, since Quezon Power-Philippines is a permanent establishment of Quezon Power-Netherlands , branch profits remitted by the former to the latter are subject to income tax at the rate of 10 percent pursuant to paragraph 7, Article 10 of Philippines-Netherlands tax treaty. aScITE 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.) CAESAR R. DULAY Commissioner of Internal Revenue