ITAD BIR Ruling No. 020-15

March 20, 2015 ITAD BIR RULING NO. 020-15 Article 10 (Dividends) Philippines-Japan tax treaty O & G Leather Manufacturing Corp. Bldg. 4, A-1 Philexcel Business Park, Clark Freeport Zone, Pampanga, Philippines 2023 Attention: Arlene D. Singca Authorized Representative Gentlemen : This refers to your application for tax treaty relief dated 23 July 2012 requesting confirmation that dividends paid by O & G Manufacturing Corp. ("O & G-Philippines") to Vincenzo Occhipinti ("Vincenzo-Italy") are subject to final withholding tax at the preferential rate of ten percent (15%) pursuant to the Convention between the Republic of the Philippines and Italy for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Italy tax treaty") , as amended. It is represented that Vincenzo-Italy is a non-resident foreign individual who is domiciled in Italy with office address at No. 23, Piazza Stefano Jacini, Roma, Italy based on the Attestato di Residenzia issued by the Agenzia delle Entrate of Italy. Vincenzo-Italy is not registered as an individual doing business in the Philippines based on the Certification issued by the Department of Trade and Industry on 25 June 2012. O & G-Philippines , on the other hand, is a domestic corporation with office address at Bldg. 4, A-1 Philexcel Business Park, Clark Freeport Zone, Pampanga, Philippines 2023. It is further represented that Vincenzo-Italy owns 80% or 276,000 out of the total 344,000 of the authorized capital stock of O & G-Philippines amounting to Twenty Seven Million Six Hundred Thousand Pesos (Php27,600,000.00) valued Php100.00 per share since 31 December 2011 based on the notarized Corporate Secretary's Certificate of O & G-Philippines . On 28 May 2012, O & G-Philippines declared cash dividends in the total amount of Twenty Two Million Pesos (Php22,000,000.00) to be distributed among the stockholders of record as of 31 December 2011 based on the notarized Secretary's Certificate issued by the Corporate Secretary of O & G-Philippines . It is finally represented that the dividends subject of this ruling are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, judicial or administrative protest, collection proceedings or judicial appeal based on the Sworn Statement of O & G-Philippines . In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" NIRC of 1997 "), as amended, dividends paid to Vincenzo-Italy are subject to income tax at the rate of 30 percent, thus: "SEC. 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 interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph 5(c) and (d) above: Provided, That effective 1, 2009, the rate of income tax shall be thirty percent (30%)" HSTAcI However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "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 the Philippines-Italy tax treaty . Paragraphs 1 and 2 of Article 10 on Dividends thereof provide: "Article 10 Dividends 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. 2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed fifteen per cent of the gross amount of the dividend." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of Italy may be taxed in the Philippines at a rate not to exceed 15% of the gross amount of the dividends if the beneficial owner is a resident of Italy. Accordingly, the dividends paid to Vincenzo-Italy by O & G-Philippines is subject to the preferential rate of 15% of the gross amount of the dividends pursuant to the Philippines-Italy 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 of Internal Revenue