Shell Philippines Exploration B.V.

May 25, 2021 ITAD BIR RULING NO. 021-21 Article 10 (Dividends), Philippines-Netherlands Tax Treaty Shell Philippines Exploration B.V. 19th Floor, Asia Star Building, Asean Drive Filinvest Corporate City 1780 Muntinlupa City Attention: AAA _______________ Gentlemen : This refers to your tax treaty relief application that was filed on June 27, 2012, requesting confirmation that the profits remitted by Shell Philippines Exploration B.V.-Philippine Branch ("SPEX PH Branch") to Shell Philippines Exploration B.V. ("SPEX BV") , its head office, are subject to the preferential tax rate of ten percent (10%) pursuant to paragraph 7, Article 10 (Dividends) of 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"). It is represented that SPEX BV is a corporation organized and existing under the laws of the Netherlands and a resident of the Netherlands for tax treaty purposes based on its Deed of Incorporation and Declaration of Residence issued by the Tax and Customs Administration of the Netherlands; that SPEX BV was established, among others, to prospect for and produce solid, liquid and gaseous hydrocarbons and other minerals, and to process, transport, store and engage in trading, including commission business and agencies, in solid, liquid and gaseous hydrocarbons and products made therefrom alone or together with other substances; that on January 21, 1991, the Securities and Exchange Commission (SEC) granted SPEX BV a license to establish a branch office in the Philippines for the purpose of undertaking a joint venture with Occidental Petroleum in the exploration and production of hydrocarbons offshore northwest of Palawan; and that finally, SPEX PH Branch remitted profits amounting to Sixty Five Million Dollars (USD65,000,000.00) to SPEX BV on July 12, 2012. aDSIHc In reply, please be informed that under Section 28 (A) (5) of the NIRC, any profit remitted by a branch of a foreign corporation in the Philippines to its head office abroad shall be subject to a tax of 15% based on the total profits applied or earmarked for remittance without any deduction of the tax component, thus: "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 where a resident of the Netherlands has a permanent establishment in the Philippines, this permanent establishment may be subject to the branch profits remittance tax withheld at source in accordance with Philippine law but shall not exceed 10% of the amount of the remitted profits, 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 Article 5 of the said tax treaty, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on, and includes especially a branch, among others, viz. : " Article 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop; f) a mine, quarry or other place of exploration or extraction of natural resources; g) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or activity continues for a period of more than 183 days; h) the furnishing of services including consultancy services by an enterprise through an employee or other personnel where activities of that nature continue (for the same or a connected project) for a period or periods exceeding in the aggregate 183 days within any twelve-month period." (Emphasis supplied) It is clear from the foregoing provision that SPEX PH Branch is a permanent establishment of SPEX BV in the Philippines. Accordingly, the profits remitted by SPEX PH Branch to its head office SPEX BV, a resident of the Netherlands, are subject to the preferential tax rate of 10% pursuant to paragraph 7, Article 10 of the Philippines-Netherlands Tax Treaty. This ruling is issued on the basis of the foregoing facts as represented. However, if it will be disclosed upon investigation that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. ATICcS Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue