Shell Philippines Exploration B.V.

March 11, 2020 ITAD BIR RULING NO. 029-20 Articles 5 (Permanent Establishment) and 10 (Dividends) Philippines-Netherlands tax treaty Shell Philippines Exploration B.V. 19th Floor, Asian Star Building Asean Drive, Filinvest Corporate City 1781 Alabang, Muntinlupa City Attention: AAA _______________ Gentlemen : This refers to your tax treaty relief application filed on September 24, 2013 requesting confirmation that branch profits remitted by Shell Philippines Exploration B.V.-Philippine Branch ("Shell Philippine Branch") to its head office in the Netherlands are subject to income tax at the rate of 10% 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") . FACTS Shell Philippines Exploration B.V. ("Shell") is a corporation organized and existing under the laws of the Netherlands and a resident thereof based on its Articles of Association and Declaration of Residence issued by Tax Administration of the Netherlands. The object of Shell as a company is to prospect for and produce solid, liquid and gaseous hydrocarbons and other minerals, and to process, transport, store and engage in trading in solid, liquid and gaseous hydrocarbons and products. Shell is licensed by the Securities and Exchange Commission to establish a branch office in the Philippines, to undertake its joint venture contract with Occidental Petroleum in the exploration and production of hydrocarbons offshore northwest of Palawan province in the Philippines. The branch office is Shell Philippine Branch with office address in Muntinlupa City, Philippines. Based on an affidavit issued by Shell Philippine Branch , the latter will remit branch profits its head office in the Netherlands on September 26, 2013, amounting to US$ _______________ . Based on the same affidavit, the income subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, or judicial appeal. cEaSHC 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 are subject to income tax at the rate of 15%, 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 (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." However, under Section 32 (B) (5) of the Tax Code, such income is exempt to the extent required by any treaty obligation on the Philippine government, 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." Relative thereto, paragraphs 1 and 2 of Article 5 and paragraph 7 of Article 10 of the Philippines-Netherlands tax treaty provide: " 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." " 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." CTIEac Under Article 5, a branch office constitutes a permanent establishment. Moreover, under Article 7, if the branch office remits profits to its head office abroad, the Contracting State where the branch office is situated may impose an additional tax on the profits, which shall not exceed 10% of the amount remitted. Accordingly, the profits remitted by Shell Philippine Branch to its head office in the Netherlands are subject to income tax at the rate of 10% pursuant to paragraph 7, Article 10 of the Philippine-Netherlands 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.) CAESAR R. DULAY Commissioner of Internal Revenue