ITAD BIR Ruling No. 034-14

April 14, 2014 ITAD BIR RULING NO. 034-14 Article 10, Philippines-Belgium tax treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Atty. Christopher G. de Guzman Gentlemen : This refers to your tax treaty relief application filed on December 6, 2012, requesting confirmation that dividends paid by THE NIELSEN COMPANY (PHILIPPINES), INC. (" Nielsen Philippines ") to THE NIELSEN COMPANY (BELGIUM) SPRL (" Nielsen ") are subject to income tax at 10 percent preferential tax rate pursuant to the Agreement between Republic of the Philippines and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Belgium tax treaty"). It is represented that Nielsen is a foreign corporation organized and existing under the laws of Belgium and a resident thereof based on the Certificate of Residence issued by the Federal Public Service-Finance on March 09, 2012; that Nielsen is situated at Avenue de Pleiades 73, 1200 Brussels, Belgium; that Nielsen is not registered as a corporation or partnership in the Philippines based on Certification of Non-Registration of Company issued by the Securities and Exchange Commission ("SEC") on December 18, 2012; that Nielsen Philippines is a domestic corporation situated at Prudentialife Building, #31 Edsa corner Apo Street, Mandaluyong City, Philippines. On November 13, 2012, the Board of Directors of Nielsen Philippines , at its special meeting, declared cash dividends in the amount of P195,000,000.00 out of the Corporation's unrestricted retained earnings as of December 31, 2011 and shall be paid in December 2012 in favor of the stockholders of record as of November 27, 2012 based on the Secretary's Certificate issued on December 3, 2012; that Nielsen holds 1,131,573 common shares equivalent to P113,157,300.00 which constitute 99 percent of the shares of Nielsen Philippines based on the Secretary's Certificate dated December 6, 2012; and that on December 14, 2012 the amount of US$4,257,669.92 has been remitted to Nielsen through telegraphic transfer as evidenced by the Certification executed by The Hongkong and Shanghai Banking Corporation Ltd. (HSBC) on June 18, 2013. HCISED It is finally represented that the dividend subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Sworn Statement issued by the Executive Director, Finance of Nielsen Philippines on December 04, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" Tax Code "), as amended, provides that dividend paid to Nielsen , a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "Section 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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx However, Section 32 (B) (5) of the Tax Code provides that such dividend may be exempt from income tax or subject to reduced rate to the extent required by any treaty obligation on the Philippines, viz. : "Section 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. xxx xxx xxx" With respect to a treaty, you invoke the Philippines-Belgium tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: ADCETI "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 also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10 per cent of the capital of the company paying the dividends; b) 15 per cent of the gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income even paid in the form of interest which is treated as income from shares by the tax legislation of the State of which the paying company is a resident. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Belgium may be taxed in the Philippines at a rate not to exceed: (a) 10 percent of the gross amount of dividends if the beneficial owner is a company which holds directly at least 10 per cent of the capital of the paying company; and (b) 15 percent of the gross amount of the dividends in all other cases. Accordingly, inasmuch as Nielsen , the recipient of the dividend from Nielsen Philippines , holds directly 99 percent of the capital of Nielsen Philippines , such dividends paid by Nielsen Philippines to Nielsen are subject to income tax at the rate of 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Belgium 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. IScaAE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue