ITAD BIR Ruling No. 035-11

January 31, 2011 ITAD BIR RULING NO. 035-11 Article 10, Philippines-France tax treaty, as amended; Section 28 (B) (1) in relation to Section 32 (B) (5) of the Tax Code of 1997, as amended; BIR Ruling No. ITAD 34-10; BIR Ruling No. ITAD 17-10; BIR Ruling No. DA-ITAD 57-10; BIR Ruling No. DA-ITAD 15-10; BIR Ruling No. DA-ITAD 196-03 Sanofi-Aventis Philippines, Inc. 3rd Floor Feliza Building 108 V.A. Rufino St., Legaspi Village, Makati Attention: Gladys M. Solidum Compliance Manager Gentlemen : This refers to your Tax Treaty Relief Application filed on December 21, 2010, on behalf SANOFI AVENTIS EUROPE ( "saE" ), requesting confirmation that the dividends payable by SANOFI-AVENTIS PHILIPPINES, INC. ( "saPI" ) to saE are subject to the preferential tax rate of 10 percent pursuant to Article 10 (2) (a) of the Convention between the Government of the Republic of the Philippines and the Government of the French Republic for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-France tax treaty") , as amended. It is represented that saE is a corporation organized and existing under the laws of France and is a resident of France with registered office address at 174 Avenue de France, 75013 Paris per Certificate of Residence issued by the Tax Authority of France dated November 30, 2010; that saE's main line of business is the manufacture and sale of all chemical, biological, dietetic and hygiene-related products; that saE is not registered as a corporation or as a partnership in the Philippines as evidenced by the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated November 9, 2010; and that, on the other hand, saPI is corporation duly organized and existing under the laws of the Philippines with office address at 3rd Floor Feliza Building, 108 V.A. Rufino Street, Legaspi Village, Makati City. It is also represented that saE acquired 1,970,521 common shares of saPI from Aventis Holdings, Inc. on December 2, 2009, and that said shares represent 99.9% of the outstanding capital stock of saPI per Secretary's Certificate dated December 13, 2010; that at the meeting of the Board of Directors of saPI held on December 6, 2010, it was resolved that a cash dividend amounting to Two Hundred Fifty Million Pesos (Php250,000,000.00) be distributed among saPI's stockholders of record as of December 31, 2009, payable on December 22, 2010; and that, per Sworn Statement of saPI dated December 13, 2010, the dividends subject of the application for tax treaty relief is not subject of an investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. TcHCIS In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: "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 . . ., dividends, . . .: 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 of 1997, as amended, provides: "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" In this particular case, the treaty involved is the Philippines-France tax treaty, as amended, which, in its Article 10, provides: "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: a) 10 per cent of the gross amount of the dividends if the recipient is a company (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; b) in all other cases 15 per cent of the gross amount of the dividends. 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 from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. 4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or Article 14, as the case may be, shall apply. IASCTD xxx xxx xxx" Based on the above provisions, the Philippines may tax the dividends paid by a Philippine company to a company which is a resident of France at a rate not exceeding 10 percent of the gross amount dividends if the latter holds directly at least 10 percent of the voting shares of the first-mentioned company. In all other cases, the 15 percent preferential tax rate shall apply. In view of the foregoing, since saE owns 99.9% of the outstanding capital stock of saPI, the paying corporation, this Office is of the opinion and so holds that the cash dividends to be paid by saPI to saE are subject to the preferential rate of 10 percent withholding tax pursuant to Article 10 (2) (a) of the Philippines-France tax treaty, as amended. (BIR Ruling No. ITAD 34-10 dated September 14, 2010; BIR Ruling No. ITAD 17-01 dated February 19, 2001; BIR Ruling No. DA ITAD 57-10 dated June 4, 2010; BIR Ruling No. DA ITAD 15-10 dated February 1, 2010; BIR Ruling No. ITAD 196-03 dated December 30, 2003) 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