ITAD BIR Ruling No. 035-15

March 23, 2015 ITAD BIR RULING NO. 035-15 Article 10, Philippines-Switzerland Tax Treaty SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Ms. Lucil Q. Vicerra Principal, Tax and Customs Services Gentlemen : This refers to your Tax Treaty Relief Application (TTRA) filed on December 21, 2012 on behalf of your client, DKSH Holdings Ltd. (DPI Holdings, AG), ("DKSH") for a confirmation that the dividend to be paid by DPI Philippines, Inc. ("DPI") to DKSH is subject to 10 percent tax rate pursuant to the Convention between the Republic of the Philippines and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income ("Philippines-Switzerland tax treaty"). It is represented that DKSH, with principal address at Wiesenstrasse 8, 8022 Zurich, Switzerland, is a resident of Switzerland within the meaning of the Philippines-Switzerland tax treaty per Certificate of Residence issued by the Administration Fiscale Cantonale of Switzerland on December 6, 2012; that DKSH is not registered as corporation or as partnership in the Philippines, as shown in the Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on October 9, 2012; and that, on the other hand, DPI is a domestic corporation located at the 2nd Floor Athenaeum Building, L.P. Leviste Street, Salcedo Village, Makati. It is further represented, per Secretary's Certificate issued by DPI dated December 9, 2012, that as of December 31, 2011, DKSH is a stockholder of DPI, owning 114,995 shares with par value of P100.00 per share, which is 99.999% of the 115,000 issued and outstanding capital stock of DPI; that said shares were acquired through original issuance on June 19, 2002, and through increase of authorized capital stock of DPI on August 14, 2009; that during a meeting by the Board of Directors of DPI on January 30, 2012, dividends amounting to Forty-One Million Three Hundred Thousand Pesos (Php41,300,000.00) were declared to stockholders of record on December 31, 2011; and that as of March 31, 2013, said dividends have not been paid to DKSH due to sourcing sufficient foreign currency equivalent to the amount of cash dividends to be remitted by DPI to DKSH per certification issued by DPI on March 31, 2013. It is finally represented, based on the sworn certification executed by the Corporate Secretary of DPI on December 19, 2012, that the transaction subject of the request for 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 of the taxpayer/s involved. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (Tax Code of 1997), as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: IcTEaC "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 that any income may be exempt from income tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "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" Thus, the provisions of Article 10 of the Philippines-Switzerland tax treaty, which you invoke for the dividends of DKSH, may apply as follows: "Article 10 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 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 beneficial owner is a company (excluding partnerships) which holds directly at least 10 per cent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 3. The term 'dividends' as used in this Article means income from 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 that State of which the company making the distribution is a resident. ADaEIH xxx xxx xxx" Based on the aforequoted provisions of Article 10 of the Philippines-Switzerland tax treaty, dividends paid by a Philippine corporation to a resident of Switzerland may be taxed at a rate not exceeding 10 percent of the gross amount of dividends if the recipient is a company which holds directly at least 10 percent of the capital of the Philippine corporation; and 15 percent if the shareholding of the recipient company is below 10 percent of the capital of the paying company. In view thereof, since DKSH directly owns 99.999 percent of the capital stock of DPI, this Office is of the opinion and so holds that the dividend to be paid by DPI to DKSH is subject to the 10 percent preferential tax rate pursuant to Article 10 (2) (a) of the Philippines-Switzerland 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