ITAD BIR Ruling No. 039-14

April 14, 2014 ITAD BIR RULING NO. 039-14 Article 9, Philippines-United Kingdom Tax Treaty Price Solutions Philippines, Inc. 10th Floor, ETON CyberPod Centris Building Quezon Avenue, Quezon City Attention: Ma. Ramona Hontiveros Bernad President Gentlemen : This refers to your tax treaty relief application filed on April 21, 2013, on behalf of SCMB Oversea Limited ("SCMB") , requesting confirmation that the dividend income of SCMB from Price Solutions Philippines, Inc. ("Price Solutions") is subject to the preferential tax rate of 15 percent pursuant to Article 9 of the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-UK tax treaty"). It is represented that SCMB, with principal address at 1 Basinghall Avenue, London EC2V 5DD, England is a resident of the United Kingdom within the meaning of Article 4 of the Philippines-UK tax treaty per Certificate of Residence issued by the HM Revenue & Customs, London dated July 4, 2012; that SCMB 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 July 20, 2012; and that, on the other hand, Price Solutions is a domestic corporation duly organized and existing under Philippine laws, located at the 10th Floor, ETON CyberPod Centris Building, Quezon Avenue, Quezon City. It is also represented, per Secretary's Certificate dated April 16, 2013, that as of March 12, 2013, SCMB beneficially owns 9,229,995 common shares, representing 99.99% of the total issued and outstanding capital stock of Price Solutions with par value of Php1.00 per share paid in cash immediately prior to Price Solutions incorporation on July 17, 2007. It is further represented that at its meeting on March 12, 2013, the Board of Directors of Price Solutions approved the declaration of cash dividend in the amount of Php25,050,721.00 to all stockholders of record as of March 12, 2013 out of the unrestricted retained earnings of Price Solutions as of December 31, 2012; that the said dividend shall be payable on December 31, 2013. CTacSE 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, Article 9 of the Philippines-UK tax treaty which you invoked may apply to the instant case. It provides: "Article 9 Dividends 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: aDcTHE a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; b) in all other cases 25% of the gross amount of the dividends. xxx xxx xxx" 4. 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 corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. 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 UK at a rate not exceeding 15 percent of the gross amount of the dividends if the latter holds directly or indirectly at least 10 percent of the voting capital stock of the first-mentioned company. In all other cases, the 25 percent preferential tax rate shall apply. In view of the foregoing, since SCMB owns 99.99 percent of the outstanding voting capital stock of Price Solutions , the paying corporation, this Office is of the opinion and so holds that the cash dividend to be paid by Price Solutions to SCMB is subject to the preferential rate of 15 percent withholding tax pursuant to Article 9 (1) (a) of the Philippines-UK 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