ITAD BIR Ruling No. 040-16

April 4, 2016 ITAD BIR RULING NO. 040-16 Article 12, Philippines-US tax treaty SYCIP Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Luis Jose P. Ferrer Gentlemen : This refers to your tax treaty relief application filed June 19, 2013, on behalf of TUPPERWARE BRANDS CORPORATION ("Tupperware Brands") , requesting confirmation that the interest paid by TUPPERWARE BRANDS PHILIPPINES, INC. ("Tupperware Ph") to Tupperware Brands are subject to preferential rate pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income ("Philippines-US tax treaty") . It is represented that Tupperware Brands is a corporation organized and existing under the laws of the United States of America (US) and a resident thereof per the Certificate of Residence issued by the US Tax Authority dated May 23, 2013; that Tupperware Brands operates as a direct-to-consumer marketer of various products across a range of brands and categories worldwide; it engaged in the business in the manufacture and sale of design-centric preparation, storage, and serving solutions for the kitchen and home, as well as a line of cookware, knives, microwave products, microfiber textiles, and water related items under the Tupperware brand name; it also manufactures and distributes skin and hair care products, cosmetics, bath and body care, toiletries, fragrances; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated May 28, 2013; that, on the other hand, Tupperware Ph is a corporation organized and existing under the laws of the Philippines; and that it engaged in the business of cosmetics, fragrance, skin care, personal care, baby and kids care, intimate apparel, and home products. It is further represented that on December 30, 2012, a Loan Agreement was entered into by Tupperware Brands and Tupperware Ph where Tupperware Brands entered into a Loan Agreement as of June 28, 2006 for the amount of Two Billion Forty Nine Million Four Hundred Thirty Three Thousand Pesos (Php2,049,433,000.00) which was to finance acquisition of the shares of stock of Sara Lee direct Selling Philippines, Inc. ("SLDSPI") from Sara Lee Philippines, Inc. ("SLPI"); that the Loan shall mature on December 31, 2012 which was extended on December 31, 2020; that the loan shall bear interest based on the principal amount at the prevailing market interest rate of Peso denominated loans plus or minus a set number of basis points as agreed to by the parties as of June 15th of every year; and that the proceeds of loans was released and directly remitted to SLPI as payment for the SLDSPI shares per a sworn certification issued by Tupperware Ph on June 18, 2013. acEHCD In reply, please be informed that interest income derived by a nonresident foreign corporation is generally taxable under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (NIRC of 1997), as amended. 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 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) and (d) above: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." xxx xxx xxx Thus, as a general rule, payment for interest income made to Tupperware Brands , as a nonresident foreign corporation, are subject to withholding tax at the rate of thirty percent (30%) under Section 28 (B) (1) of NIRC. However said income may be exempt from income tax or partially exempt pursuant to a treaty obligation to which the Philippine government is bound. Thus, Section 32 (B) (5) of the NIRC 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." Relative thereto, Article 12 of the Philippines-US tax treaty, which you invoke, may apply to the instant case. It states: "Article 12 Interest 1. Interest derived by a resident of one of the Contracting States from sources within the other Contracting State may be taxed by both Contracting States. 2. Interest derived by a resident of one of the Contracting States from sources within the other Contracting State shall not be taxed by the other Contracting State at a rate in excess of 15 percent of the gross amount of such interest. 3. Interest derived by a resident of one of the Contracting States from sources within the other Contracting State with respect to public issues of bonded indebtedness shall not be taxed by the other Contracting State at a rate in excess of 10 percent of the gross amount of such interest. 4. Notwithstanding paragraphs 1, 2, and 3, interest derived by (a) One of the Contracting States, or an instrumentality thereof (including the Central Bank of the Philippines, the Federal Reserve Banks of the United States, the Export-Import Bank of the United States, the Overseas Private Investment Corporation of the United States, and such other institutions of either Contracting State as the competent authorities of both Contracting States may determine by mutual agreement), or b) A resident of one of the Contracting States with respect to debt obligations guaranteed or insured by that Contracting State or an instrumentality thereof. shall be exempt from tax by the other Contracting State. xxx xxx xxx 7. The term 'interest' as used in this Convention means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the Contracting State in which the income arises, including interest on deferred payment sales." SDHTEC Under Article 12, interest arising in the Philippines and paid to a resident of the United States may be taxed in the Philippines at a rate not to exceed (a) 10 percent if the interest is paid in respect of public issues of bonded indebtedness in the Philippines, and (b) 15 percent in all other cases. However, the reduction of tax will not apply if the interest is effectively connected with a permanent establishment (if the recipient is an enterprise) or a fixed base (if the recipient is an individual performing independent personal services) which the recipient has in the Philippines. In view thereof, considering that Tupperware Brands is a resident of US, and since the interest subject is not paid in respect of public issues of bonded indebtedness in the Philippines, such interest paid by Tupperware Ph to Tupperware Brands shall be subject to income tax at the rate of 15 percent pursuant to paragraph 2, Article 12 of the Philippines-US 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 n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.