ITAD BIR Ruling No. 042-11

February 9, 2011 ITAD BIR RULING NO. 042-11 Revenue Bulletin No. 1-2003 (No-ruling areas 001) Romulo Mabanta Buenaventura Sayoc & De Los Angeles 39th Floor, Citibank Tower 8741 Paseo de Roxas 1226 Makati City Attention: Priscilla B. Valer Gentlemen : This refers to your letter on behalf of your client, PBF Orthopaedic Footwear B.V. (PBF), dated March 15, 2010, requesting for confirmation that the dividends payable by Bloom Orthopedic Shoes Export, Inc. (BOSEI) to PBF are subject to 10 percent withholding tax, and that for as long as PBF owns at least 10 percent of the capital stock of BOSEI, all future dividends payable to PBF are subject to 10 percent withholding tax, pursuant to Article 10, of the Philippines-Netherlands tax treaty. It is represented that BOSEI is a corporation organized and existing under the laws of the Philippines with principal office at 9 Christmas Street, St. Lucia Phase 4, Punturin, Valenzuela City, Metro Manila; that it manufactures custom-made shoes for export and is registered as an export producer with the Board of Investments; that BOSEI has unrestricted retained earnings which it intends to declare as cash dividends to PBF; that PBF wants confirmation of the applicable withholding tax on any dividends that BOSEI will distribute to PBF. In reply, please be informed that Section 2 (t) of Revenue Bulletin 1-2003 dated July 14, 2003, provides as follows: "Section 2. List of No-ruling Areas. The following shall be construed and identified as 'No-ruling Areas': xxx xxx xxx t) Request for rulings on issue/s or transactions based on hypothetical situations ; (Emphasis ours) cTCEIS Based on the above, an Application for Tax Treaty Relief which is based on a hypothetical situation would fall under the "No-Ruling Areas". Since there is no existing approved board resolution declaring dividends for distribution to PBF by the Board of Directors of BOSEI, and that there is a mere intention to declare cash dividends, then this is a clear hypothetical case which evidently falls within the cases covered by Section 2 of Revenue Bulletin 1-2003. Therefore, this Office declines to rule on the requested application. Lastly, please note that any other future declarations without the necessary documentation cannot be the subject of an application for relief from double taxation. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue