ITAD BIR Ruling No. 044-15

March 25, 2015 ITAD BIR RULING NO. 044-15 Article 9, Philippines-United Kingdom Tax Treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Antonette C. Tionko Principal, Tax and Customs Services Gentlemen : This refers to your Tax Treaty Application filed on September 9, 2013, requesting confirmation that dividends paid by Philippine Long Distance Company ("PLDT") to Newton Emerging Income Fund ("NEIF") are subject to income tax at the rate of 25% pursuant to 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 BNY Mellon Investment Funds (BNY Mellon) is an open-ended investment company with variable capital, incorporated under the laws of England and Wales and maintains its principal place of business at the BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA, England; that it has been established as an "umbrella company" and therefore different Sub-Funds may be formed but subject for approval by the Depositary and the Financial Service Authority; that the assets of each Sub-Fund are treated as separate from those of every other Sub-Fund and will be invested in accordance with that Sub-Fund's own investment objective and policy; that NEIF is the separate and distinct fund of BNY Mellon; that NEIF is a resident of United Kingdom in accordance with Article 10 of the Philippines-UK tax treaty per Certificate of Residence in the United Kingdom issued by the HM Revenue & Customs of UK on January 1, 2013; that it is not registered as a corporation or a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission on April 2, 2012; and that, on the other hand, PLDT is a domestic corporation duly organized and existing under the laws of the Philippines with principal address in Ramon Cojuangco Building, Makati Avenue, Makati City 1200. It is further represented that on August 7, 2013, the Board of Directors of PLDT declared out of PLDT's audited unrestricted retained earnings as of June 30, 2013, a regular dividend of P63.00 per outstanding share of PLDT's common stock payable on September 27, 2013 to the holders of record on August 30, 2013; that per Secretary's Certificate issued by PLDT, as of August 30, 2013, NEIF is the beneficial holder of 170,000 common shares of PLDT with total value of shares of Php489,260,000.00, representing 0.078683% of the issued and outstanding shares of PLDT; and that the said dividend was paid to NEIF on August 30, 2013 per Certification issued by HSBS Securities Services. It is finally represented, per sworn certification issued by the Assistant Vice-President of the Tax Planning Center of PLDT on September 25, 2013, that the issue subject of the above request is not under any investigation or on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal. 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: "Section 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. caSEAH (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, rents, royalties . . .: 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" Thus, 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: 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. 5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on a trade or 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 13, as the case may be, shall apply. xxx xxx xxx" Under paragraph 1 above, dividends arising in the Philippines and paid to a resident of the United Kingdom may be taxed in the Philippines at a rate not to exceed (a) 15 percent if the recipient of the dividends is a company which controls directly or indirectly at least ten percent (10%) of the capital of the company paying the dividends; and (b) twenty-five percent (25%) in all other cases. Accordingly, considering that NEIF, a resident of UK with no fixed place of business in the Philippines, holds 170,000 common shares, constituting 0.078683% of the stocks of PLDT, which is not more than 10 percent of its capital, the dividends paid by PLDT to NEIF are subject to income tax at the rate of 25 percent of the gross amount thereof, pursuant to Article 9 (1) (b) of the Philippine-UK tax treaty. cETDIA 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