ITAD BIR Ruling No. 051-15

March 25, 2015 ITAD BIR RULING NO. 051-15 Article 9, Philippines-United Kingdom tax treaty Marilu Q. Ngo President & General Manager GRIFFIN SIERRA TRAVEL, INC. Ground Floor Goodland Building 377 Sen. Gil Puyat Avenue Extension Makati City 1209 Gentlemen : This refers to your tax treaty relief application filed on September 26, 2013, requesting confirmation that the dividends paid by Griffin Sierra Travel, Inc. ("Griffin Philippines") to Griffin Marine Travel (Cyprus), Ltd. ("Griffin UK") are subject to the preferential tax rate of 15 percent 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"). Facts It is represented that Griffin UK is a non-resident foreign corporation organized and existing under the laws of the United Kingdom with principal address at Linen Court, 10 East Road, London N1 6AD based on the consularized and notarized Certificate of Residency issued by the HM Revenue & Customs of the United Kingdom; that Griffin UK is a company the share of which is divided into 10,000 shares of C1 each per consularized and notarized Memorandum of Association; and that Griffin UK is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on June 3, 2013. On the other hand, Griffin Philippines, is a domestic corporation with principal address at G/F Goodland Building, 377 Sen. Gil Puyat Avenue, Makati City. It is further represented that, on April 10, 2013, the Board of Directors of Griffin Philippines declare cash dividends amounting to P6,270,475.00 to all stockholders of records as of April 30, 2013, based on their stockholdings and shall be payable on June 30, 2013; that the following are the stockholdings of Griffin UK to Griffin Philippines : Percentage Amount of Type of Number Mode of Date of of Dividends Shares of Shares Par Value Acquisition Acquisition Ownership Received Common 168,750 P100.00 Subscription November 45% P2,821,714 5, 2012 It is finally represented that the dividends subject of the above application are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Affidavit issued by Griffin Philippines dated September 2, 2013. Ruling In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("NIRC of 1997"), as amended, dividends paid to Griffin UK are subject to income tax at the rate of 30 percent, thus: "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. caIEAD (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: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 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." For this purpose, you invoke the Philippines-United Kingdom tax treaty. Paragraph 1, Sub-paragraphs (a) and (b) of Article 9 on Dividends thereof provide: "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." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of the United Kingdom may be taxed in the Philippines at a rate (a) not to exceed 15% if the company recipient of the dividends holds directly at least 10% of the voting shares of the paying company; and (b) 25% in all other cases. Considering that Griffin UK is a company owning 45% of the shares in Griffin Philippines, the dividends paid by Griffin Philippines to Griffin UK are subject to the preferential tax rate of 15 percent of the gross amount thereof pursuant to Article 9, paragraph 1, sub-paragraph (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