ITAD BIR Ruling No. 060-15

March 25, 2015 ITAD BIR RULING NO. 060-15 Article 10, Philippines-Switzerland Tax Treaty ABB, Inc., Philippines Km. 20, West Service Road Brgy. Marcelo Green Sucat, SSH, Paraaque Attention: Mr. Robert J.P. Ramos Country CFO Gentlemen : This refers to your Tax Treaty Relief Application filed on August 7, 2013 on behalf of your client, ABB ASEA BROWN BOVERI LTD. ( "ABB Asea" ) for a confirmation that the dividend paid by ABB, INC. ( "ABB, Inc ") to ABB Asea is subject to 10 percent tax rate pursuant to the Convention between the Republic of the Philippines and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income ( "Philippines-Switzerland tax treaty" ). It is represented that ABB Asea is a company established in accordance with the Swiss Code of Obligations with principal address at Affolternstrass 44, 8050 Zurich, Switzerland; that ABB Asea is a resident of Switzerland within the meaning of the Philippines-Switzerland tax treaty per Certificate of Residence issued by the Administration Fiscale Cantonale of Switzerland on May 3, 2013; that ABB Asea is not registered as corporation or as partnership in the Philippines, as shown in the Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on July 25, 2013; and that, on the other hand, ABB, Inc is a domestic corporation located at the Km. 20, West Service Road, Brgy. Marcelo Green, Sucat, SSH, Paraaque. It is further represented, that during a meeting by the Board of Directors of ABB, Inc on April 12, 2013, dividend amounting to Php44,261,018.00 was declared based on the 2012 Financial Statements to all stockholders of record on April 12, 2013 payable on or before December 31, 2013; that per the July 30, 2013 Secretary's Certificate issued by ABB, Inc ; that as of April 12, 2013, ABB Asea is a stockholder of ABB, Inc , owning 1,231,799 shares, including five (5) shares held by its nominee directors as qualifying share, with par value of P100.00 per share, consisting of 100% issued capital stock of ABB, Inc ; and that said shares were acquired from original issuance on July 18, 1968 and transfers from various dates. HcACST It is finally represented, based on the sworn certification executed by ABB, Inc on August 1, 2013, that the transaction subject of the request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal of the taxpayer/s involved. 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 . (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 that any income may be exempt from income tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "Section 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Incom e. 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, the provisions of Article 10 of the Philippines-Switzerland tax treaty, which you invoke for the dividends of ABB Asea , may apply. It provides: TCIEcH "Article 10 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (excluding partnerships) which holds directly at least 10 per cent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 3. 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 other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of that State of which the company making the distribution is a resident. ECcaDT 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on 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 independent personal 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 case, the provisions of Article 7 (Business Profits) or Article 14 (Independent Personal Services), as the case may be, shall apply. xxx xxx xxx" Based on the aforequoted provisions of Article 10 of the Philippines-Switzerland tax treaty, dividends paid by a Philippine corporation to a resident of Switzerland may be taxed at a rate not exceeding 10 percent of the gross amount of dividends if the recipient is a company which holds directly at least 10 percent of the capital of the Philippine corporation; and 15 percent if the shareholding of the recipient company is below 10 percent of the capital of the paying company. In view thereof, since ABB Asea , being a company resident in Switzerland with no fixed place of business in the Philippines, directly owns 100 percent of the capital stock of ABB, Inc , this Office is of the opinion and so holds that the dividend to be paid by ABB, Inc to ABB Asea is subject to the 10 percent preferential tax rate pursuant to Article 10 (2) (a) of the Philippines-Switzerland 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. HDTSCc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue