ITAD BIR Ruling No. 061-16

April 5, 2016 ITAD BIR RULING NO. 061-16 Article 10 (7), Philippines-Netherlands tax treaty Shell Philippines Exploration B.V.-Philippine Branch 19/F Asian Star Building Asean Drive Filinvest Corporate City Alabang, Muntinlupa 1780 Attention: Jose Jerome R. Pascual III Finance Director Gentlemen : This refers to your tax treaty relief application filed on October 12, 2012, requesting confirmation that the profits remitted by your company, Shell Philippines Explorations B.V.-Philippine Branch ("Shell-Philippine Branch") , to your head office, Shell Philippines Exploration B.V. ("Shell-Netherlands") , are subject to final withholding tax at the preferential rate of 10 percent, pursuant to Article 10 (7) of the Convention between the Republic of the Philippines and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . It is represented that Shell-Netherlands is a corporation duly organized and existing under the laws of The Netherlands, and is a resident thereof within the meaning of Article 4 of the Philippines-Netherlands tax treaty per the Declaration of Residence issued on August 31, 2011 by the Tax and Customs Administration of the Netherlands; that Shell-Netherlands has a branch office in the Philippines registered with the Philippine Securities and Exchange Commission under Registration No. 1359 issued on January 21, 1991; that on September 20, 2012, Shell-Philippine Branch remitted branch profits of One Hundred Three Million US Dollars (USD103,000,000) to Shell Netherlands as dividend for the third quarter from July to September. It is finally represented that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. In reply, please be informed that Section 28 of the National Internal Revenue Code (Tax Code) of 1997, as amended, provides, viz. : aICcHA "SEC. 28. Rates of Income Tax on Foreign Corporations . (A) Tax on Resident Foreign Corporations . xxx xxx xxx (5) Tax on Branch Profits Remittances . Any profit remitted by a branch to its head office shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof (except those activities which are registered with the Philippine Economic Zone Authority). The tax shall be collected and paid in the same manner as provided in Sections 57 and 58 of this Code: Provided, That interests, dividends, rents, royalties, including remuneration for technical services, salaries wages, premiums, annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits, income and capital gains received by a foreign corporation during each taxable year from all sources within the Philippines shall not be treated as branch profits unless the same are effectively connected with the conduct of its trade or business in the Philippines. xxx xxx xxx However, Article 10 (7) of the Philippines-Netherlands tax treaty provides: "Article 10 Dividends xxx xxx xxx 7. If a resident of one of the States has a permanent establishment in the other State, this permanent establishment may be subject to an additional tax on the profits remitted by that permanent establishment to its head office in accordance with the law of the last-mentioned State, but the additional tax so charged shall not exceed 10 per cent of the amount of the remitted profits. This provision shall not apply to profits mentioned in Article 8." (Underscoring supplied) Under Article 5 (2) of the same treaty, the term "permanent establishment" includes a branch, to wit : "Article 5 Permanent Establishment xxx xxx xxx 2. The term 'permanent establishment' includes especially: a) a place of management; b) a branch ; c) an office; d) a factory; e) a workshop; f) a mine, quarry or other place of exploration or extraction of natural resources; g) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or activity continues for a period of more than 183 days; h) the furnishing of services including consultancy services by an enterprise through an employee or other personnel where activities of that nature continue (for the same or a connected project) for a period or periods exceeding in the aggregate 183 days within any twelve-month period. . . ." (Underscoring supplied) Based on the above provisions, Shell-Philippine Branch , being a branch of Shell-Netherlands , qualifies to avail of the 10 percent preferential tax rate in relation to its remittance of branch profits. In view thereof, this Office is of the opinion that the subject branch profit remittance tax, which is an additional tax imposed on the total profits of Shell-Philippine Branch applied or earmarked for remittance without any deduction for the tax component thereof, should not exceed 10 percent of such net income or earnings pursuant to Article 10 (7) of the Philippines-Netherlands tax treaty. This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it shall be disclosed that the actual facts are different, 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