ITAD BIR Ruling No. 064-14

June 9, 2014 ITAD BIR RULING NO. 064-14 Article 10, Philippines-Netherlands Tax Treaty Sykes Asia, Incorporated 29th Floor, Robinsons Summit Center 6783 Ayala Avenue, Makati City Attention: Hermes G. Diolola Senior Tax Manager Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on 30 January 2013, requesting confirmation of your opinion that the dividends paid to Sykes Netherlands Group B.V. ("Sykes BV") by Sykes Asia, Inc. ("Sykes") , are subject to 10% preferential income tax rate under Article 10 of The Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . 1 It is represented that Sykes BV is a corporation organized and existing under the laws of Netherlands with an authorized capital amounting to Ninety Thousand Euro (EUR90,000), divided into nine hundred (900) shares of one hundred Euro (EUR100) each, as evidenced by the Deed of Amendment of the Articles of Association executed on 07 September 2012, which was authenticated by the Consul of the Embassy of the Philippines at The Hague, The Netherlands, executed on 28 November 2012; that Sykes BV is a resident of Netherlands with business address at HET Kwadrant 1, 3606AZ Maarssen, The Netherlands, as evidenced by a Certificate of Residence issued by the Tax and Customs Administration of the Netherlands issued on 28 February 2013, which was authenticated by the Consul of the Embassy of the Philippines at The Hague, The Netherlands, executed on 01 March 2013; that Sykes BV 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 dated 26 February 2013; and that, on the other hand, Sykes is a corporation organized and existing under the laws of the Philippines with principal address at 26th Floor, Robinsons Summit Center, 6783 Ayala Avenue, Makati City. IEcaHS It is further represented, as certified by the Corporate Secretary of Sykes , executed on 30 January 2013, that in a special meeting of its Board of Directors held on 23 January 2013, the latter declared cash dividend in the amount of Five Hundred Thirty Six Million Six Hundred Thousand Philippine Pesos (Php536,600,000.00) for all stockholders of record as of 31 December 2012; that Sykes BV owns Nine Thousand Nine Hundred Ninety Nine and Thirty Three (9,999,033) shares of stock of Sykes by subscription as of 31 December 2012, or equivalent to 99.99% of its outstanding shares. It is further represented that the payment of the subject dividends were made by Sykes through Citibank N.A. Manila ("Citibank Manila") by telegraphic transfer to the Royal bank of Scotland PLC The Netherlands via Citibank New York in favor of Sykes BV, in the amount of Eleven Million Eight Hundred Sixty One Thousand Two Hundred Forty & 39/100 United States Dollars (USD11,861,240.39) on 01 February 2013, as evidenced by a Certification issued by Citibank Manila executed on 27 June 2013. It is finally represented that the dividend subject of this TTRA is 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 Certification issued by the Senior Finance Director of Sykes executed on 30 January 2013. Ruling In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, dividends paid to Sykes BV 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 . CaTSEA (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 percent (30%) 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." n However, under Section 32 (B) (5) of the Tax Code, such 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." With respect to a treaty, you invoke the Philippines-Netherlands tax treaty. Paragraphs 1 and 2 of Article 10 thereof provide: cCAIES "Article 10 Dividends 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the 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 recipient is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10 per cent of the capital of the company paying the dividends; b) 15 per cent of the gross amount of the dividends in all other cases." Under paragraph 2 (a) and (b) of Article 10, dividends arising in the Philippines and paid to a resident of Netherlands may be taxed in the Philippines at a rate not to exceed 10% of the gross amount of the dividends if the company recipient is wholly or partly divided into shares and holds directly at least 10% of the capital of the company paying the dividends. On the other hand, a tax of 15% of the gross amount of the dividends shall be imposed on all other cases. Accordingly, since Sykes BV is a corporation which has an authorized capital divided into 900 shares and holds directly 99.99% of the outstanding shares of Sykes , the dividend paid by Sykes to Sykes BV is subject to income tax at the rate of 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Netherlands tax treaty. TAECSD 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 Footnotes 1. Its provisions on taxes apply on income derived or which accrued beginning January 1, 1992. n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.