ITAD BIR Ruling No. 065-13

March 13, 2013 ITAD BIR RULING NO. 065-13 Article 10, Philippines-Netherlands Tax Treaty; BIR Ruling No. ITAD 338-11 Taylor Nelson Sofres Phil.,Inc. TNS Kalayaan Center 65 V. Luna Road, Cor. Kalayaan Ave.,Quezon City Attention: Pia Geraldine Q. Sicat Director Finance and Administration Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on 13 May 2010 ,requesting confirmation that dividends paid by Taylor Nelson Sofres Philippines, Inc. ("TNS Phil.") to Taylor Nelson Sofres B.V. ("TNS") ,are subject to the preferential tax rate of 10 percent (10%) pursuant to 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 TNS is a corporation organized and existing under the laws of Netherlands and is a resident thereof based on the Certificate of Residence issued by Inspector of Tax Administration Amsterdam, the Netherlands, dated 22 April 2010 as authenticated by the Consul of the Republic of the Philippines in and for the Netherlands dated 11 May 2010; that TNS 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 13 May 2010; and that, on the other hand, TNS Phil. is a corporation organized and existing under the laws of the Philippines with principal address at 7-8 Floors, Sun Plaza Bldg.,1507 Shaw Blvd. cor. Princeton St.,Mandaluyong City 1550. It is further represented that the authorized capital of TNS amounts to three hundred and sixty-four thousand euros (EUR364,000) and is divided into eight hundred (800) shares with par value of four hundred and fifty-five euros (EURO455) each, as evidenced by the Articles of Association of TNS, 2 executed on 31 March 2009. IEAHca It is further represented, as certified by the Corporate Secretary of TNS Phil. ,dated 16 April 2010, the Board of Directors of TNS Phil. declared cash dividend equivalent to Three Pesos and Fifty Centavos (Php3.50) per share or an aggregate of One Hundred Seventeen Million Four Hundred Sixty-Five Thousand Three Hundred Six (Php117,465,306) as evidenced by a board resolution dated 30 March 2010, to be distributed to the Corporation's stockholders of record as of 31 March 2010; that as of 31 December 2009, TNS, holds 9,944,995 shares of stock of TNS Phil. ,or equivalent to thirty percent (30%) of its outstanding capital stock. It is further represented that the payment of the subject dividends were made by TNS Phil. coursed through The Hong Kong and Shanghai Banking Corp. ("HSBC"),to TNS, by cable transfer on 31 May 2010 as evidenced by a certified true copy of the cable transfer of payment. It is finally represented that the dividends subject of this TTRA 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 Certification issued by the Finance Director/Treasurer of TNS Phil. executed on 06 October 2010. 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 TNS 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 . (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" * aATESD 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: "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." SDECAI Under paragraph 2 (a) 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 of the dividends has a capital which is wholly or partly divided into shares and which holds directly at least 10% of the capital of the company paying the dividends. Accordingly, since the authorized capital of TNS is divided into 800 shares and holds directly at least 10% of TNS Phil. (in fact 30%),and the latter is not registered with the Board of Investments, the dividends paid by TNS Phil. to TNS are 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. (BIR Ruling No. ITAD 338-11 dated December 23, 2011) 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. Please be guided accordingly. 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. 2. Article 3, Authorised Capital.