ITAD BIR Ruling No. 073-15

March 25, 2015 ITAD BIR RULING NO. 073-15 Article 10, Philippines-Switzerland tax treaty Isla Lipana & Co. 29/F Philamlife Building 8767 Paseo de Roxas Makati City Attention: Maria Ysidra May Y. Kintanar Authorized Representative Gentlemen : This refers to your tax treaty relief application filed on October 19, 2011, on behalf of Syngenta Philippines, Inc. ("Syngenta-Phil") , requesting confirmation that the cash dividends paid by Syngenta-Phil to Syngenta Crop Protection AG ("Syngenta AG") are subject to final withholding tax at the rate of 10 percent, pursuant to Article 10 of the Convention between the Republic of the Philippines and the Swiss Federation for the Avoidance of Double Taxation with Respect to Taxes on Income ("Philippines-Switzerland tax treaty") . It is represented that Syngenta AG is a company limited by shares, with principal address at Schwarzwaldallee 215, 4058 Basel, Switzerland; that it is a resident of Switzerland per the Certificate issued on February 3, 2011 by the Swiss Tax Authority of the Canton of Basel-Stadt; that it is not registered either as a corporation or partnership in the Philippines per certification issued by the Securities and Exchange Commission dated June 3, 2011; and that, on the other hand, Syngenta-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 12/F Two World Square, #22 Upper McKinley Town Center, Fort Bonifacio, Taguig City. It is further represented that on April 11, 2011, the Board of Directors of Syngenta-Phil declared a cash dividend in the total amount of Php209,475,000.00 to all stockholders of record as of May 30, 2011, to be paid on or before October 31, 2011; that per the Corporate Secretary's Certificate by Syngenta-Phil on June 3, 2011, Syngenta AG owns a total of 5,984,990 shares of common stock of Syngenta-Phil (inclusive of 5 nominee shares issued to its nominee directors) with a total par value of Php59,849,990.00; and that, as of the date of declaration of the subject cash dividends, Syngenta-Phil is owned to the extent of 100% (inclusive of five (5) nominal shares) by Syngenta AG. It is finally represented, per the Sworn Statement dated June 3, 2011 issued by Syngenta-Phil, 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 (B) (1) of the National Internal Revenue Code (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 interest, 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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." EDCIcH However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: "Section 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. xxx xxx xxx" Thus, Article 10 of the Philippines-Switzerland tax treaty, which you invoke, may apply to the instant case. It provides: "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. 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, 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 shareholdings of the recipient company is below 10 percent of the capital of the paying company. In view thereof, considering that Syngenta AG is a resident corporation in Switzerland with no fixed place of business in the Philippines, and directly owns 100% of the capital of Syngenta-Phil, this Office is of the opinion and so holds that the dividends paid by Syngenta-Phil to Syngenta AG are subject to 10 percent preferential tax rate pursuant to Article 10 (2) (a) of the Philippines-Switzerland tax treaty. cHDEaC This ruling is issued on the basis of the foregoing 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