ITAD BIR Ruling No. 073-16

April 5, 2016 ITAD BIR RULING NO. 073-16 Article 10, Philippines-Belgium tax treaty, as amended Epiq NV Transportstraat 1 3980 Tessenderlo Belgium Attention: Roland Duchatelet Managing Director Gentlemen : This refers to your tax treaty relief application received by our office on May 11, 2015, requesting confirmation that dividends paid to Epiq NV by Integrated Micro-Electronics, Inc. ("IMI") are subject to a preferential tax rate of 10 percent pursuant to Article 10 of the amended Agreement between the Kingdom of Belgium 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-Belgium tax treaty, as amended") . It is represented that Epiq NV is a resident corporation of Belgium per the Certificate of Tax Residency issued by the Federale Overheidsdienst FINANCIEN dated April 16, 2015; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated August 19, 2015; and that, on the other hand, IMI is a corporation organized and existing under the laws of the Philippines. It is further represented that on February 17, 2014, the Board of Directors of IMI approved the declaration and payment of cash dividends of US$.0014 or Php0.06319 per share to all outstanding common shares as of record date of March 3, 2014 and payable on March 19, 2014; that as of March 3, 2014, Epiq NV is the legal and beneficial owner of 200,000,000 common shares valued at Php200,000,000.00 which represents 12.24 percent of the total outstanding common shares of IMI; and that the said shares were acquired by Epiq NV on October 19, 2012. 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 received by a nonresident foreign corporation. It provides: CScTED "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%)." 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" In this particular case, you invoke the Philippines-Belgium tax treaty, as amended. 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 beneficial owner of the dividends is a resident of the other Contracting State 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 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. xxx xxx xxx 4. The provisions of paragraphs 1 and 2 shall not apply if the recipient 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 professional 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 a case, the dividends may be taxed by that other State in accordance with its law. . . ." Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of Belgium may be taxed in the Philippines at a rate not to exceed: (a) 10 percent of the gross amount of dividends if the recipient of the dividends is a company which holds directly at least 10 percent of the capital of the company paying the dividends; and (b) 15 percent of the gross amount of the dividends in all other cases. This being the case, and considering that Epiq NV is a company resident in Belgium with no fixed place of business in the Philippines, which holds 12.24 percent of the total outstanding common shares of IMI, this Office is of the opinion and so holds that dividends paid by IMI to Epiq NV are subject to income tax at a preferential rate of 10 percent based on the gross amount thereof pursuant to paragraph 2 (a), Article 10 of the Philippines-Belgium tax treaty, as amended. 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