ITAD BIR Ruling No. 075-10

December 14, 2010 ITAD BIR RULING NO. 075-10 Article 10, Philippines-Netherlands Tax Treaty; BIR Ruling No. ITAD-99-08; BIR Ruling No. ITAD-46-10; BIR Ruling No. ITAD-37-10; BIR Ruling No. ITAD-29-10; BIR Ruling No. ITAD-21-10 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Wilfredo U. Villanueva Principal, Tax Services Gentlemen : This refers to your application for tax treaty relief dated August 16, 2010, on behalf of Accenture Holding B.V. (hereinafter referred to as "AHBV"), requesting confirmation that dividend payments made by Accenture, Inc. (hereinafter referred to as "Accenture" ) to AHBV are subject to 10% preferential tax rate pursuant to 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 (hereinafter referred to as "Philippines-Netherlands tax treaty" ). It is represented that AHBV is foreign corporation organized and existing under the laws of the Netherlands and is a resident of the Netherlands, based on its Articles of Association and on its Declaration of Residence issued by the Inspector of the Tax Administration of Rivierenland Kantoor Arnhem of the Netherlands on July 16, 2010; that AHBV is a private company in the Netherlands, with authorized capital of 100,000.00 Euros, divided into 2,000 shares, with a par value of 50 Euros each; that AHBV is situated at Gustav Mahlerplein 90, 1082 MA, Amsterdam, the Netherlands; that AHBV is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on August 12, 2010; and that, on the other hand, Accenture is a domestic corporation located at the Makati Stock Exchange Building, Ayala Avenue, Makati City, Philippines. IcDESA It is further represented that on August 12, 2010, the Board of Directors of Accenture , at its special meeting, unanimously approved the declaration of cash dividends to AHBV in the amount of US$111,111,111.10, to be taken out of the unrestricted retained earnings of Accenture as of August 31, 2009, and payable on August 25, 2010; that based on the Certificate issued by the Corporate Secretary of Accenture on August 12, 2010, as of this date, 9,988,571 of the total outstanding common shares of Accenture (with par value of P100 per share) are registered under the name of AHBV, which represents 99.9% of the total of such shares; and that these shares are acquired by AHBV by subscription. It is finally represented, based on the Sworn Statement by the same Corporate Secretary on August 12, 2010, that the transaction subject of the request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal of the taxpayer/s involved. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (Tax Code of 1997), as amended, applies in general to income of 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 . . ., dividends, . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides that any income may be exempt to the extent required by any treaty obligation binding upon the Philippine Government, thus: ECaScD "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" With respect to a treaty, what you invoke for this purpose is the Philippines-Netherlands tax treaty. Article 10 thereof provides: "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. HcaDTE xxx xxx xxx" Based on the aforequoted article, dividends arising in the Philippines and paid to a resident of the Netherlands may be subject to income tax in the Philippines, but the rate of tax that may be imposed thereon shall not exceed: (a) 10 percent of the gross amount of dividends if the recipient of the dividends is a company the capital of which is wholly or partly divided into shares and 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. Accordingly, inasmuch as AHBV is a private company in the Netherlands, the capital of which is wholly divided into shares and since AHBV holds directly 99.9 percent of the capital of Accenture (which is actually more than the required minimum of shareholding of 10 percent), such dividends to be paid by Accenture to AHBV are subject to income tax in the Philippines at the rate of 10 percent of the gross amount thereof. [BIR Ruling No. ITAD-46-10 dated October 5, 2010; BIR Ruling No. ITAD-37-10 dated September 16, 2010; BIR Ruling No. ITAD-29-10 dated August 27, 2010; BIR Ruling No. ITAD-21-10 dated August 20, 2010; BIR Ruling No. ITAD-99-08 dated November 17, 2008] 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