ITAD BIR Ruling No. 080-12

February 16, 2012 ITAD BIR RULING NO. 080-12 Follosco Morallos and Herce Attorneys at Law Suite 2500, 25th Floor, 88 Corporate Center 141 Valero Street corner Sedeo Street Salcedo Village, Makati City Attention: Rachel P. Follosco Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on April 22, 2010 requesting confirmation that gains derived by Provident Securities Pte. Ltd. ("Provident") from the sale to Andrew Chua Lim of certain trading rights held by OCBC Securities Philippines, Inc. ("OCBC") are exempt from income tax pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income. On December 21, 2009, Provident (a foreign corporation organized and existing under the laws of Singapore) and Mr. Lim (a Filipino) entered into a Deed of Assignment of Right to Receive Trading Rights as Liquidating Dividend where Provident, in consideration of the amount of P7,800,000.00, transferred to Mr. Lim certain trading rights held by OCBC (a domestic corporation). Provident is the sole and beneficial stockholder of OCBC. OCBC is the registered owner and holder of trading rights with the Philippine Stock Exchange ("PSE") under Certificate for Trading Participant No. 14 issued by the PSE on January 2, 2007. On July 2, 2009, the Securities and Exchange Commission approved the dissolution of OCBC. Provident, being the sole and beneficial stockholder of OCBC, has the right to receive the trading rights as liquidating dividend from OCBC, as evidenced by a Secretary's Certificate of the resolution of the Board of Directors of OCBC authorizing OCBC to convey the trading rights to Provident. Relative thereto, please be informed that under Section III (2) of Revenue Memorandum Order No. 1-00 (Procedures for Processing Tax Treaty Relief Application) ("RMO 1-2000"), any availment of tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed at the International Tax Affairs Division of this Bureau at least 15 days before the intended transaction or payment of income, thus: AcDHCS "III. Policies: In order to achieve the above-mentioned objectives, the following policies shall be observed: xxx xxx xxx 2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e. ,payment of dividends, royalties, etc., accompanied by supporting documents justifying the relief. .." (Emphasis ours) This condition was emphasized by the Court of Tax Appeals in Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 6382 dated June 7, 2005) where it ruled: "However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation. In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked. Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the persons or corporations duly entitled to the same. The Court notes that nowhere in the records of the case was it shown that petitioner indeed took the liberty of properly observing the provisions of the said order. Petitioner quotes various BIR, as well as ITAD, Rulings issued to several foreign corporations seeking for a tax relief from the office of the respondent. However, not any one of these rulings pertains to the petitioner. It must be stressed that BIR rulings are issued based on the facts and circumstances surrounding particular issue/issues in question and are resolved on a case-to-case basis. It would be thus erroneous to invoke the ruling of the respondent in specific cases, which have no bearing to the case of petitioner." (Emphasis ours) ASHICc This decision was also upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement laid down in RMO 1-2000 is reiterated in subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (C.T.A. Case No. 456 dated May 29, 2009), CBK Power Company Ltd. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 6699, 6844 and 7166 dated March 29, 2010) and Manila North Tollways Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 7864 dated April 12, 2011). In view of the foregoing, since the consideration for the trading rights in PSE (originally held by OCBC) was received by Provident from Mr. Lim on December 21, 2009 (the date of the subject Deed of Assignment) or earlier, and the TTRA for this purpose was filed only on April 22, 2010 , in violation of the fifteen-day period prescribed in the RMO, this Office hereby DENIES the TTRA. Accordingly, gains of Provident from the sale of its trading rights to Mr. Lim shall be subject to income tax at the rate of 30 percent under Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended, to wit: "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-five percent (35%) 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: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue