ITAD BIR Ruling No. 080-13

April 3, 2013 ITAD BIR RULING NO. 080-13 Article 10, Philippines-France tax treaty, as amended SGV & Co. 12th Floor SGV 1 Building Ayala Avenue Makati City Attention: Ms. Veronica A. Santos Principal, Transaction Tax Gentlemen : This refers to your tax treaty relief application filed on May 31, 2011, on behalf of BNP Paribas Arbitrage SNC ("Paribas") ,requesting confirmation that dividend payments made by SM Prime Holdings, Inc. ("SM") to Paribas are subject to the 15 percent preferential tax rate pursuant to the Philippines-France tax treaty, as amended. 1 cSDIHT It is represented that Paribas , with address at 8, rue de Sofia, 75018 Paris, is a resident of France under the provisions of the Philippines-France tax treaty per the Certificate of Residence issued by the Ministere Du Budget Des Comptes Publics Et De La Fonction Publique on March 21, 2011; that Paribas is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on March 21, 2011; and that, on the other hand, SM is a domestic corporation duly organized and existing under Philippine laws, located at the SM Corporate Offices, Bldg. A, 1000 J.W. Diokno Blvd.,Mall of Asia Complex, Pasay City. It is further represented, as shown in the Secretary's Certificate issued by SM dated September 11, 2012, that on April 19, 2011, the Board of Directors approved the declaration of cash dividend of 27% based on par value or P0.27 per share amounting to P3.8 Billion in favor of all stockholders of record as of May 19, 2011; that the dividends were paid to Paribas by SM on June 14, 2011 as confirmed by the Hong Kong and Shanghai Banking Corporation Limited per its Certification dated September 28, 2012; and that as of June 14, 2011 or payment date, Paribas is the beneficial holder of 11,232,700 shares of SM. Finally, it is represented that the transaction subject of the herein 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 a judicial appeal of the taxpayers involved per the Sworn Statement issued by SM dated September 10, 2012. 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 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 . . . dividends, rents, royalties . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). TcHCIS xxx xxx xxx" 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 relation thereto, Article 10 of the Philippines-France tax treaty, as amended, may apply to the instant case. It provides that: "Article 10 Dividends 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 be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law 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 (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; b) in all other cases, 15 per cent of the gross amount of the dividends. EHaCID This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' 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 the State of which the company making the distribution is a resident. xxx xxx xxx" Based on the foregoing, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of France at a rate not exceeding 10 percent if the last-mentioned company holds directly at least 10 percent of the voting shares of the company paying the dividend and 15 percent in all other cases. Considering that based on the certification issued by the Corporate Secretary of SM dated September 11, 2011, Paribas owns 11,232,700 shares in SM which, as represented, consist of 0.0808% ownership in SM, such dividends paid to Paribas by SM are subject to preferential tax rate of 15 percent of the gross amount of dividends, pursuant to Article 10 (2) (b) of the Philippines-France tax treaty, as amended. 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 Footnotes 1. Convention between the Government of the Republic of the Philippines and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.