ITAD BIR Ruling No. 082-13

April 4, 2013 ITAD BIR RULING NO. 082-13 Article 10, Philippines-Sweden Tax Treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas, 1226 Makati City Attention: Lawrence C. Biscocho Authorized Representative Gentlemen : Tax Treaty Relief Application (TTRA) filed on October 21, 2011 on behalf of your client, Speaking Partners AB ("SPAB") requesting confirmation that the dividend payments of Vista Land & Lifescapes, Inc. ("VLLI") to SPAB are subject to 15 percent final withholding tax rate pursuant to Article 10 (2) (a) of the Philippines-Sweden tax treaty . 1 TDcAIH It is represented that SPAB, with address at the Municipality of Gothenburg, Vastra Gotaland Country, Sweden, is a corporation organized and existing under the laws of Sweden, and is a resident of Sweden within the meaning of the Philippines-Sweden tax treaty per Certificate of Residence issued by the Swedish Tax Agency on September 9, 2011; that SPAB is not registered as corporation or as partnership in the Philippines, as shown in Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on October 14, 2011; and that, on the other hand, VLLI is a domestic corporation located at the 3 Floor, Starmall Las Pias. CV Starr Avenue, Pamplona, Las Pias City. It is further represented, per Secretary's Certificate issued by VLLI dated October 7, 2011, that, at the meeting by the Board of Directors of VLLI on September 13, 2011, a resolution was unanimously approved declaring cash dividends of PHP0.07 on each share of stock declared from the unrestricted retained earnings of VLLI payable to stockholders of record as at the close of the business on September 28, 2011; that as of September 28, 2011, Three Hundred Ten Million Eighty-One Thousand (310,081,000) common shares of capital stock of VLLI amounting to Eight Hundred Fifty-Five Million Eight Hundred Twenty-Three Thousand Five Hundred Sixty (Php855,823,560) representing 3.648% of the total outstanding capital stock of VLLI acquired by SPAB through purchase on various dates per Secretary's Certificate issued by VLLI dated October 20, 2011; and that the said dividends were paid to SPAB on October 24, 2011 as evidenced by a Certification issued by the Citibank NA on November 26, 2012. It is finally represented, based on the Sworn Statement executed by the Corporate Secretary of VLLI on October 7, 2011, 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 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, . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). HIaTCc xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides that any income may be exempt from income tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "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, the provisions of Article 10 of the Philippines-Sweden tax treaty, which you invoke for the dividends of SPAB, may apply as follows: "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 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: ScTaEA 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 25 per cent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. 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 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 above-cited provisions, the 10% preferential tax rate on dividends shall apply whenever the recipient, who is the beneficial owner of the dividends, owns at least 25% of the capital of the paying company. In all other cases, the 15% preferential tax rate shall apply. Such being the case and considering that SPAB holds 3.648% which is less than 25% of the capital of VLLI, this Office is of the opinion and so holds that the dividend payments by VLLI to SPAB shall be subject to the preferential tax rate of 15% of the gross amount of dividends, pursuant to Article 10 (2) (B) of the Philippines-Sweden tax treaty. 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 Republic of the Philippines and the Kingdom of Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.