ITAD BIR Ruling No. 083-15

March 25, 2015 ITAD BIR RULING NO. 083-15 Article 11, Philippines-United States of America Tax Treaty Dentsply Philippines, Inc. 5th Floor I-Care Building Legaspi Street corner Dela Rosa Street Legaspi Village, Makati City Attention: Ms. Elaine L. Amparo Gentlemen : This refers to your Tax Treaty Relief Application filed on July 21, 2014 requesting confirmation that dividend paid to DENTSPLY INTERNATIONAL, INC. ("DENTSPLY'') by DENTSPLY PHILIPPINES, INC. ("DENTSPLY-PHILIPPINES") is subject to a preferential tax rate of 20 percent pursuant to Article 11 of 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 ("Philippines-United States tax treaty") . It is represented that DENTSPLY is a foreign corporation organized and existing under the laws of the United States based on the Certificate of Incorporation filed at the State of Delaware in the United States on April 14, 2014; that DENTSPLY is located at World Headquarter Susquehanna Commerce Center 221 West Philadelphia Street Suite 60W York, PA United States of America; that DENTSPLY is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on September 11, 2013; and that, on the other hand, DENTSPLY-PHILIPPINES is a domestic corporation located at 5th Floor I-Care Building, Legaspi Street corner Dela Rosa Street Legaspi Village, Makati City, Philippines. It is further represented that the Board of Directors of DENTSPLY-PHILIPPINES, at its special meeting on June 13, 2014, declared a cash dividend of P44.20 per share in favor of the stockholders of record as of December 31, 2013, payable upon availability of funds not later than July 31, 2014, based on the Secretary's Certificate issued by the Corporate Secretary of DENTSPLY-PHILIPPINES on June 13, 2014; and that DENTSPLY owns 285,500 shares of stock representing 99.99 percent of the outstanding capital stock of DENTSPLY-PHILIPPINES valued at P28,550,000.00 at a par value of P100.00 per share acquired in March 1996 and May 2001. It is finally represented that the dividend subject of this 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, based on the Sworn Statement issued by the Country Manager of DENTSPLY-PHILIPPINES on August 15, 2014. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code"), as amended, provides that dividend paid to DENTSPLY, being a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "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 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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). IcDHaT xxx xxx xxx" However, Section 32 (B) (5) of the Code provides that such dividend may be exempt from tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, 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" In this connection, you invoke the Philippines-United States tax treaty. Paragraphs 1 and 2, Article 11 thereof provide: "Article 11 Dividends 1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. 2. The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed a) 25 percent of the gross amount of the dividend; or b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the United States may be taxed in the Philippines at a rate not exceeding 20 percent of the gross amount thereof if the recipient is a corporation which owns at least 10 percent of the outstanding shares of stock of the corporation paying the dividends during the part of the latter corporation's taxable year which precedes the date of payment of the dividends and during the whole of its prior taxable year (if any), and 25 percent of the gross amount of the dividends in all other cases. This being the case, this Office is of the opinion and so holds that since DENTSPLY is a corporation which owns 99.99 percent of the voting stock of DENTSPLY-PHILIPPINES during the latter's taxable year before the date of payment of the dividends on July 31, 2014 and during the whole of its preceding taxable year (in fact, since March 1996 and May 2001), such dividend paid by DENTSPLY-PHILIPPINES to DENTSPLY is subject to income tax at a preferential rate of 20 percent of the gross amount thereof pursuant to paragraph 2 (b), Article 11 of the Philippines-United States 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