ITAD BIR Ruling No. 089-12

February 16, 2012 ITAD BIR RULING NO. 089-12 Article 10 (2) (a) Philippines-Netherlands tax treaty; Revenue Memorandum Order No. 72-10; BIR Ruling No. ITAD 277-11; BIR Ruling No. ITAD 278-11; BIR Ruling No. ITAD 279-11 Frigomagna, Inc. Block 6 Lot 2, Mamplasan Laguna International Industrial Park Bian, Laguna Attention: Ms. Imelda R. Macindo Gentlemen : This refers to your tax treaty application ("TTRA") filed on December 6, 2011 requesting confirmation that the withholding tax rate on the dividends paid to Frigoinvest Holdings B.V. ("Frigoinvest-NL") by Frigomagna, Inc. ("Frigomagna") is 10 percent pursuant to Article 10 (2) (a) of 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 ("Philippines-Netherlands tax treaty"). 1 It is represented that Frigoinvest-NL is a corporation duly organized and existing under the laws of the Netherlands having its registered office in Schouwburgplein 30 34 3012 CL Rotterdam based on its Certificate of Residence issued by the Inspector of the Tax Administration of Rivierenland, the Netherlands on July 5, 2011; that it is not registered as a corporation or as a partnership in the Philippines based on the Certification of Non-Registration of Company dated August 22, 2011 issued by the Securities and Exchange Commission; and that Frigomagna, on the other hand, is a domestic corporation duly organized and existing under Philippine laws with office address at Block 6 Lot 2, Laguna International Industrial Park Bian, Laguna. It is further represented that on May 4, 2011, the Board of Directors of Frigomagna declared dividends in the amount of PhP4,048,000.00 out of its retained earnings at the closing of the calendar year December 31, 2010 to be distributed to its stockholders of record as of December 31, 2010 and to be paid on or before October 31, 2011. Relative thereto, please be informed that Sections 13 and 14 of the Revenue Memorandum Order No. 72-2010 prescribe the guidelines and procedure in filing TTRAs, which provide: TADcCS "SEC. 14. When and Where to File the TTRA . All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms or any necessary documents are submitted to any other BIR Office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO." "SEC. 13. DEFINITIONS. xxx xxx xxx 4. First taxable event for purposes of filing the Tax Treaty Relief Application (TTRA), shall mean the first or the only time when the income payor is required to withhold the income tax thereon or should have withheld taxes thereon had the transaction been subjected to tax; and for 0901-C applications, before the due date of the Documentary Stamp Tax (DST) on the sale of the shares of stock. xxx xxx xxx" In this case, the TTRA was filed only on December 6, 2011 covering the dividends declared by Frigomagna to Frigoinvest-NL to be distributed to its stockholders of record as of December 31, 2010 and to be paid on or before October 31, 2011. Accordingly, it did not comply with the requirement laid down in the RMO above-quoted, hence, it cannot avail of the preferential tax rate of 10 percent on the dividend payments made by Frigomagna to Frigoinvest-NL. Thus, the TTRA for the preferential tax rate of 10 percent on the dividend payments made by Frigomagna to Frigoinvest-NL is hereby denied for having been filed beyond the period prescribed under the RMO. Accordingly, the subject dividend payments shall be subject to tax at the rate of 30 percent under Section 28 (B) (1) of the 1997 NIRC, as amended, thus: SaIACT "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%)." This ruling is issued on the basis of the foregoing 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. Signed March 9, 1989 and effective September 20, 1991.