ITAD BIR Ruling No. 106-15

March 27, 2015 ITAD BIR RULING NO. 106-15 Article 9, Philippines-United Kingdom tax treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Carlos R. Mateo Director, Tax Gentlemen : This refers to your tax treaty relief application filed on November 19, 2012, on behalf of A. Boake Roberts & Co. (Holdings) Limited ("ABR-UK") , requesting confirmation that the dividends paid by International Flavors and Fragrances (Philippines), Inc. ("IFF") to ABR-UK are subject to 15 percent final withholding tax rate under Article 9 of the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-United Kingdom tax treaty") . It is represented that ABR-UK, with principal address at Duddery Hill, Haverhill, Suffolk CB9 8LG, United Kingdom, is a corporation organized and existing under the laws of the United Kingdom, and is a resident thereof based on the Certificate of Residence issued on June 14, 2012 by the HM Inspector of Taxes of HM Revenue & Customs, Local Compliance; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated July 3, 2012; and that, on the other hand, IFF is a corporation organized and existing under the laws of the Philippines, with principal address at 28th Floor Wynsum Corporate Plaza, 22 F. Ortigas Jr. Road, Ortigas Center, Pasig City. It is further represented that at the special meeting of the Board of Directors of IFF on October 30, 2012, the Board of Directors of IFF declared a cash dividends with the following details: Dividends out of Amount of To the stockholders The dividends unrestricted retained Dividends: of record on: are payable on: earnings as of: 40,908 34,588,297.00 April 30, 2012 November 21, 2012 41,090 76,001,409.00 June 30, 2012 November 21, 2012 That through merger on October 1, 2002 and as of above-mentioned date of record and the payment of the dividends, ABR-UK is the registered owner of the following voting capital stocks of IFF: Number of Shares Value of Shares Percentage of Capital Stock of Capital Stock ownership 8,417,603 8,417,603 70% And that, such dividend were remitted by IFF to ABR-UK on December 14, 2012. TCacIE It is finally represented that the issue or transaction subject of this 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 per Sworn Statement issued by IFF dated November 12, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (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 interest, 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%)." However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: cIaCTS "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." Thus, Article 9 of the Philippines-United Kingdom tax treaty, which you invoked, may apply to the instant case. It states: "Article 9 Dividends 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; b) in all other cases 25% of the gross amount of the dividends. xxx xxx xxx 4. 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 corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. 5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on a trade or business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or 13, as the case may be, shall apply. . . ." Based on the aforequoted provisions, the 15 percent preferential tax rate on dividends shall apply whenever the recipient, who is the beneficial owner of the dividends, is a company which controls directly or indirectly at least 10 percent of the voting power of the paying company. In all other cases, the 25 percent preferential tax rate shall apply. Such being the case and considering that ABR-UK is a resident of the United Kingdom with no fixed place of business in the Philippines, which holds 70 percent of the voting capital of IFF, then this Office if of the opinion and so holds that dividends paid by IFF to ABR-UK are subject to 15 percent preferential final withholding tax rate pursuant to Article 9 (1) (a) of the Philippines-United Kingdom tax treaty. 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. HISAET Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue