ITAD BIR Ruling No. 111-14

July 21, 2014 ITAD BIR RULING NO. 111-14 Article 10 (Dividends), Philippines-Netherlands tax treaty Manabat Sanagustin & Co., CPAs The KPMG Center, 9/F, 6787 Ayala Avenue, Makati City 1226 Attention: Maria Carmela M. Peralta Authorized Representative Gentlemen : This refers to your application for tax treaty relief dated 14 December 2012 requesting confirmation that dividends paid by Unilever Philippines Body Care, Inc. ("Unilever-Philippines") to New Asia B.V. ("New Asia-Netherlands") are subject to final withholding tax at the preferential rate of ten percent (10%) pursuant to 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"). It is represented that New Asia-Netherlands is a non-resident foreign corporation organized and existing under the laws of the Netherlands with principal address at Weena 455, 3013 Al Rotterdam based on a notarized and consularized Declaration of Residence issued by the Ministerie Van Financien of the Netherlands. The company New Asia-Netherlands engaged in the business of managing other business enterprises of whatever nature based on its notarized and consularized Deed of Incorporation. New Asia-Netherlands is not registered as a corporation or as a partnership based on a Certification of Non-Registration of Company issued by the Securities and Exchange Commission on 08 November 2012. On the other hand, Unilever-Philippines is a domestic corporation with principal address at 24/F Insular Life, Corporate Center, Corporate Avenue, Filinvest Corporate City, Alabang, Muntinlupa. STEacI It is represented that as of 06 December 2012, New Asia-Netherlands is a registered shareholder of Unilever-Philippines with a subscription of Three Million Eight Hundred Seventy Six Thousand Nine Hundred Ninety Two (3,876,992) common shares at a par value of One Hundred Pesos (Php100.00) per share or Three Hundred Eighty Seven Million Six Hundred Ninety Nine Thousand Two Hundred Pesos (Php387,699,200.00) out of a total of Three Million Eight Hundred Seventy Six Thousand Nine Hundred Ninety Seven (3,876,997) shares. Three Million Eight Hundred Seventy Six Thousand Nine Hundred Ninety One (3,876,991) of these shares were acquired by New Asia-Netherlands from Sara Lee Wiki Holdings, Inc., Sara Lee France S.N.C. in December 2010 and from Ma. Concepcion T. Villegas on 13 December 2011. The remaining one share was acquired from Fernando T. Fernandez on 31 December 2011. New Asia-Netherlands owns 99.99% of the total subscribed capital stock of Unilever-Philippines based on a notarized Secretary's Certificate executed by the Corporate Secretary of Unilever-Philippines. It is represented that on 06 December 2012, Unilever-Philippines declared cash dividends in the amount of Two Hundred Eighty One Million Three Hundred Ninety Three Thousand Eight Hundred Thirty Five Pesos and Five Centavos (Php281,393,835.05) to stockholders of record as of 30 June 2012 payable on or before 17 December 2012 based on a notarized Secretary's Certificate executed by the Corporate Secretary of Unilever-Philippines on 12 December 2012. Subsequently, the Board of Directors of Unilever-Philippines determined that the dividends declared on 06 December 2012 should be recomputed for correction on the basis only of the number of shares of Unilever-Philippines registered in the Bangko Sentral ng Pilipinas . On 07 June 2013, Unilever-Philippines declared the accurate amount of cash dividends after recomputation in the amount of Two Hundred Fifty Five Million Three Hundred Thirty Thousand Two Hundred Twenty Eight Pesos and Five Centavos (Php225,330,228.05) n to stockholders of record as of 31 December 2012 based on the Secretary's Certificate executed by the Corporate Secretary of Unilever-Philippines on 07 June 2013. ESDHCa On 21 June 2013, the amount of Four Million Nine Hundred Forty Three Thousand Nine Hundred Eighty Six US Dollars and Eighty Four Cents (US$4,943,986.84) was remitted as cash dividends by Unilever-Philippines to Unilever-Netherlands through the Royal Bank of Scotland based on the notarized Certification issued by Citibank, N.A., Makati Branch. It is finally represented that the dividends subject of this ruling are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, judicial or administrative protest, collection proceedings or judicial appeal based on a notarized Certificate of No Pending Case issued by the Vice President-Finance of Unilever-Philippines. In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" NIRC of 1997 "), as amended, dividends paid to Unilever-Netherlands are subject to income tax at the rate of 30 percent, thus: "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: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." DcHaET However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 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." For this purpose, you invoke the Philippines-Netherlands tax treaty. Article 10 on Dividends thereof provide: "Article 10 Dividends 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the State of which the company paying the dividends is a resident and according to the laws 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 the capital of which is wholly or partly divided into shares and which holds directly at least 10 per cent of the capital of the company paying the dividends; DHIETc b) 15 per cent of the gross amount of the dividends in all other cases." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be taxed in the Philippines at a rate (a) of 10% of the gross amount of the dividends if the recipient is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10% of the capital of the company paying the dividends; and (b) 15% of the gross amount of the dividends in all other cases. Considering that New Asia-Netherlands is a company the capital of which is wholly divided into shares and owns 99.9% of the shares since 31 December 2011 in Unilever-Philippines , the dividend paid by Unilever-Philippines to New Asia-Netherlands is subject to the preferential tax rate of 10 percent of the gross amount thereof pursuant to Article 10 of the Philippines-Netherlands 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 n Note from the Publisher: Copied verbatim from the official copy. Discrepancy between amount in words and in figures. n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.