ITAD BIR Ruling No. 116-13

April 24, 2013 ITAD BIR RULING NO. 116-13 Article 10, Philippines-Sweden tax treaty, as amended Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Darwin Troy J. Padlan Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on March 20, 2012, on behalf of Speaking Partners AB ("SPAB") , requesting confirmation that the dividend payments made by Aboitiz Power Corporation ("Aboitiz") to SPAB are subject to 15 percent final withholding tax rate under Article 10 of the amended 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 ("Philippines-Sweden tax treaty, as amended") . It is represented that SPAB, with principal address at Box 53187, 400 15 GTEBORG, Sweden, is a corporation organized and existing under the laws of Sweden, and is a resident thereof within the meaning of the Philippines-Sweden tax treaty per the Certificate issued by the Swedish Tax Agency dated February 7, 2012; 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 April 4, 2012; and that, on the other hand, Aboitiz is a corporation organized and existing under the laws of the Philippines, with principal address at Gov. Manuel Cuenco Avenue, Kasambagan, Cebu City. It is further represented that at the special meeting of the Board of Directors of Aboitiz on March 1, 2012, the Board of Directors declared a cash dividend in the amount of One Peso and 32/100 per share (P1.32) from Aboitiz unrestricted retained earnings as of December 31, 2011 to be issued to all stockholders of record as of March 16, 2012, payable on April 3, 2012; that based on a Certification issued by Aboitiz dated September 7, 2012 (with the attached copy of Certification of Hongkong Shanghai Banking Corporation Limited , custodian of various nonresident foreign shareholders in Aboitiz ), SPAB holds 38,835,000 common shares with a total par value of Thirty-Eight Million Eight Hundred Thirty-Five Thousand Philippine Currency (Php38,835,000.00) equivalent to 0.5277% of the total outstanding common shares of Aboitiz ; and that, based on a certification issued on August 23, 2012 by The Hongkong and Shanghai Banking Corporation Limited (HSBC) such dividend was credited to the account of SPAB on April 3, 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. (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: "Section 32. Gross Income. (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." In relation to a treaty, Article 10 of the Philippines-Sweden tax treaty, as amended, reads: "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 law 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 (excluding partnership) which holds directly at least 25 percent 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. 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 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." Based on the aforequoted provisions, the 10 percent preferential tax rate on dividends shall apply whenever the recipient, who is the beneficial owner of the dividends, holds directly at least 25 percent of the capital of the paying company. In all other cases, the 15 percent preferential tax rate shall apply. Such being the case and considering that SPAB holds 38,835,000 shares representing 0.5277% of the total outstanding and issued shares of Aboitiz, such dividend is subject to 15 percent preferential final withholding tax rate pursuant to Article 10 (2) (b) of the Philippines-Sweden tax treaty, as amended. 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