ITAD BIR Ruling No. 118-15

April 30, 2015 ITAD BIR RULING NO. 118-15 Article 11 (Dividends) Philippines-United States tax treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue, 1226 Makati City Attention: Antonette C. Tionko Authorized Representative Gentlemen : This refers to your application for tax treaty relief dated 27 February 2013 requesting confirmation that dividends paid by Globe Telecom Incorporated ( "Globe-Philippines" ) to Wisdom Tree Emerging Market Equity Income Fund ( "Wisdom Tree-US" ) are subject to final withholding tax at the preferential rate of twenty-five (25%) pursuant to the Convention between the Republic of the Philippines and the United States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ( "Philippines-US tax treaty" ). It is represented that Wisdom Tree-US is a non-resident foreign corporation organized and existing under the laws of the State of Delaware, United States of America, with office address at 380 Madison Avenue, 21st Floor, New York, New York, USA based on the Certification issued by the State of Delaware. Wisdom Tree-US is a trust company under the U.S. Securities Act of 1933 and is part of one or more separate and distinct fund series known as Wisdom Trust based on the notarized and consularized Trust Instrument and Certificate of Trust of Wisdom Tree-US . The company Wisdom Tree-US is not registered as a corporation or partnership in the Philippines based on the Certificate of Non-Registration of Company from the Securities and Exchange Commission (SEC) issued on 10 March 2011. Globe-Philippines , on the other hand, is a domestic corporation with office address at 5th Floor, Globe Telecom Plaza, Pioneer corner Madison Streets, Mandaluyong City. It is further represented that Wisdom Tree-US owns 0.398511% of the authorized capital stock of Globe-Philippines amounting to Five Hundred Twenty Seven Thousand Six Hundred Eighty (527,680) common shares; that as of 19 February 2013, the total number of issued and outstanding common shares of Globe-Philippines was at One Hundred Thirty Two Million Four Hundred Twelve Thousand Seven Hundred Seventy Two (132,412,772) with value per share of One Thousand One Hundred Twenty Two Pesos (Php1,122.00) based on the notarized Secretary's Certificate of Globe-Philippines . It is further represented that on 05 February 2013, Globe-Philippines approved declaration of dividends of Php33.50 per common share to all shareholders of records as of 19 February 2013 based on the notarized Secretary's Certificate of Globe-Philippines . 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 the Sworn Statement of Globe-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 Wisdom Tree-US 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%)." 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-US tax treaty. Paragraphs 1 and 2 of Article 11 on Dividends 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." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of the United States of America may be taxed in the Philippines at a rate not to exceed (a) 25% or (b) 20% of the gross amount of the dividends if at least 10% of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation during the part of the paying corporation's taxable year which precedes the date of the payment of the dividend. Considering that Wisdom Tree-US owns 0.398511% or 527,680 common shares in Globe-Philippines , which is less than the 10% of the voting stock of Globe-Philippines , this Office is of the opinion and so holds that the dividend paid by Globe-Philippines to Wisdom Tree-US are subject to the preferential tax rate of 25 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-US 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 n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.