ITAD BIR Ruling No. 125-15

April 30, 2015 ITAD BIR RULING NO. 125-15 Article 9 of the Philippines-United Kingdom tax treaty SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Antonette C. Tionko Principal, Tax Services Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on March 21, 2012, on behalf of Macquarie International Holdings, Ltd. ("MIHL"), requesting confirmation that the dividends paid by Macquarie Securities (Philippines), Inc . ("MSPI") to MIHL are subject to 15 percent preferential income tax rate pursuant to 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 MIHL with principal address at Ropemaker Place, 28 Ropemaker Street, London EC2Y 9HD, United Kingdom, is a corporation organized and existing under the laws of the United Kingdom, and is a resident thereof based on Certificate of Residence in the United Kingdom issued by the Tax Specialist Direct Tax of the Large Business Financial Sector Group, HM Revenue & Customs dated October 27, 2011; that it is not registered 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 March 16, 2012; and that, on the other hand, MSPI is a corporation organized and existing under the laws of the Philippines with principal address at 22nd Floor, 6750 Office Tower, Ayala Avenue, Makati City. It is further represented that on March 6, 2012, the Board of Directors of MSPI approved the declaration of cash dividend of P100,000,000.00 in favor all stockholders of record as of the close of business on March 6, 2012, in accordance with their respective shareholdings, which shall be payable not later than March 31, 2012; that based on the Secretary's Certificate issued on March 20, 2012 by MSPI, MIHL legally and beneficially owns 4,643,835 common shares in MSPI (including 5 shares of MIHL's nominee directors), with a total value of Php464,384,000.00, representing 99.99% of the total outstanding capital stock of MSPI; that said shares were acquired by MIHL through subscription on various dates from July 8, 2004 up to April 5, 2005. It is finally represented, per the Sworn Statement issued by MSPI dated March 15, 2012, 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 proceeding, or judicial appeal. 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 . 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, the provisions of Article 9 (1) (a) of the Philippines-United Kingdom tax treaty, which you invoke, may apply to the instant case. It provides "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. xxx xxx xxx" Based on the foregoing, dividend payments to a company which is a resident of the United Kingdom and which does not have a permanent establishment in the Philippines shall be taxed at a preferential rate not exceeding fifteen percent (15%) of the gross amount of dividends if the said recipient is a company which owns at least 10 percent of the voting power in the company paying the dividends; and at a rate not exceeding twenty-five percent (25%) of the gross amount of the dividends in all other cases. Such being the case and since MIHL, a resident of the United Kingdom with no fixed place of business in the Philippines, owns 99.99% of MSPI's total outstanding capital stock, the dividends paid by MSPI to MIHL are subject to the preferential tax rate of 15 percent, based on the gross amount thereof, pursuant to 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue