ITAD BIR Ruling No. 128-14

July 22, 2014 ITAD BIR RULING NO. 128-14 Article 10 (2) (b), Philippines-Japan tax treaty, as amended SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Fidela I. Reyes Partner, Tax Services Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on July 4, 2013, on behalf of Sumitomo Osaka Cement Co., Ltd. ("Sumitomo") , requesting confirmation that the dividend paid by Holcim Philippines, Inc. ("Holcim") to Sumitomo is subject to preferential rate of 15 percent pursuant to Article 10 (2) (b) of the amended Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Japan tax treaty, as amended"). It is represented that Sumitomo , with address at 6-28, Rokubancho, Chiyoda-ku, Tokyo, 102-8465 Japan, is a corporation organized and existing under the laws of Japan, and is a resident of Japan within the meaning of the Philippines-Japan tax treaty per the Certificate of Residence issued by the District Director of Kojimachi Tax Office dated June 14, 2013; 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 June 25, 2013; and that, on the other hand, Holcim is a corporation organized and existing under the laws of the Philippines with principal address at 7th Floor Two World Square, McKinley Hill, Fort Bonifacio, Taguig City. CEDScA It is further represented, that at the regular meeting of the Board of Directors of Holcim on May 23, 2013, the Board of Directors declared a cash dividend in the amount of Php0.55 per share to all stockholders of record as of June 21, 2013 which will be payable not later than July 12, 2013; that based on the Corporate Secretary's Certificate of Holcim issued on July 16, 2013, Sumitomo has a total of 594,952,725 common shares, representing 9.22% ownership in Holcim ; and that, based on Certification issued by Standard Chartered Bank dated July 16, 2013, an amount of USD6,404,337.99 was remitted to Sumitomo by order of Holcim which was debited from its account number on July 12, 2013. It is finally represented, based on the Corporate Secretary's Certificate dated June 24, 2013 issued by Holcim , that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, 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. 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%)." TCaAHI 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. xxx xxx xxx" Thus, Article 10 of the Philippines-Japan tax treaty, as amended, which you invoke, may apply to the instant case. It provides: "Article 10 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 Contracting 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 laws of that Contracting State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: DTAHEC a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 10 percent either of the voting shares of the company paying the dividends or of the total shares issued by that company during the period of six months immediately preceding the date of payment of the dividends; b) 15 per cent of the gross amount of the dividends in all other cases. 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 assimilated to income from shares by the taxation laws of the Contracting State of which the company making the distribution is a resident." Based on the aforequoted provisions, dividends derived in the Philippines by a resident of Japan are subject to a preferential rate of 10 percent in two instances, a) if the beneficial owner is a company which holds directly at least 10 percent either of the voting shares of the company paying the dividends or of the total shares issued by that company during the period of six months immediately preceding the date of payment of the dividends, and b) 15 per cent of the gross amount of the dividends in all other cases. In view thereof and considering that Sumitomo holds only 9.22 percent common shares in Holcim , this Office is of the opinion as it hereby holds that the dividends derived by Sumitomo from Holcim is subject to the 15 percent preferential tax rate, pursuant to the Article 10 (2) (b) of the Philippines-Japan 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. aIcSED Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue