ITAD BIR Ruling No. 130-13

May 8, 2013 ITAD BIR RULING NO. 130-13 Article 10, Philippines-Netherlands tax treaty TeaM Energy CTC Building 2232 Roxas Boulevard Pasay City 1300 Attention: Kazunobu Takijima VP-Controller Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on July 7, 2011, requesting confirmation that the dividend to be received by Tokyo Electric Power Company International B.V. ("TEPCI") from TeaM Energy is subject to the preferential tax rate of 10 percent of the gross amount of the dividends pursuant to Article 10 of the Convention between the Republic of the Philippines and the Kingdom of the Netherlands 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 TEPCI is a corporation organized and existing under the laws of The Netherlands with principal address at Strawinskylaan 3105 1077 ZX Amsterdam, The Netherlands and is a resident thereof within the meaning of Article 4 of the Philippines-Netherlands tax treaty per the Declaration of Residence issued on December 15, 2010 by the Tax Administrator of the Netherlands; that TEPCI has an authorized capital stock of two hundred forty million Euro (EUR240,000,000.00) divided into two hundred forty thousand shares with a par value of one thousand Euro (EUR1,000.00) each; that it is not registered either as corporation or as a partnership in the Philippines per certification issued by the Securities and Exchange Commission dated March 22, 2011; and that, on the other hand, TeaM Energy is a corporation organized and existing under the laws of the Philippines with principal address at CTC Building, 2232 Roxas Boulevard, Pasay City. It is further represented that at the meeting of the Board of Directors of TeaM Energy held on July 7, 2011 a resolution was passed and approved declaring cash dividend in the amount of US$6,000,000.00 payable to all stockholders of record as of July 7, 2011; that per the Corporate Secretary's Certificate issued on July 7, 2011 by TeaM Energy , as of July 7, 2011, TEPCI has 16,534,177 shares in TeaM Energy representing 50% ownership in TeaM Energy ; that the said dividend is payable on or before July 31, 2011; and that based on the telegraphic transfer of remittance issued by the Mizuho Corporate Bank, Ltd., the amount of USD2,700,000.00 was remitted to TEPCI on July 12, 2011 as dividend payment by TeaM Energy . DCISAE It is finally represented per Secretary's Certificate issued by TeaM Energy on July 7, 2011, 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 income 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%)." 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: AIcaDC 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 thereto, Article 10 of the Philippines-Netherlands tax treaty, which you invoked, may apply to the instant case. It provides: "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; b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as income from debt-claims participating in profits and 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 above-cited provisions, the 10 percent preferential tax rate on dividends applies whenever the beneficial owner of the dividends is a company, the capital of which is divided into shares, and owns at least 10 percent of the capital of the paying company. In all other cases, 15 percent preferential tax rate applies. cCSEaA Such being the case and considering that the capital of TEPCI is wholly divided into shares, and that TEPCI holds more than 10 percent or 50% of the capital of Team Energy, this Office is of the opinion and so holds that the dividend payments by Team Energy to TEPCI shall be subject to the preferential tax rate of 10 percent of the gross amount of the dividends pursuant to Article 10 (2) (a) of the Philippines-Netherlands 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