ITAD BIR Ruling No. 136-12

March 27, 2012 ITAD BIR RULING NO. 136-12 Article 10, Philippines-Japan tax treaty, as amended; BIR Ruling No. ITAD 007-10 Cesar C. Cruz & Partners Law Offices 3001 Ayala Life-FGU Center 6811 Ayala Avenue Makati City Attention: Cesar C. Cruz Jaime M. Padilla Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on July 11, 2011, on behalf of Danfoss International A/S ("Danfoss-Denmark"), requesting confirmation that the dividends paid by Danfoss, Inc. ("Danfoss-Phil.") are subject to the preferential withholding tax rate of 10 pursuant to Article 10 of the Convention between the Government of the Republic of the Philippines and the Government of the Kingdom of Denmark for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Denmark tax treaty"). It is represented that Danfoss-Denmark, with principal address at Nordborgvej 81, DK-6430 Nordborg, is a corporation organized and existing under the laws of Denmark and is a resident of thereof within the meaning of the Philippines-Denmark tax treaty per the Certificate of Residency issued by the SKAT Midtjylland Regnskab 2-Udbytte, Helgenshoj All 9, 2630 on March 31, 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 June 24, 2011; and that, on the other hand, Danfoss-Phil. is a corporation organized and existing under the laws of the Philippines with principal address at 7/F Unioil Building, Acacia corner Commerce Avenue, Muntinlupa City 1770. It is further represented that at the special meeting of the Board of Directors of Danfoss-Phil. held on March 2, 2011, a resolution was unanimously approved that a cash dividends of Php16,100,000.00 or one peso (Php1.00) per share on the common stock of the latter payable on June 30, 2011 to the stockholders of record as of December 31, 2010; that based on the Secretary's Certificate issued by Danfoss-Phil. dated July 8, 2011, that through various subscription beginning 1997 and as of the date of payment of the subject dividends which was on June 30, 2011, Danfoss-Denmark owns 16,099,995 shares representing 99.99% of the capital stock in Danfoss-Phil. IETCAS It is finally represented per the Secretary's Certificate issued by Danfoss-Phil. dated July 8, 2011, 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 Sections 14 and 13 of Revenue Memorandum Order ("RMO") No. 72-2010 1 which was published in the Manila Bulletin on October 20, 2010, and effective November 4, 2010, provide that: "SECTION 14. When and Where to File the TTRA. All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Divisions (ITAD). If the forms of any necessary documents are submitted to any other BIR office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO. " (Emphasis supplied) In view of the foregoing, since the payment of the subject dividends was made on June 30, 2011, and the TTRA was filed on July 11, 2011, this Office hereby DENIES the TTRA for having been filed beyond the occurrence of the first taxable event prescribed by the RMO. Accordingly, the subject dividends shall be subject to income tax at the rate of 30% as provided under Section 28 (B) (1) of the 1997 National Internal Revenue Code, as amended. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Guidelines on the Processing of Tax Treaty Relief Applications ("TTRA") pursuant to existing Philippines Tax Treaties dated August 25, 2010.