ITAD BIR Ruling No. 138-11

May 2, 2011 ITAD BIR RULING NO. 138-11 Article 10 (Dividends) Philippines-Germany tax treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Antonette C. Tionko Tax Services Gentlemen : This refers to your application for tax treaty relief dated August 12, 2009, on behalf of Deutsche Bank AG Manila Branch ("Deutsche Bank Philippine Branch") , requesting confirmation that branch profits to be remitted by Deutsche Bank Philippine Branch to Deutsche Bank Aktiengesellschaft ("Deutsche Bank") are subject to income tax at the rate of 10 percent, pursuant to the Agreement between the Republic of the Philippines and the Federal Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital ("Philippines-Germany tax treaty") . Basic Facts It is represented that Deutsche Bank is a foreign corporation organized and existing under the laws of Germany, based on its Articles of Association; that Deutsche Bank is situated at Taunusanlage 12, D 60325 Frankfurt am Main, Germany, and its primary objective is to transact banking business of every kind, to provide financial and other services, and to promote international economic relations; that based on the Certificate of Authority issued by the Bangko Sentral ng Pilipinas ("BSP") to Deutsche Bank on July 3, 1995, Deutsche Bank is authorized to operate as a branch in the Philippines with full banking authority pursuant to Republic Act No. 7721 and to Monetary Board Resolution No. 98 dated January 31, 1995; that, subsequently, on July 12, 1995, the Securities and Exchange Commission ("SEC") approved the amendment to the original license of Deutsche Bank (license No. F-1228 dated October 28, 1988) to authorize it to operate as a branch in the Philippines with full banking authority pursuant to the Certificate of Authority dated July 3, 1995; that the original license of Deutsche Bank merely allows it to operate an offshore banking unit in the Philippines pursuant to Presidential Decree No. 1034, among others; that based on the Certificate of Authority issued by the BSP on July 1, 1996, to Deutsche Bank Philippine Branch , being the branch office of Deutsche Bank in the Philippines, Deutsche Bank Philippine Branch is authorized to engage in quasi-banking functions under Republic Act No. 337, as amended, and under Subsection 1289.5 of the manual of Regulations for Banks and Other Financial Intermediaries, as amended, and promulgated by the Monetary Board; and that Deutsche Bank Philippine Branch is situated at the 26th Floor, Tower One, Ayala Triangle, Ayala Avenue, Makati City, Philippines. SaIHDA It is also represented based on the letter of the BSP to Deutsche Bank Philippine Branch dated August 6, 2009, that the BSP approved the request of Deutsche Bank Philippine Branch to remit branch profits to the head office of Deutsche Bank in Germany for taxable year 2008 in the amount of PHP180,759,984.55; and that the branch profits will be converted to Euros at the prevailing exchange rate at the date of their remittance in accordance with the procedures outlined in Appendix 11 of the Manual of Regulations on Foreign Exchange Transactions under Circular No. 645 dated February 13, 2009. It is finally represented based on the notarized Certification by the Vice President for Finance of Deutsche Bank Philippine Branch dated April 23, 2010, that the branch profits subject of the application for tax treaty relief are not subject of an investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. Ruling A. On income tax In reply, please be informed that a foreign corporation like Deutsche Bank , whether or not engaged in trade or business in the Philippines, is taxable only on income derived from sources in the Philippines. Section 23 (F) of the National Internal Revenue Code of 1997 ("Tax Code of 1997") , as amended, provides: "SEC. 23. General Principles of Income Taxation in the Philippines. Except when otherwise provided in this Code: xxx xxx xxx (F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines." However, any income derived in the Philippines may be exempt from income tax (or partially exempt if subject to a reduced rate only) if the same is so exempt (or partially exempt) as required by any treaty obligation binding upon the Philippine Government. Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: "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: (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." ICDSca With respect to a treaty, what you invoke for this purpose is the Philippines-Germany tax treaty. Paragraph 6, Article 10 (Dividends) thereof provides: "Article 10 DIVIDENDS xxx xxx xxx 6. Where a resident of the Federal Republic of Germany has a branch in the Republic of the Philippines, this branch may be subject to a branch profits remittance tax withheld at source in accordance with Philippine law. However, the tax so charged shall not exceed 10 per cent of the gross amount of the profits remitted by that branch to the head office." Accordingly, inasmuch as Deutsche Bank is a resident of Germany, which has a branch office in the Philippines (namely, Deutsche Bank Philippine Bank ), the branch profits to be remitted by Deutsche Bank Philippine Bank to the head office of Deutsche Bank in Germany for taxable year 2008 in the amount of PHP180,759,984.55 shall be subject to branch profits remittance tax at the rate of 10 percent based on the gross amount remitted. 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