ITAD BIR Ruling No. 138-13

May 20, 2013 ITAD BIR RULING NO. 138-13 Article 10 (2) (a), Philippines-Norway Tax Treaty, as amended Alas, Oplas & Co., CPAs 25/F Philippine AXA Life Centre 1286 Sen. Gil Puyat Avenue Makati City Attention: Atty. Marissa C. Yambao Tax Manager Gentlemen : This refers to your Tax Treaty Relief Application filed on May 25, 2012, on behalf of Norconsult AS ("Norconsult") , requesting confirmation that dividend payments made by Norconsult Management Services Phils., Inc. ("NMSI") to Norconsult are subject to the 15 percent preferential tax rate pursuant to the Convention between the Republic of the Philippines and the Kingdom of Norway for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Philippines-Norway tax treaty, as amended. ISHaCD It is represented that Norconsult, with address at Postboks 626, 1303 Sandvika, Norway, is a corporation organized and existing under the laws of Norway and is a resident of Norway per Certificate of Residence issued by the Norwegian Tax Administration on December 16, 2011; that based on its Articles of Association, Norconsult is company incorporated under the laws of the Norway with share capital is NOK2,878,153.48 divided into 3,942,676 shares of NOK0.73 each; that Norconsult is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated May 10, 2012; and that NMSI, on the other hand, is a domestic corporation duly organized and existing under the laws of the Philippines with office address located Unit 506, Tektite East Tower Philippine Stock Exchange Center, Exchange Road, Ortigas Center, Pasig City. It is also represented, per Secretary's Certificate dated May 22, 2012, that as of January 20, 2012, Norconsult holds 149,995 common shares with a total par value of Php14,999,500.00, representing 99.95% ownership in NMSI; and that these shares were acquired by Norconsult on various dates from March 3, 2004 to January 12, 2010 through pre-incorporation subscription, issuance of stocks dividends, transfers by deed of assignment and increase of capital. It is further represented that at its meeting on January 20, 2012, the Board of Directors of NMSI approved Board Resolution No. 0112-0001, declaring cash dividend in the amount of Forty-Six Million Pesos (Php46,000,000.00) in favor of all its stockholders of record, in proportion to their respective stockholdings; and that the said dividend was made to Norconsult in two (2) payments on July 3 and July 31, 2012, as evidenced by a copy of the telegraphic transfer of payment issued by Security Bank. Finally, it is represented that the transaction subject of the herein request for ruling is not under investigation, on going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayers involved per the Sworn Statement issued by NMSI dated May 24, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (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 . . . dividends, rents, royalties . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). ACTaDH xxx xxx xxx" 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-Norway tax treaty, as amended, 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 a Contracting State to a resident of the other Contracting State may be taxed in that other 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 State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 15 per cent 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) 25 per cent of the gross amount of the dividends in all other cases. 3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company on the profits out of which the dividends are paid. HSCATc 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 assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident. xxx xxx xxx" Based on the foregoing, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Norway at a rate not exceeding 15 percent if the last-mentioned company holds directly at least 10 percent of the voting shares of the company paying the dividends; and in all other cases, 25 percent rate shall apply. This being the case, and inasmuch as Norconsult holds directly 99.95% of the outstanding capital stock of NMSI (which in fact exceeds the 10 percent minimum required percentage of shareholdings), said dividends paid by NMSI to Norconsult are subject to income tax at the rate of 15 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Norway tax treaty, as amended. 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