ITAD BIR Ruling No. 138-14

July 22, 2014 ITAD BIR RULING NO. 138-14 Article 10 (Dividends), Philippines-Germany tax treaty Temic Semiconductor Test, Inc. 102 Accuracy Drive cor. Excellence Ave., Carmelray Industrial Park 1 Canlubang, Laguna Attention: Steven Roberson Director Gentlemen : This refers to your tax treaty application ("TTRA") filed on March 4, 2014, requesting confirmation that dividends paid by Temic Semiconductor Test, Inc. ("TSTI") to Atmel Automotive GMBH ("AAG") are subject to income tax at the rate of 10% pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the Federal Republic of Germany with respect to Taxes on Income. AAG is a foreign corporation organized and existing under the laws of the Federal Republic of Germany and is a resident thereof within the meaning of Article 4 under the tax treaty of the Philippines and Germany for the avoidance of double taxation with business address in Theresienstrabe 2, 74072 Heilbron, Germany. It is not registered as a corporation or a partnership in the Philippines per certification of non-registration issued by the Securities and Exchange Commission on February 28, 2014. On the other hand, TSTI is a corporation duly organized and existing in accordance with the laws of the Republic of the Philippines with principal address at 102 Accuracy Drive cor. Excellence Ave., Carmelray Industrial Park 1, Canlubang, Laguna. CTIEac It is represented that AAG is the registered owner of Twenty One Million Nine Hundred Ninety-Nine Thousand Nine Hundred Ninety-Five (21,999,995) common shares constituting 99.99% of the shares of TSTI plus Five (5) nominee shares the beneficial ownership of which remains with AAG with a total of Twenty-Two Million Shares (22,000,000) constituting 100% of the shares in TSTI as of December 19, 2013; that on December 19, 2013 the board of directors of TSTI declared cash dividends in the amount of Seventy-Two Million Four Hundred Forty-Four Thousand Five Hundred Twenty Nine Pesos (Php72,444,529) to the Stockholders of Record as of December 19, 2013; and that, per notarized certification issued by the Bank of America Merrill Lynch dated March 7, 2014, One Million Four Hundred Fifty Six Thousand Six Hundred Ninety-One and 97/100 USD (USD1,456,691.97) was paid to AAG. It is further represented, per sworn certification issued by the Country Manager of TSTI on February 14, 2014 that the issue subject of the above request is not under any investigation or on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal. In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" Tax Code "), as amended, dividends paid to AAG are subject to income tax at the rate of 30 percent, thus: "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Non-resident Foreign Corporation. HTcDEa (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 interests, 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) and (d) above: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, these dividends may be subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "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: 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." For this purpose, you invoke the Philippines-Germany tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: SEcITC "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 be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the recipient is a company (excluding partnerships) which owns directly at least 25 per cent of the capital of the company paying the dividends; b) in all other cases, 15 per cent of the gross amount of dividends. xxx xxx xxx" Under paragraph 2 above, dividends arising in the Philippines and paid to a resident of Germany may be taxed in the Philippines at a rate not to exceed (a) 10 percent if the recipient of the dividends is a company which owns directly at least twenty-five percent (25%) of the capital of the company paying the dividends; and (b) 15 percent in all other cases. Accordingly, considering that AAG, a company registered in Germany, holds 21,999,995 common shares , constituting 99.99 percent of the stocks of TSTI, which is more than twenty-five percent (25%) of the capital of the latter, this Office is of the opinion and so holds that the dividend paid by TSTI to AAG is subject to income tax at the rate of ten percent (10%) of the gross amount of the dividends, pursuant to Article 10 (2) (a) of the Philippine-Germany tax treaty. 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. SaIACT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue