ITAD BIR Ruling No. 147-14

August 14, 2014 ITAD BIR RULING NO. 147-14 Article 10, Philippines-France tax treaty, as amended Philippine Axa Life Insurance Corporation 6th Floor Philippine Axa Life Centre Sen. Gil Puyat Avenue cor. Tindalo Street Makati City Attention: Mr. Ronaldo C. San Jose Chief Financial Officer Gentlemen : This refers to your tax treaty relief application filed on November 21, 2012 requesting confirmation that dividend paid to AXA ASIA ("AXA") by PHILIPPINE AXA LIFE INSURANCE CORPORATION ("PHILIPPINE AXA") is subject to 10 percent preferential tax rate pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-France tax treaty") , as amended by a Protocol 1 which took effect on January 1, 1998. It is represented that AXA is a foreign corporation organized and existing under the laws of France based on its Articles of Incorporation and resident thereof as evidenced by the Certificate of Tax Residence issued by the General Department of Public Finance of France on March 27, 2012; that AXA is situated at 21 Avenue Matignon, 75008 Paris, France; that AXA is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on April 25, 2012; and that PHILIPPINE AXA, on the other hand, is a domestic corporation with principal address at 6th Floor, Philippine Axa Life Center, Sen. Gil Puyat Avenue cor. Tindalo Street, Makati City, Philippines. It is further represented that on October 24, 2012, the Board of Directors of PHILIPPINE AXA, at its regular meeting, declared cash dividends of P795 Million from its unrestricted retained earnings of P2 Billion as of August 31, 2012, payable to the stockholders of record of PHILIPPINE AXA as of October 24, 2012; that as of October 24, 2012, AXA holds 2,967,186 common shares of PHILIPPINE AXA which represent 45 percent of the total common shares of PHILIPPINE AXA; and that dividend payment is remitted to AXA on installment basis as shown in the machine validated Application for Miscellaneous Transactions dated November 26, 2012, December 12 and 13, 2012. IaEScC It is finally represented that the dividends subject of this ruling are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Sworn Statement issued by the Chief Financial Officer of PHILIPPINE AXA on November 14, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" Tax Code "), as amended, provides that dividend paid to AXA, being a foreign corporation not engaged in trade or business in the Philippines, is subject to income tax at the rate of 30 percent, thus: "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 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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the same Code provides that such dividend may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, viz. : "Section 32. Gross Income. cSIACD 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" In this particular case, you invoke the Philippines-France tax treaty, as amended. Paragraphs 1 and 2, Article 10 thereof provide as follows: "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 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 (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; b) in all other cases, 15 per cent of the gross amount of the dividends. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and derived by a resident of France may be taxed in the Philippines at the rate of (a) 10 percent of the gross amount of the dividends if the beneficial owner of the dividends is a company (excluding partnership) which holds directly at least 10 percent of the voting shares of the company paying the dividends; and (b) 15 percent of the gross amount of the dividends in all other cases. ETIcHa Accordingly, since AXA is a company which is a resident of France and is holding directly 45 percent of the common shares of PHILIPPINE AXA, such dividend paid by PHILIPPINE AXA to AXA is subject to income tax at the rate of 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-France 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 Footnotes 1. Protocol to the Tax Convention between the Government of the Republic of the Philippines and the Government of the French Republic.