ITAD BIR Ruling No. 148-11

May 12, 2011 ITAD BIR RULING NO. 148-11 Article 10 (2) (a) Philippines-France tax treaty; BIR Ruling No. ITAD 017-01; BIR Ruling No. ITAD 034-10; BIR Ruling No. DA-ITAD-101-04 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines Attention: Veronica A. Santos Principal, Transaction Tax Mesdames : This refers to your tax treaty relief application ("TTRA") filed on April 5, 2011 requesting confirmation that the dividends that BNP Paribas Arbitrage SNC ("BNPPA") will receive from Ayala Land, Inc. ("ALI") are subject to the preferential tax rate of 15 percent pursuant to Article 10 (2) (b) of the amended 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") . It is represented that BNPPA is a corporation duly organized and existing under the laws of France with principal business address at 8, Rue de Sofia, 75018 Paris, France; that it is a fiscal resident of France for purposes of taxation as certified by the Direction Generale Des Finances Publiques of France on March 25, 2011; that it is not registered as a corporation or as a partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Philippine Securities and Exchange Commission on March 24, 2011; and that ALI, on the other hand, is a domestic corporation duly organized and existing under Philippine laws with office address at 31/F Tower One and Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City, Philippines. It is further represented that on February 24, 2011 the Board of Directors of ALI approved and authorized the declaration and payment of the regular cash dividend of PhP0.0733 per share to all stockholders of record as of March 23, 2011, which shall be payable on April 15, 2011; that as per certification issued by the Assistant Corporate Secretary of ALI, BNPPA holds 11,600,600 common shares constituting 0.08903% of the issued and outstanding shares of ALI as of March 23, 2011; and that the issue or transaction subject of this request or ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal as per certification issued by the Assistant Corporate Secretary of ALI on April 5, 2011. aHcACI In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (NIRC) of 1997, as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It states: "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 interest, 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%)." However, under Section 32 (B) (5) of the NIRC of 1997, as amended, such income derived by foreign corporations in the Philippines may be exempt from income tax, or partially exempt if subject to reduced rate only, pursuant to a treaty obligation binding upon the Philippine government. It 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." Hence, the provisions of Article 10 of the Philippines-France tax treaty, as amended, which you invoked, may apply. It states: "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: EAHcCT 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. 3. The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. ITScHa xxx xxx xxx" Inasmuch as BNPPA holds 11,600,000 common shares or 0.08903% of the issued and outstanding capital stock of ALI, which is less than the required minimum shareholdings of 10 percent to avail of the 10 percent preferential tax rate, this Office is of the opinion, and hereby holds, that the dividends that BNPPA will receive from ALI shall be subject to 15 percent preferential tax rate prescribed under Article 10 (2) (b) of Philippines-France tax treaty, as amended. (BIR Ruling No. ITAD 017-01 dated February 19, 2001; BIR Ruling No. ITAD 034-10 dated September 14, 2010; BIR Ruling No. DA-ITAD 101-04 dated September 13, 2004) This ruling is issued on the basis of the foregoing 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