ITAD BIR Ruling No. 155-15

June 2, 2015 ITAD BIR RULING NO. 155-15 Article 10 (Dividend), Philippines-Netherlands tax treaty Manila-Oslo Renewable Enterprise, Inc. 2F Herco Center, 114 Benavidez Street, Legaspi Village 1229 Makati City Attention: Ms. Eleanor P. Blomdahl Vice President and Chief Financial Officer Gentlemen : This refers to your tax treaty relief application filed on October 22, 2014, on behalf of SN POWER INVEST NETHERLANDS B.V. ("SN POWER"), requesting confirmation that dividend paid by MANILA-OSLO RENEWABLE ENTERPRISE, INC. ("MANILA-OSLO") to SN POWER is subject to income tax at a preferential rate of 10 percent pursuant to the Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . It is represented that SN POWER is a foreign corporation organized and existing under the laws of the Netherlands and is a resident of the Netherlands, based on its Articles of Association, and on the Certificate of Residency issued by the Tax Administration Office Arnhem, The Netherlands, on September 5, 2014; that the capital of SN POWER consists of one or more shares with a nominal value of US$10,000 each, numbered consecutively from 1 onwards; that SN POWER is situated at Gustav Mahlerplein 100, 1082 MA Amsterdam, the Netherlands; that SN POWER 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 October 15, 2014; and that, on the other hand, MANILA-OSLO is a domestic corporation situated at 2F Herco Center, 114 Benavidez Street, Legaspi Village, 1229 Makati City, Philippines. It is further represented that the Board of Directors of MANILA-OSLO, in its regular meeting on August 27, 2014, declared cash dividends in the amount of P900,000,000.00 from its unrestricted retained earnings as of July 31, 2014, to be issued to all common shareholders of record of MANILA-OSLO as of the close of business on October 15, 2014, payable on or before November 7, 2014; and that SN POWER is the legal owner of 113,078,433 common shares which represent 16.67 percent of the total shares of MANILA-OSLO as evidenced by the Secretary's Certificate dated October 22, 2014. It is finally represented that the dividend subject of this ruling is 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 Managing Director of MANILA-OSLO on October 8, 2014. 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 payable to SN POWER, 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 . . ., dividends, . . .: 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 Tax Code provides that such dividend may be exempt from income tax or subject to reduced rate to the extent required by any treaty obligation on the Philippines, viz. : "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" With respect to a treaty, you invoke the Philippines-Netherlands tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: "Article 10 Dividends 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the 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) 10 per cent of the gross amount of the dividends if the recipient is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10 per cent of the capital of the company paying the dividends; b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be taxed in the Philippines at a rate not to exceed: (a) 10 percent of the gross amount of dividends if the recipient of the dividends is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10 percent of the capital of the company paying the dividends; and (b) 15 percent of the gross amount of the dividends in all other cases. Accordingly, inasmuch as SN POWER, the recipient of the dividend from MANILA-OSLO, is a company in the Netherlands whose capital is wholly divided into shares, and since SN POWER holds directly at least 10 percent (in fact, 16.67 percent) of the capital of MANILA-OSLO, such dividend paid by MANILA-OSLO to SN POWER 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-Netherlands 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue