ITAD BIR Ruling No. 158-13

June 14, 2013 ITAD BIR RULING NO. 158-13 Articles 9 (Dividends), Philippines-United Kingdom tax treaty Price Solutions Philippines, Inc. 10th Floor, Eton Centris Bldg., Quezon Ave., Quezon City Attention: Ma. Ramona Hontiveros Bernad Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application (TTRA) filed on 13 September 2012 requesting confirmation that the dividends paid by Price Solutions, Inc. ("Price-Philippines") to SCMB Overseas Ltd. ("SCMB-UK") are subject to the preferential tax treaty rate of 15 percent pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-UK tax treaty") . It is represented that SCMB-UK is a non-resident foreign corporation organized and existing under the laws of the United Kingdom with principal address at 1 Basinghall Avenue, London EC2V 5DD, England based on the consularized and notarized Certificate of Residency issued by the HM Revenue & Customs of the United Kingdom and the consularized and notarized Articles of Association issued by the Companies Registration Office for England and Wales. The company SCMB-UK 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 20 July 2012. On the other hand, Price-Philippines , is a domestic market enterprise authorized to business in the Philippines under the Foreign Investments Act of 1997 (R.A. No. 7042) with principal address at 10th Floor, Eton Centris Bldg., Quezon Avenue, Quezon City. It is represented that Price-Philippines has a subscribed capital divided into 10,269,827,979 shares. As of 25 January 2012, SCMB-UK is the registered and beneficial owner of 9,229,995 common shares in Price-Philippines representing approximately 99.9% of the outstanding capital of Price-Philippines and that on 03 April 2012, the Board of Directors of Price-Philippines approved the declaration of cash dividends of in the amount of Nine Million Four Hundred Fifty Seven Thousand Seven Hundred Twenty One Pesos (Php9,457,721.00) based on the notarized Secretary's Certificates issued by the Corporate Secretary of Price-Philippines on 25 January 2012 and 11 April 2012. It is further represented that on 08 December 2012, Price-Philippines remitted the amount of One Hundred Ninety Six Thousand One Hundred Seventy Pesos (Php196,170.00) to SCMB-UK based on the notarized Certification issued by the Standard Chartered Bank. SaDICE 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, judicial or administrative protest, collection proceedings or judicial appeal based on the notarized Certification issued by the duly authorized representative of Price-Philippines. In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("NIRC of 1997") , as amended, dividends paid to SCMB-UK 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 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) 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 exempt from income tax or 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-United Kingdom tax treaty. Paragraph 1, sub-paragraphs (a) and (b) of Article 9 on Dividends thereof provide: "Article 9 Dividends 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: SHaIDE a) 15% 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) in all other cases 25% of the gross amount of the dividends. 2. Dividends derived from a company which is a resident of the United Kingdom by a resident of the Philippines may be taxed in the Philippines. Such dividends may also be taxed in the United Kingdom and according to the laws of the United Kingdom, but where such dividends are beneficially owned by a resident of the Philippines the tax so charged shall not exceed: a) 15% 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) in all other cases 25% of the gross amount of the dividends." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of the United Kingdom may be taxed in the Philippines at a rate (a) not to exceed 15% if the company recipient of the dividends holds directly at least 10% of the voting shares of the paying company; and (b) 25% in all other cases. Considering that SCMB-UK owns 99.9% of the common shares in Price-Philippines , the dividends paid by Price-Philippines to SCMB-UK are subject to the preferential tax rate of 15 percent of the gross amount thereof pursuant to Article 9, paragraph 1, sub-paragraphs (a) and (b) of the Philippines-UK 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