ITAD BIR Ruling No. 159-12

April 12, 2012 ITAD BIR RULING NO. 159-12 Article 10 (Dividends), Philippines-Belgium tax treaty, as amended SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Romulo S. Danao, Jr. Partner, Tax Services Gentlemen : This refers to your application for tax treaty relief dated May 26, 2011, on behalf of The Nielsen Company (Belgium) SPRL ("Nielsen"), requesting confirmation that dividends paid by The Nielsen Company (Philippines), Inc. ("Nielsen Philippines") to Nielsen are subject to income tax at a preferential rate of 10 percent pursuant to the Agreement between the Kingdom of Belgium 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-Belgium tax treaty"), as amended by a Protocol 1 effective January 1, 2000. Facts It is represented that Nielsen is a corporation organized and existing under the laws of Belgium based on its Articles of Association, as amended, and on the Certificate of Residence issued by the Service Public Federal Finances of Belgium on April 20, 2011; that Nielsen is situated at Avenue des Pleiades, 73 1200, Brussels, Belgium; that Nielsen is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration issued by the Securities and Exchange Commission on May 27, 2011; and that, on the other hand, Nielsen Phils. is situated at Prudential Life Building, 31 EDSA corner Apo Street, Mandaluyong City, Philippines. It is further represented, based on the Certificate issued by Corporate Secretary of Nielsen Philippines on June 2, 2011, that the Board of Directors of Nielsen Philippines at its organizational meeting on April 1, 2011, approved a resolution declaring cash dividends in the amount of P130,000,000.00 in favor of all Nielsen Phils. shareholders on record of Nielsen Philippines as of March 31, 2011; that the dividends will be paid on May 27, 2011, and will be taken out of Nielsen Philippines' retained earnings as of December 31, 2010; that as of the date of record mentioned and as of the date of declaration of the dividends, Nielsen legally and beneficially owns 1,131,579 common shares of stock of Nielsen Philippines, with a par value P100.00 each or a total of P113,157,900.00, and equivalent to almost 100 percent of the capital stock of Nielsen Philippines. SaIEcA It is finally represented, based on the Sworn Statement issued by the Executive Director for Finance of Nielsen Philippines on April 19, 2011, 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. Ruling In reply, please be informed that dividends payable to Nielsen Belgium, a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent. Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code"), as amended, provides: "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): Provided, That, effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx However, such dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines. Section 32 (B) (5) of the Code provides: "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." ECISAD xxx xxx xxx With respect to a treaty, you invoke the Philippines-Belgium tax treaty, as amended. Paragraphs 1 and 2, Article 10 thereof provide: "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 also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company 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 article, dividends arising in the Philippines and paid to a resident of Belgium 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 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 Nielsen, the company recipient of the dividends, holds directly at least 10 percent of the capital of Nielsen Philippines, the company paying the dividends, such dividends paid by Nielsen Philippines to Nielsen are subject to income tax at the rate of 10 percent of the gross amount thereof. aAIcEH 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 Amending the Agreement between the Republic of the Philippines and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income Signed in Manila on 2 October 1976.