ITAD BIR Ruling No. 175-14

September 18, 2014 ITAD BIR RULING NO. 175-14 Article 10, Philippines-Belgium tax treaty Du-Baladad and Associates 20F Chatham House, Rufino cor. Valero Streets Salcedo Village, Makati City Attention: Benedicta Du-Baladad Authorized Representative Gentlemen : This refers to your tax treaty relief application dated December 23, 2013 requesting for confirmation that the dividends paid by The Nielsen Company (Philippines), Inc. ("Nielsen Philippines") to The Nielsen Company (Belgium) SPRL ("Nielsen Belgium") are subject to a preferential tax 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 as amended by a Protocol 1 ("Philippines-Belgium tax treaty"). It is represented that Nielsen Belgium is a foreign 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 January 30, 2013; that Nielsen Belgium is situated at Avenue des Pleiades 73, B-1200 Brussels, Belgium; that Nielsen Belgium is not registered as a corporation or partnership in the Philippines based on the Certification issued by the Securities and Exchange Commission on December 12, 2013; and that on the other hand, Nielsen Philippines is a domestic corporation with principal address at Prudential Life Bldg., #31 EDSA corner Apo Street, Mandaluyong City, Philippines. It is further represented that on November 25, 2013 the Board of Directors of Nielsen Philippines declared cash dividends in the amount of One Hundred Million Pesos (PhP100,000,000.00) out of the unrestricted retained earnings of the Corporation as of November 30, 2013, based on the Certificate issued by the Corporate Secretary of Nielsen Philippines on December 23, 2013; that Nielsen Belgium owns One Million One Hundred Thirty One Thousand Five Hundred Seventy Three (1,131,573) shares of stock or 99% of the entire stockholdings of Nielsen Philippines with a total par value of One Hundred Thirteen Million One Hundred Fifty Seven Thousand Seven n Three Hundred Pesos (PhP113,157,300.00) computed at One Hundred Pesos (PhP100.00) per share, acquired since March 29, 2011 based on the Certification issued by the Corporate Secretary of Nielsen Philippines on December 23, 2013. TcEDHa It is finally represented, based on the Sworn Statement issued by the Executive Director of Nielsen Philippines on December 23, 2013, 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. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" Tax Code "), as amended, provides that dividends paid to Nielsen Belgium , being a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate 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 Code provides that 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, thus: "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. THIAaD xxx xxx xxx" In this particular case, you invoke the Philippines-Belgium tax treaty, as amended. Paragraphs 1 and 2, Article 10 thereof provide: "Article 10 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." Based on the aforequoted provisions, 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. This being the case, and considering that Nielsen Belgium holds directly at least 10 percent (in fact, 99%) of the capital of Nielsen Philippines , this Office is of the opinion and so holds that such dividends paid by Nielsen Philippines to Nielsen Belgium are subject to income tax at a preferential rate of 10 percent based on the gross amount thereof, pursuant to paragraph 2(a), Article 10 of the Philippines-Belgium 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. aEHASI 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 Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income effective January 1, 2000. n Note from the Publisher: Copied verbatim from the official copy.