ITAD BIR Ruling No. 181-13

July 3, 2013 ITAD BIR RULING NO. 181-13 Article 10 (Dividends), Philippines-Germany tax treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Lucil Q. Vicerra Principal, Tax and Customs Services Gentlemen : This refers to your tax treaty application ("TTRA") filed on March 13, 2013, requesting confirmation that dividends paid by Siemens Power Operations, Inc. ("Siemens Power") to Siemens Aktiengesellschaft ("Siemens AG") are subject to income tax at the rate of 10% pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the Federal Republic of Germany with respect to Taxes on Income. Siemens AG is a foreign corporation organized and existing under the laws of the Federal Republic of Germany. It is registered as a national taxpayer in Wittelsbacherplatz 2, 80333 Munich, Germany with a Tax Identification No. 143/103/70011. It is not registered as a corporation or a partnership in the Philippines per certification of non-registration issued by the Securities and Exchange Commission on March 8, 2013. On the other hand, Siemens Power is a corporation duly organized and existing in accordance with the laws of the Republic of the Philippines with principal address at 1500 MW CCPS Santa Rita, Batangas City. It is represented that Siemens AG is the registered owner of Five Thousand Two Hundred Fifty-Four (5,254) common shares with a par value of One Thousand Pesos (P1,000.00) per share and as of the date of payment of cash dividend is the legal and beneficial owner of all or One Hundred (100%) of the issued and outstanding shares in Siemens Power except for Five (5) shares which are registered in the name of its nominee Directors in the Board of Siemens Power. The said nominees hold their shares in trust for Siemens AG. It is further represented that on December 4, 2012, Siemens Power declared cash dividends in the amount of Fifteen Million Euros (15,000,000.00) payable to all stockholders on and as of March 31, 2013; and that, per notarized certification issued by the Siemens Power dated April 12, 2013, Fifteen Million Euros (15,000,000.00) were remitted to Siemens AG on March 28, 2013 through Siemens Financial Services (SFS) facility which serves as Siemens Group's in-house quasi-banking system which manages the cash pooling and intercompany payments and collections among Siemens companies worldwide. The said dividend remittance was done through intercompany clearing via the online, real-time banking solution of SFS. It is further represented, per sworn certification issued by the Senior Legal Counsel of Siemens Power on February 25, 2013, that the issue subject of the above request is not under any investigation or on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal. SDIaHE In reply, please be informed that under Section 28 (B) (5) (a) of the National Internal Revenue Code of 1997 ("Tax Code") ,as amended, dividends paid to Siemens AG 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 Non-resident 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-Germany tax treaty. 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 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 the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the recipient is a company (excluding partnerships) which owns directly at least 25 per cent of the capital of the company paying the dividends; b) in all other cases, 15 per cent of the gross amount of dividends. aAHISE xxx xxx xxx" Under paragraph 2 above, dividends arising in the Philippines and paid to a resident of Germany may be taxed in the Philippines at a rate not to exceed (a) 10 percent if the recipient of the dividends is a company which owns directly at least twenty-five percent (25%) of the capital of the company paying the dividends; and (b) 15 percent in all other cases. Accordingly, considering that Siemens AG holds 5,254 common shares ,constituting one hundred percent (100%) of the stocks of Siemens Power, which is more than twenty-five percent (25%) of the capital of the latter, the dividends paid by Siemens Power to Siemens AG are subject to income tax at the rate of ten percent (10%) of the gross amount of the dividends, pursuant to Article 10 (2) (a) of the Philippine-Germany 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. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue