ITAD BIR Ruling No. 182-14

September 18, 2014 ITAD BIR RULING NO. 182-14 Article 10 (Dividends), Philippines-Netherlands tax treaty Manabat Sanagustin & Co. The KPMG Center, 9/F 6787 Ayala Avenue, Makati City 1226 Attention: Maria Carmela M. Peralta Authorized Representative Gentlemen : This refers to your application for tax treaty relief dated 25 November 2013 requesting confirmation that dividends paid by Unilever Philippines, Inc. ("Unilever-Philippines") to New Asia B.V. ("New Asia-Netherlands") are subject to final withholding tax at the preferential rate of ten percent (10%) 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 New Asia-Netherlands is a company, the capital of which is wholly or partly divided into shares and is a non-resident foreign corporation organized and existing under the laws of the Netherlands with principal address at Weena 455, 3013 AL Rotterdam, Netherlands based on a notarized and consularized Declaration of Residence issued by the Ministerie Van Financien of the Netherlands and is engaged in the business of participating in, taking an interest in any other way in and conduct the management of other business enterprises of whatever nature, and further to finance third parties and in any way provide security or undertake obligations of third parties and all activities which are incidental or may be conducive to the foregoing based on the notarized and consularized Deed of Incorporation of New Asia-Netherlands . The company New Asia-Netherlands is not registered as a corporation or as a partnership based on a Certification of Non-Registration of Company issued by the Securities and Exchange Commission on 24 May 2013. On the other hand, Unilever-Philippines is a domestic corporation with principal address at 1351 United Nations Avenue, Manila. It is represented that as of 22 November 2013, New Asia-Netherlands owns 100% of the outstanding capital stock of Unilever-Philippines with a total of Four Million Nine Hundred Eighteen Thousand Five Hundred Thirteen (4,918,513) common shares at a par value per share of Fifty Pesos (Php50.00) or a total of Two Hundred Forty Five Million Nine Hundred Twenty Five Thousand Six Hundred Fifty Pesos (Php245,925,650.00) based on a notarized Secretary's Certificate from Unilever-Philippines. CTAIHc It is represented that on 22 November 2013, Unilever-Philippines declared cash dividends in the amount of One Billion Eighty Eight Million One Thousand Eight Hundred Sixteen Pesos and Seventeen Centavos (Php1,088,816.17) n to stockholders of record as of 30 September 2013 based on a notarized Secretary's Certificate executed by the Assistant Corporate Secretary of Unilever-Philippines. It is further represented that on 27 November 2013, Unilever-Philippines remitted cash dividends in the amount of Twenty Two Million Three Hundred Twenty Three Thousand Four Hundred Fifteen US Dollars and Seventy Four Cents (US$22,323,415.74) based on the notarized Certification issued by the Hong Kong and Shanghai Banking Corporation Limited. 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 a notarized Certificate of No Pending Case of Unilever-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 New Asia-Netherlands 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: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." cADSCT 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-Netherlands tax treaty. Article 10 on Dividends 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." SICaDA Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be taxed in the Philippines at a rate (a) of 10% of the gross amount of the dividends if the recipient is a company the capital of which is wholly or partly holds directly at least 10% of the capital of the company paying the dividends; and (b) 15% of the gross amount of the dividends in all other cases. Considering that New Asia-Netherlands is a company, the capital of which is wholly or partly divided into shares, which owns 100% percent of the shares of Unilever-Philippines , the dividends paid by Unilever-Philippines to New Asia-Netherlands is subject to the preferential tax rate of 10 percent of the gross amount thereof pursuant to 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 Footnotes n Note from the Publisher: Copied verbatim from the official copy. Discrepancy between amount in words and in figures. n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.