ITAD BIR Ruling No. 188-13

July 9, 2013 ITAD BIR RULING NO. 188-13 Article 10 (Dividend), Philippines-Netherlands tax treaty; BIR Ruling No. ITAD 103-11 Sykes Marketing Services, Inc. 26th Floor, Robinsons Summit Center 6783 Ayala Avenue, Makati City Attention: Ms. Leonila S. Nicolas Senior Finance Director Gentlemen : This refers to your tax treaty relief application filed on January 30, 2013, on behalf of SYKES NETHERLANDS GROUP B.V. ("Sykes Netherlands") ,requesting confirmation that dividends paid by SYKES MARKETING SERVICES, INC. ("Sykes") to Sykes Netherlands are subject to income tax at a preferential rate of 10 percent 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 Sykes Netherlands is a foreign corporation organized and existing under the laws of the Netherlands and is a resident of the Netherlands, based on its Articles of Association, and on the Certificate Concerning the Capacity of the Taxpayer issued by the Tax and Customs Administration of Rijnmond/Kantoor Rotterdam in The Netherlands on February 1, 2013; that Sykes Netherlands has an authorized capital of 90,000.00 Euros which is divided into 900 shares of stock, each with a par value of 100 Euro; that Sykes Netherlands is situated at Het Kwadrant 1, 3606AZ Maarssen, The Netherlands; that Sykes Netherlands 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 February 26, 2013; and that, on the other hand, Sykes is a domestic corporation situated at 26th Floor, Robinsons Summit Center, 6783 Ayala Avenue, Makati City, Philippines. It is further represented that the Board of Directors of Sykes ,at its special meeting on January 23, 2013, declared cash dividends in the amount of P237,370,496.00 out of the unrestricted retained earnings as of December 31, 2012 in favor of all stockholders of record of Sykes as of December 31, 2012, payable on January 31, 2013; that since June 26, 2003 and up to present, Sykes Netherlands holds 577,595 subscribed shares at a par value per share of P100.00 or a total of P57,759,500.00 which represent 99.999913 percent of the total shares of Sykes ;and that the said dividends were paid on February 1, 2013 as shown in the Payment Details 13131L2130L51473. 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, collection proceedings, or judicial appeal, based on the Sworn Statement issued by the Corporate Secretary of Sykes on January 30, 2013. caIEAD 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 payable to Sykes Netherlands ,a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 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 Tax Code provides that such dividends may be exempt from income tax or subject to reduced rate to the extent required by any treaty obligation on the Philippines, viz. : "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. xxx xxx xxx" With respect to a treaty, you invoke the Philippines-Netherlands tax treaty. Paragraphs 1 and 2, Article 10 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: ESCacI 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. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands 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 the capital of which is wholly or partly divided into shares and 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 Sykes Netherlands ,the recipient of the dividends from Sykes ,is a company in the Netherlands whose capital is wholly divided into shares, and since Sykes Netherlands holds directly at least 10 percent (in fact, 99.99913 percent) of the capital of Sykes ,such dividends paid by Sykes to Sykes Netherlands are subject to income tax at the rate of 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD-103-11 dated April 4, 2011) 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