ITAD BIR Ruling No. 195-11

July 18, 2011 ITAD BIR RULING NO. 195-11 Section 14, RMO 72-2010 The Purefoods-Hormel Co., Inc. 21st Flr., JMT Corporate Condominium, ADB Avenue, Ortigas Center, Pasig City Attention: Celestino L. de Guzman AVP-Finance Manager Gentlemen : This refers to your tax treaty application ("TTRA") filed on March 3, 2011 requesting confirmation that the withholding tax rate on the dividends paid to Hormel Netherlands B.V. ("Hormel") by The Purefoods-Hormel Co., Inc. ("Purefoods") is 10 percent pursuant to Article 10 (2) (a) of 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") . 1 It is represented that Hormel is a corporation duly organized and existing under the laws of the Netherlands having its address at Locatellikade 1 1076 AZ Amsterdam per the Declaration of Residence issued by the Tax and Customs Administration of the Netherlands; that it is not registered as a corporation or as a partnership in the Philippines based on the Certification of Non-Registration of Company dated February 14, 2011 issued by the Securities and Exchange Commission; and that Purefoods , on the other hand, is a domestic corporation duly organized and existing under Philippine laws with office address at 21st Flr., JMT Corporate Condominium, ADB Avenue, Ortigas Center, Pasig City. It is further represented that on December 14, 2010, the Board of Directors of Purefoods declared cash dividends amounting to PHP450,000,000.00 in favor of its stockholders of record as of January 15, 2011, payable not later than January 31, 2011; that as of January 15, 2011, Hormel owns 40% of the capital stock of Purefoods ; that Purefoods paid the cash dividends on January 17, 2011; and that the issue or transaction subject of this request or ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal as per certification issued by the Finance Manager of Purefoods on March 2, 2011. DEICTS In reply, please be informed that Section 14 of Revenue Memorandum Order ("RMO") No. 72-2010 , 2 which was published in the Manila Bulletin on October 20, 2010, provides that: "SECTION 14. When and Where to File the TTRA. All tax treaty relief applications (updated BIR Forms Nos. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Divisions (ITAD). If the forms of any necessary documents are submitted to any other BIR office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO. " 3 The cash dividends declared by Purefoods in favor of its stockholders, including Hormel, were issued and paid by Purefoods on January 17, 2011. Nonetheless, the TTRA filed for and on behalf of Hormel was filed only on March 3, 2011 or more than 1 month from payment of dividends in violation of the foregoing provisions of RMO 72-2010, which categorically mandate the filing of the TTRA before the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. In this case, the first taxable event is the payment of dividends by Purefoods to Hormel on January 17, 2011. 4 The tax treaty relief application should have been filed on or before the 10th day of February, which is the month following the payment of the said dividends. 5 In view of the foregoing, the TTRA for the preferential tax rate of 10 percent on the dividend payments made by Purefoods to Hormel is hereby denied for having been filed beyond the period prescribed by the RMO. This ruling is issued on the basis of the foregoing 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. TEAICc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Signed March 9, 1989 and effective September 20, 1991. 2. Guidelines on the Processing of Tax Treaty Relief Applications ("TTRA") pursuant to existing Philippines Tax Treaties dated August 25, 2010. 3. Emphasis and underscoring supplied. 4. Revenue Regulations 2-98, Section 2.57.4. The obligation of the payor to deduct and withhold the tax under Section 2.57 of these regulations arises at the time an income is paid or payable, whichever comes first, the term "payable" refers to the date the obligation become due, demandable or legally enforceable. 5. Revenue Regulations No. 017-10, Section 6.3.2 Withholding Tax Remittance and Information Returns (a) All withholding taxes for remittance by the Head Office and/or all branches/units of a Large Taxpayer shall be e-filed in a consolidated return within ten (10) days following the end of each month for January to November, and on or before January 15 of the following year for the month of December, using BIR Form Nos. 1601-C, 1601-E, 1601-F and 1602, respectively, on a staggered basis according to the classification of industry pursuant to existing issuances. For the e-payment, the taxpayer shall give instruction to the AAB to debit its account for the amount of tax payable on or before the due date for payment thereof as prescribed under the prevailing/applicable laws/regulations.