ITAD BIR Ruling No. 201-12

May 22, 2012 ITAD BIR RULING NO. 201-12 Article 9, Philippines-United Kingdom tax treaty; BIR Ruling No. 157-83; BIR Ruling No. 240-83; BIR Ruling No. 013-97 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Antonette C. Tionko Principal, Tax Services Gentlemen : This refers to your Tax Treaty Relief Application dated December 13, 2010, on behalf of Newton Asian Income Fund ("NAIF") ,requesting confirmation that the cash dividends received by NAIF from The Bank of the Philippine Islands ("BPI") are subject to a 25 percent preferential tax rate as provided under Article 9 (2) (b) of the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-UK tax treaty"). It is represented that NAIF is a sub-fund of BNY Mellon Investment Funds ("BNY") per certification issued by the Director of BNY; that BNY is a nonresident investment company duly incorporated and existing under English laws having its registered office at the Bank of New York Mellon Centre, 160 Queen Victoria Street, London ECAV 4LA, England as shown in its amended Instrument of Incorporation adopted on March 2002; that NAIF is a resident of the United Kingdom per the Certificate of Residence issued by the Collective Investment Schemes Center, HM Revenue & Customs of the United Kingdom dated November 23, 2010; that NAIF is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on July 23, 2010; and that BPI, on the other hand, is a domestic corporation duly organized and existing under the laws of the Philippines with principal office address at BPI Head Office Bldg.,Ayala Avenue corner Paseo de Roxas, Makati. It is further represented that as of December 4, 2010, NAIF owns 15,000,000 total outstanding shares of common stock (with par value of P10.00 per share) with market value of P870,750,000.00 at P58.05 per share or 0.42179% of the issued and outstanding common shares of BPI, per BPI certification dated December 10, 2010; that on October 20, 2010, during its Regular Meeting, the Board of Directors of BPI resolved to declare a regular cash dividend of Ninety Centavos (P0.90) per share, for the second semester of the year 2010, on the total outstanding common shares of the capital stock of BPI, payable to all common shares stockholders of BPI of record as of the 15th day from the receipt by the BPI of the approval by the Bangko Sentral ng Pilipinas (BSP) of the said dividend declaration and distributable on the 15th day from the said record date per the Secretary's Certificate issued by BPI dated December 8, 2010; and that the transaction subject of the herein request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayers involved per the Sworn Certification issued by BPI dated December 7, 2010. HTacDS In reply, please be informed that dividend payments to a nonresident foreign corporation are, in general, taxable under Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended. It provides: "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, rents, royalties . . .: 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 of 1997, as amended provides: "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" In this particular case, the treaty being invoked is the Philippines-UK tax treaty, specifically its Article 9, which provides as follows: "Article 9 DIVIDENDS 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; EIAScH b) in all other cases 25% of the gross amount of the dividends. xxx xxx xxx 4. The term "dividends" as used in this Article means income from shares, or other rights, not being debt-claims, participating in profits, as well as income from corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. xxx xxx xxx" Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of the United Kingdom at a rate not exceeding 15 percent if the last-mentioned company controls directly or indirectly at least 10 percent of the voting power of the company paying the dividends; and, 25 percent, in all other cases. Accordingly, since NAIF holds directly 0.42179% of the shares of BPI, your opinion that the dividends to be paid by BPI to NAIF are subject to the 25 percent preferential tax rate pursuant to the Philippines-UK tax treaty, is hereby confirmed. (BIR Ruling No. 157-83 dated August 2, 1983; BIR Ruling No. 240-83 dated December 29, 1983; BIR Ruling No. 013-97 dated February 5, 1997) 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