ITAD BIR Ruling No. 203-11

July 27, 2011 ITAD BIR RULING NO. 203-11 Article 10 (2) (b), Philippines-France tax treaty Tam-Yap Caga & Associates Unit B, 15th Floor, ACT Tower 135 H.V. de la Costa Street, Salcedo Village Makati City Attention: Atty. Teresa R. Tam-Yap Atty. Maria Graciela B. Suratos Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on February 4, 2011, on behalf of your client, Egis Projects S.A. ("Egis") , requesting confirmation that dividends paid by Manila North Tollways Corporation ("MNTC") are subject to a preferential tax rate of 10 percent pursuant to the Convention between the Republic of the Philippines and the Government of French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-France tax treaty") , as amended by the Protocol to the Tax Convention between the Government of the Republic of the Philippines and the Government of the French Republic , effective January 1, 1998. Basic Facts It is represented that Egis is a corporation organized and existing under the laws of France and is a resident of France, based on its Articles of Association and the Certificate of Tax Residence issued by the General Department of Public Finance of France on January 3, 2011; that Egis has its principal address at 11 avenue du Centre, 78 280 Guyancourt, based on the Certificate of Residence issued by the General Department of Public Finances, Major Accounts Department on January 3, 2011; that Egis is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration issued by the Securities and Exchange Commission on January 13, 2011; and that, on the other hand, MNTC is a corporation organized and existing under the laws of the Philippines, with principal address at NLEX Compound, Balintawak, Caloocan City, Philippines. It is further represented based on the Certificate issued by the Corporate Secretary of MNTC on January 18, 2011, that on July 2, 2010, the Board of Directors of MNTC approved the declaration of cash dividends in the amount of Php550,560,000.00, in favor of the stockholders of record of MNTC as of July 2, 2010, and payable on or before July 15, 2010; that as of the date of record and the date of payment of the dividends, Egis holds 2,468,638 common shares of stock of MNTC, with a par value of Php100 each, or a total of Php246,863,800.00, which are equivalent to 13.90 percent of the total and outstanding shares of MNTC; and that these shares are acquired by subscription and are held by Egis since September 9, 2005. It is finally represented that the issue or transaction subject of the 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 judicial appeal, based on the Certification issued by the Vice President for Legal and Regulatory Affairs of MNTC on January 18, 2011. IcHTED Ruling In reply, please be informed that Sections 14 and 13 of Revenue Memorandum Order ("RMO") No. 72-2010 (Guidelines on the Processing of Tax Treaty Relief Applications (TTRA) Pursuant to Existing Philippine Tax Treaties) , effective November 4, 2010 , provide: "Section 14. When and Where to File the TTRA. xxx xxx xxx 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 the RMO. "Section 13. Definitions. xxx xxx xxx 4. First taxable event for purposes of filing the Tax Treaty Relief Application (TTRA), shall mean the first or the only time when the income payor is required to withhold the income tax thereon or should have withheld taxes thereon had the transaction been subjected to tax . . ." Under the RMO, the filing of TTRAs should be made before the occurrence of the first taxable event, or the first or the only time when an income payor is required to withhold income tax on payments subject to preferential treatment. The first or only time referred herein corresponds to the period a withholding agent is required to file the necessary returns on final and creditable income taxes withheld in a particular month , which is within ten days after the end of that month , or, if the withholding was made in December, on or before January 15 of the following year , pursuant to Section 2.58 (A) (2) of Revenue Regulations No. 2-98 (Implementing Republic Act No. 8424, "An Act Amending the National Internal Revenue Code, as amended" Relative to the Withholding on Income Subject to the Expanded Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes) , thus: "SECTION 2.58. Returns and Payment of Taxes Withheld at Source. (A) Monthly return and payment of taxes withheld at source xxx xxx xxx (2) WHEN TO FILE (a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final (including final withholding taxes on interest from any currency bank deposit and yield or nay other monetary benefit from deposit substitutes and from trust funds and similar arrangements) shall be filed and payments should be made within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year , which shall be filed on or before January 15 of the following year . . ." (Emphasis added) Accordingly, since the subject TTRA was filed on February 4, 2011 , or before the nearest deadline of filing a monthly return on February 10, 2011 , such payments made by MNTC that will be subject to preferential treatment under a tax treaty are those made beginning January 1, 2011 , and thereafter. Therefore, such dividends paid by MNTC to Egis on July 15, 2010 , will be subject to the regular income tax of 30 percent of the gross amount thereof, under Section 28 (B) (1) (a) of the National Internal Revenue Code of 1997, as amended, thus: cCaIET "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: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." 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