ITAD BIR Ruling No. 204-12

May 24, 2012 ITAD BIR RULING NO. 204-12 Salvador and Associates Attorneys-At-Law Units 815-816, Tower One and Exchange Plaza Ayala Triangle, Ayala Avenue Makati City Attention: Euney Marie J. Mata-Perez Mary Rose V. Pascual Marie Francesca Luz O. dela Cruz Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on February 2, 2011 requesting confirmation that dividends paid by Lowe, Inc. ("Lowe") to Lowe Worldwide Holdings BV ("Lowe Worldwide") are subject to income tax at the 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. Lowe Worldwide is a foreign corporation situated at 404 Amstelveenseweg, Amsterdam, the Netherlands. It is not registered as a corporation or partnership in the Philippines. On the other hand, Lowe is a domestic corporation situated at 15th, 16th and 17th Floors, Rufino Pacific Tower, Ayala Avenue corner Herrera Street, Makati City, Philippines. In 2005, 2006, 2007 and 2008, Lowe (through resolutions approved by its Board of Directors) declared cash dividends in favor of its stockholders. As of those years, Lowe Worldwide is a stockholder of Lowe holding 30 percent of the latter's outstanding capital stock. The dividends were paid as follows: Year Date of Payment Amount (in Pesos) 2005 and 2006 December 2008 7,500,000.00 2007 April 2009 1,500,000.00 July 2009 1,500,000.00 September 2009 1,500,000.00 December 2009 1,500,000.00 2008 August 2009 2,175,000.00 November 2009 2,175,000.00 February 2010 2,175,000.00 March 2010 2,175,000.00 Total 22,200,000.00 ========= In reply, please be informed that under Section 14 of Revenue Memorandum Order No. 72-2010 (Guidelines on the Processing of Tax Treaty Relief Applications (TTRA) Pursuant to Existing Philippine Tax Treaties) ("RMO 72-2010") , which covers income derived or which accrued on November 4, 2010 and thereafter, any availment of tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed at the International Tax Affairs Division ("ITAD") of this Bureau before the first taxable event subject of the TTRA, to wit: HEcTAI "Section 14. When and Where to File the TTRA. All tax treaty relief applications (updated BIR Forms No. 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 Division (ITAD). If the forms or 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 . " (Emphasis ours) Also, under Section III (2) of Revenue Memorandum Order No. 1-00 (Procedures for Processing Tax Treaty Relief Application) ("RMO 1-2000"), which covers income derived or which accrued before November 4, 2010, any availment of relief shall be preceded by an application filed at ITAD at least fifteen days before the intended transaction or payment of income, to wit: "III. Policies: In order to achieve the above-mentioned objectives, the following policies shall be observed: xxx xxx xxx 2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e., payment of dividends, royalties, etc., accompanied by supporting documents justifying the relief. . ." (Emphasis ours) This condition is emphasized by the Court of Tax Appeals in Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 6382 dated June 7, 2005) where it ruled: " However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation. In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked. Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the persons or corporations duly entitled to the same. The Court notes that nowhere in the records of the case was it shown that petitioner indeed took the liberty of properly observing the provisions of the said order. Petitioner quotes various BIR, as well as ITAD, Rulings issued to several foreign corporations seeking for a tax relief from the office of the respondent. However, not any one of these rulings pertains to the petitioner. It must be stressed that BIR rulings are issued based on the facts and circumstances surrounding particular issue/issues in question and are resolved on a case-to-case basis. It would be thus erroneous to invoke the ruling of the respondent in specific cases, which have no bearing to the case of petitioner." (Emphasis ours) This decision is upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement in RMO 1-2000 is reiterated in subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (C.T.A. Case No. EB 456 dated May 29, 2009), CBK Power Company Ltd. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 6699, 6844 and 7166 dated March 29, 2010) and Manila North Tollways Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 7864 dated April 12, 2011) . In view of the foregoing, since the subject TTRA was filed on February 2, 2011, and the dividends subject of the TTRA were paid by Lowe to Lowe Worldwide in 2008, 2009 and 2010, this Office hereby DENIES relief on the dividends for having the TTRA filed beyond the required period of filing under Section III (2) of RMO 1-2000. Accordingly, said dividends shall be subject to income tax under Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended, to wit: CADSHI "SEC. 28. Rates of Income Tax on Foreign Corporations. . . . (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%)." Please be guided accordingly. IDESTH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue