ITAD BIR Ruling No. 207-11

August 11, 2011 ITAD BIR RULING NO. 207-11 Article 10 (Dividends), Philippines-Netherlands tax treaty; BIR Ruling No. ITAD 56-10; BIR Ruling No. ITAD 46-10; BIR Ruling No. ITAD 37-10; BIR Ruling No. ITAD 29-10; BIR Ruling No. ITAD. 21-10 Del Monte Fresh Produce (Philippines), Inc. Powerhouse Building JP Laurel Avenue, Kilometer 9 Barrio Pampanga, Davao City Attention: Mr. Alberto B. Bulao Finance Senior Manager Gentlemen : This refers to your letter dated August 3, 2009, requesting confirmation that dividend payments by Del Monte Fresh Produce (Philippines), Inc. (for brevity, DMFPPI) to Del Monte B.V. (formerly, Del Monte Fresh Produce B.V. and for brevity, DM-Netherlands) are subject to 10 percent preferential tax rate pursuant to Article 10 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 (for brevity, Philippines-Netherlands tax treaty). Facts It is represented that DM-Netherlands is a corporation organized and existing under the laws of the Netherlands, with principal office at 2665 MP Bleiswijk, Klappolder 170, the Netherlands, per its Articles of Incorporation, as amended and based on the extract from the trade register issued by the Chambers of Commerce of Den Haag in the Netherlands on September 17, 2009; that DM-Netherlands is a private limited liability company in the Netherlands with an authorized capital of 190,587,600.00 Euros, divided into 420,000 shares, each shares with a nominal value of 453.78 Euros; that DM-Netherlands is not registered as a corporation or as a partnership in the Philippines per certification dated September 8, 2009 issued by the Extension Office of the Securities and Exchange Commission in Davao, Philippines; that, on the other hand, DMFPPI is a corporation organized and existing under the laws of the Philippines, with principal office at Powerhouse Building, JP Laurel Avenue, Kilometer 9, Barrio Pampanga, Davao City, Philippines. It is further represented that based on the Certificate issued by the Corporate Secretary of DMFPPI on July 13, 2009, that the Stockholders and Board of Directors of DMFPPI, at its meeting on July 7, 2009, held unanimously approved and adopted the following resolutions: a) Declaration of a 50% stock dividend equivalent to 225,841 shares with a total par value of Twenty Two Million Five Hundred Eighty-Four Thousand One Hundred (P22,584,100.00) Pesos, in favor of DM-Netherlands and its individual stockholder nominees, to be taken out of the retained earnings of DMFPPI; and b) Declaration of a P25.00 cash dividend per share with a total amount of Eleven Million Two Hundred Ninety-Two Thousand Seventy-Five (P11,292,075.00) Pesos, in favor of the stockholders of record of DMFPPI as of July 7, 2009. LibLex 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 Affidavit issued by the Finance Senior Manager of DMFPPI on September 17, 2009. Ruling In reply, please be informed that with respect to cash dividends to be paid by DMFPPI to DM-Netherlands, Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, taxes such dividends as follows: "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. xxx xxx xxx (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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). However, Section 32 (B) (5) of the same Code may exempt or partially exempt (if subject to a reduced rate only) the dividends to the extent required by any treaty obligation binding upon the Philippine Government, thus: "SEC. 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 ( i.e. , TITLE II TAX ON INCOME): 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 ." In this regard, 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: (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 paragraph 2 of the aforequoted article, 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 the dividends if the recipient thereof 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. TDcCIS Accordingly, inasmuch as DM-Netherlands is a private limited liability company in the Netherlands the capital of which is wholly divided into shares, and considering further that it holds directly 99.99 percent of the capital of DMFPPI (that is, 451,676 of the 451,683 outstanding and fully paid common shares of stock of DMFPPI which is even more than the required minimum of shareholding of 10 percent), such dividends to be paid by DMFPPI to DM-Netherlands are subject to the preferential tax rate of 10 percent of the gross amount thereof, pursuant to paragraph 2, Article 10 of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD 56-10 dated October 22, 2010; BIR Ruling No. ITAD 46-10 dated October 5, 2010; BIR Ruling No. ITAD 37-10 dated September 16, 2010; BIR Ruling No. ITAD 29-10 dated August 27, 2010; BIR Ruling No. ITAD 21-10 dated August 20, 2010) 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 having a different tax treatment, then this ruling shall be without force and effect insofar as the herein parties are concerned. HIAEaC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue