ITAD BIR Ruling No. 210-11

August 15, 2011 ITAD BIR RULING NO. 210-11 Article 10 (2) (a) Philippines-France tax treaty, as amended Tam-Yap Caga & Associates Attorneys-at-Law Unit B, 15th Floor, ACT Tower 135 H.V. de la Costa Street Salcedo Village, Makati City Attention: Teresa R. Tam-Yap Maria Graciela B. Suratos Mesdames : This refers to your tax treaty relief application ("TTRA") filed on March 18, 2011 requesting confirmation that dividends paid to Egis Road Operation S.A. ("ERO S.A.") by Egis Road Operation Philippines, Inc. ("ERO Philippines") are subject to income tax at the rate of 10 percent pursuant to Article 10 (2) (a) of the amended Convention between the Government of the Republic of the Philippines and the Government of the 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"). It is represented that ERO S.A. is a corporation organized and existing under the laws of France, based on its Articles of Association, and that it is situated at 11 Avenue du Centre 78 280 Guyancourt, France; that it is a resident of France for purposes of the Philippines-France tax treaty based on the Certificate of Tax Residence issued by the Department of Public Finance of France on January 3, 2011; that it is not registered as a corporation or as a partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on January 31, 2011; and that ERO Philippines, on the other hand, is a domestic corporation situated at Unit 703, Citystate Centre, 709 Shaw Boulevard, Pasig City, Philippines. EHSTcC It is further represented that on April 20, 2010, the Board of Directors of ERO Philippines approved the declaration of cash dividends in the amount of Sixty Million Pesos (PhP60,000,000.00) to all its stockholders of record as of December 31, 2009, payable within the year 2010; that based on the Certificate issued by the Corporate Secretary of ERO Philippines on March 16, 2011, ERO S.A., since September 24, 1999 to present, holds 79,595 common shares of stock of ERO Philippines constituting 99% of the issued and outstanding shares of ERO Philippines; that each share has a par value of One Hundred Pesos (Php100.00) or a total par value of Seven Million Nine Hundred Fifty Nine and Five Hundred Pesos (Php7,959,500.00); and that the issue or transaction subject of this 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 Treasurer of ERO Philippines on March 16, 2011. In reply, please be informed that Sections 14 and 13 of Revenue Memorandum Order ("RMO") No. 72-2010 1 which was published in the Manila Bulletin on October 20, 2010, and effective November 4, 2010, provides that: "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 Divisions (ITAD). If the forms of any necessary documents are submitted to any other BIR office, the application shall be considered as improperly filed. CSIHDA 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 supplied) "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 RMO 72-2010, 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 and 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, 2 as amended, thus: "SECTION 2.58. Returns and Payment of Taxes Withheld at Source . HCSDca (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 TTRA in question was filed on March 18, 2011, the first taxable event that corresponds to that date falls on or before April 10, 2011, as if ERO Philippines made a payment in March 2011 and would then file a monthly income tax return thereon until April 10, 2011. With respect to dividends paid by ERO Philippines to ERO S.A. on any date in the year 2010, or at the latest, December 31, 2010, the filing of the corresponding TTRA should be have been made before January 15, 2011, pursuant to RMO 72-2010. However, since the TTRA for such dividends paid by ERO Philippines to ERO S.A. was not filed within the prescribed period of filing, such dividends are therefore disqualified from the relief being sought for. This being the case, instead of the reduced rate of 10 percent, the dividends paid to ERO S.A. are subject to income tax at the regular rate 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: TSCIEa "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%)." Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Guidelines on the Processing of Tax Treaty Relief Applications ("TTRA") pursuant to existing Philippines Tax Treaties dated August 25, 2010. 2. 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.