ITAD BIR Ruling No. 210-14

October 8, 2014 ITAD BIR RULING NO. 210-14 Article 10, Philippines-Sweden tax treaty, as amended Isla Lipana & Co. 29th Floor, Philamlife Tower Paseo de Roxas Makati City 1229 Attention: Harold S. Ocampo Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on July 24, 2012, on behalf of Speaking Partners AB ("Speaking Partners"), requesting confirmation that the dividend payment by Vista Land & Lifescapes, Inc. ("VLLI") to Speaking Partners is subject to 15 percent final withholding tax rate under Article 10 of the amended Convention between the Republic of the Philippines and the Kingdom of Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Sweden tax treaty, as amended"). It is represented that Speaking Partners, with principal address at Box 53187, 400 15 GTEBORG, Sweden is a corporation organized and existing under the laws of Sweden, and is a resident thereof per the Certificate issued by the Swedish Tax Agency on February 7, 2012; that it is not registered as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated July 9, 2012; and that, on the other hand, VLLI is a corporation organized and existing under the laws of the Philippines with principal address at 3/F Starmall Las Pias, CV Starr Avenue, Pamplona, Las Pias City. It is further represented that on June 15, 2012, the Board of Directors of VLLI declared, from its unrestricted retained earnings, a cash dividend of P0.04 per share, payable on July 26, 2012 to all stockholders of record of VLLI as of July 2, 2012; that based on the Secretary's Certificate issued by VLLI dated July 11, 2012, Citibank N.A. ( "Citibank" ) act as the custodian bank of their client, Speaking Partners; that Speaking Partners acquired, on various dates, through purchase, Three Hundred Fifty-Two Million Three Hundred Fifty-Two Thousand (352,352,000) common shares in VLLI which represents 4.1857% of the total outstanding capital of VLLI; and that, based on the Certification issued by Citibank N.A. Philippine Branch, the amount of PHP11,979,968.00, which represents the dividend payment of VLLI was credited to the account of Speaking Partners on July 26, 2012. cIaHDA It is finally represented, per the Secretary's Certificate issued by VLLI on June 20, 2012, 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 proceeding, or judicial appeal. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: "Section 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 interest, 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 Tax Code of 1997, as amended, provides: "Section 32. Gross Income. (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. " DHcTaE In relation to a treaty, Article 10 of the Philippines-Sweden tax treaty, as amended, reads: "Article 10 Dividends 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law 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 (excluding partnership) which holds directly at least 25 percent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 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 other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. EcHAaS 5. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on in the other Contracting State of which the company paying the dividends is a resident, a business through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. xxx xxx xxx" Based on the aforequoted provisions, the 10 percent preferential tax rate on dividends shall apply whenever the recipient, who is the beneficial owner of the dividends, holds directly at least 25 percent of the capital of the paying company. In all other cases, the 15 percent preferential tax rate shall apply. Such being the case and considering that Speaking Partners, a resident of Japan with no fixed place of business in the Philippines, holds only 4.1857% of the total outstanding capital of VLLI , such dividend is subject to 15 percent preferential final withholding tax rate under Article 10 (2) (b) of the Philippines-Sweden tax treaty, as amended. This ruling is issued on the basis of the foregoing 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