ITAD BIR Ruling No. 212-14

October 8, 2014 ITAD BIR RULING NO. 212-14 Article 10, Philippines-France tax treaty, as amended SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Ms. Lucil Q. Vicerra Principal, Tax & Customs Services Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on December 6, 2013, on behalf of Louis Vuitton (Philippines), Inc. ("LV Phils") requesting confirmation that dividend payments of LV Phils to its parent company, Louis Vuitton Malletier S.A. ("LV France"), are subject to ten percent (10%) final withholding tax provided under Article 10 (2) 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 LV France is a nonresident foreign corporation organized and existing under the laws of France with principal business address at 2 rue du Pont-Neuf, 75001, Paris as confirmed by the Certificate of Residence issued by the tax authority of France dated December 2, 2013, with; that LV France is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration issued by the Securities and Exchange Commission on December 12, 2013; that LV Phils is a domestic corporation duly organized and existing under the laws of the Philippines with principal address located at 22nd Floor, Tower 1, The Enterprise Center, corner Paseo de Roxas, Makati City. It is further represented that as of May 28, 2013, LV France is a stockholder of record of One Hundred Thirty-Eight Thousand Eight Hundred Seventy (138,870) common shares in LV Phils with a total par value of Thirteen Million Eight Hundred Eighty-Seven Thousand Pesos (Php13,887,000.00) with complete voting shares, representing 99.99% of LV Phils' issued and outstanding shares; that during the special meeting of the Board of Directors on November 11, 2013, the Board of Directors approved a resolution declaring cash dividends in the total amount of One Hundred Sixty-five Million Pesos (P165,000,000.00) to be distributed among stockholders of record as of October 31, 2013 pro-rata to their respective shareholdings based on the number of shares held as of December 31, 2012 per Secretary's Certificate dated November 26, 2013 issued by the Corporate Secretary of LV Phils. TIDHCc It is further represented that the transaction subject of the herein 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 a judicial appeal of the taxpayers involved per Certificate of No Pending Case issued by LV Phils. 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. It provides: "Section 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 . . ., dividends, . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended provides: "Section 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: 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. xxx xxx xxx" In relation thereto, Article 10 of the Philippines-France tax treaty, as amended apply to the instant case. It provides: "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 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 15 per cent of the voting shares of the company paying the dividends; b) in all other cases, 15 per cent of the gross amount of the dividends. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' 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. STcaDI xxx xxx xxx" Based to the above provision, dividends arising the Philippines and paid to a resident of France may be taxed in the Philippines at a rate not to exceed 10 percent if the recipient company (not a partnership) holds a directly at least 10 percent of the voting shares of the paying company, and 15 percent in all other cases. In view thereof, considering that LV France holds 138,870 common shares in LV Phils representing 99.99% of the issued and outstanding shares of LV Phils, which is more than the required shareholding of 10 percent, the dividends paid by LV Phils to LV France are subject to a preferential tax rate of 10 percent of the gross amount of the dividends, pursuant to the Philippines-France tax treaty, as amended. 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