ITAD BIR Ruling No. 213-15

July 9, 2015 ITAD BIR RULING NO. 213-15 Article 10, Philippines-Netherlands Tax Treaty Bisazza Philippines, Inc. Niog II, Bacoor, Cavite 1402 Attention: Mr. Vincent G. Atienza General Manager Gentlemen : This refers to your tax treaty relief application filed on November 16, 2012 on behalf of BISAZZA HOLDING B.V. ("Bisazza Holding") requesting confirmation that dividend paid by BISAZZA PHILIPPINES, INC. ("Bisazza Phils") to Bisazza Holding is subject to 10 percent preferential tax rate 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 ("Philippines-Netherlands tax treaty"). TEHIaD It is represented that Bisazza Holding , with address at AMSTELDIJK 166, 1079 LH, Amsterdam, Netherlands, is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty based on the Certificate of Residence issued by the Inspector of the Tax and Customs Administration of the Netherlands dated November 22, 2012; that based on its Articles of Association, Bisazza Holding is a company incorporated under the laws of the Netherlands with authorized capital of two hundred thousand guilders (NLG200,000) divided into two thousand (2,000) shares of a nominal value of one hundred guilders (NLG100) each; that Bisazza Holding is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on November 26, 2012; and that, on the other hand, Bisazza Phils is a domestic corporation duly organized and existing under Philippine laws, located at the Niog II, Bacoor, Cavite, 1402. It is further represented based on Board Resolution Nos. 12-11, 12-12, 12-13, 12-14, and 12-17 approved by the Board of Directors of Bisazza Phils , the Board of Directors resolved to decrease the capitalization of the company by partially redeeming the stock dividends issued on February 12, 2003; that the partial redemption of stock dividends is Twenty-Eight Million Pesos (Php28,000,000.00); that the return of capital stocks will only be applied to Bisazza Holding on the basis of stock held as of July 2, 2012; and that the payment was credited to the account of Bisazza Holding by Bisazza Phils on December 14, 2012 as evidenced by sworn certification from BDO dated December 14, 2012. It is finally represented, based on the Bisazza Phils Sworn Statement dated November 29, 2012, that the 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 of the taxpayer/s involved. DETACa In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (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. 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 that any income may be exempt from tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "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" With respect to a treaty, what you invoke for this purpose is the Philippines-Netherlands tax treaty. Its Article 10 provides: TaDCEc "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 5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as income from debt-claims participating in profits and 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. 6. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of one of the States, carries on business in the other State, of which the company paying the dividends is a resident, through a permanent establishment situated therein or performs in that other State professional services from a fixed base situated therein, and the holding in respect 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. cDEHIC xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be subject to income tax in the Philippines, but the rate of tax that may be imposed thereon shall not exceed: (a) 10 percent of the gross amount of dividends if the recipient of the dividends 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. Accordingly, since Bisazza Holding is a company resident in the Netherlands, the capital of which is wholly divided into shares, and holds directly 99.9993 percent of the capital of Bisazza Phils (which is actually more than the required minimum shareholding of 10 percent), such dividend to be paid by Bisazza Phils to Bisazza Holding is subject to income tax in the Philippines at the rate of 10 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. 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