ITAD BIR Ruling No. 221-14

October 8, 2014 ITAD BIR RULING NO. 221-14 Article 10, Philippines-Italy tax treaty Maccaferri (Philippines), Inc. 30C Rufino Pacific Tower 6784 Ayala Avenue, Legaspi Village Makati City 1226 Attention: Thomas C. Wintermahr President Gentlemen : This refers to your tax treaty relief application filed on November 22, 2013, requesting confirmation that dividends paid by Maccaferri (Philippines), Inc. ("Maccaferri-Phil") to Officine Maccaferri S.P.A. ("Maccaferri S.P.A.") are subject to preferential tax rate of 15 percent pursuant to Article 10 of the Convention between the Government of the Republic of the Philippines and the Government of the Republic of Italy for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion ("Philippines-Italy tax treaty"). It is represented that Maccaferri S.P.A., with address at Via J.F. Kennedy N. 10, Zola Predosa, Bologna, Italy 40069, is a corporation organized and existing under the laws of Italy, and is a resident of Italy within the meaning of the Philippines-Italy tax treaty based on the Certificate of Tax Residence for Entities issued on December 9, 2013 by the Director of Agenzia Entrate, Direzione Provinciale di Bologna; that it is not registered either 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 17, 2013; and that, on the other hand, Maccaferri-Phil is a corporation organized and existing under the laws of the Philippines, with principal address at 30C Rufino Pacific Tower, 6784 Ayala Avenue, Legaspi Village, Makati City 1226. DTEAHI It is further represented, that on March 1, 2013, at the special meeting of the Board of Directors of Maccaferri-Phil, the Board of Directors declared cash dividends in the amount of Five Million Three Hundred Eighty-Five Thousand Six Hundred Pesos (P5,385,600.00) out of Maccaferri-Phil' s retained earnings as of December 31, 2012 in favor of the stockholders of record as of the same date; that as of December 31, 2012, Maccaferri S.P.A. owns Sixty-Five Thousand Two Hundred Forty-Six (65,246) shares of stock in Maccaferri-Phil with a total par value of Six Million Five Hundred Twenty-Four Thousand Six Hundred Pesos (P6,524,600.00), which represents 75% of the total outstanding capital stock of Maccaferri-Phil. It is finally represented, per Sworn Statement dated July 18, 2013 issued by Maccaferri-Phil, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, 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. 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 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%)." IDATCE 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. . . ." Thus, Article 10 of the Philippines-Italy tax treaty, which you invoke, may 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 fifteen per cent of the gross amount of the dividend. ATaDHC The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. xxx xxx xxx 4. The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founder's shares or other rights, not being debt-claims, participating in profits, as well as income assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident. 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 trade of business through a permanent establishment situated therein, or performs in that other State professional 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 dividends are taxable in that other Contracting State according to its own law. . . ." Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of Italy may be taxed in the Philippines at a rate not to exceed 15 percent of the gross amount of the dividends. In view thereof and considering that Maccaferri S.P.A., a resident of Italy with no fixed place of business in the Philippines, holds 75 percent ownership in Maccaferri-Phil, such dividends paid by Maccaferri-Phil to Maccaferri S.P.A. are subject to the preferential tax rate of 15 percent of the gross amount thereof, pursuant to Article 10 of the Philippines-Italy tax treaty. 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. CacTIE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue