ITAD BIR Ruling No. 224-12

June 1, 2012 ITAD BIR RULING NO. 224-12 Article 10, Philippines-Switzerland tax treaty; BIR Ruling No. ITAD-053-10 ABB, Inc. 6/F Citibank Center Building 8741 Paseo de Roxas Makati City 1226 Attention: Roberto J.P. Ramos Country CFO Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on March 15, 2012, requesting confirmation that dividend to be paid by ABB, Inc. ("ABB-Phil") to ABB Asean Brown Boveri Ltd. ("ABB-Swiss") is subject to final withholding tax at the rate of 10 percent, pursuant to Article 10 of the Convention between the Republic of the Philippines and the Swiss Federation for the Avoidance of Double Taxation with Respect to Taxes on Income ("Philippines-Switzerland tax treaty") . It is represented that ABB-Swiss, with principal address at Affolternstrass 44, 8050 Zurich, Switzerland, is a resident of Switzerland within the meaning of the Philippines-Switzerland tax treaty per the Certificate of Residence issued by the Chancery of State of the Canton of Zurich, Switzerland on May 16, 2011; that it is not registered either as a corporation or partnership in the Philippines per certification issued by the Securities and Exchange Commission dated June 2, 2011; and that, on the other hand, ABB-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 6/F Citibank Center Building, 8741 Paseo de Roxas, Makati City 1226. It is further represented that at the meeting of the Board of Directors of ABB-Phil on December 8, 2011, a resolution was approved declaring cash dividend of Php119,221,000.00 based on 2010 Financial Statements to all stockholders of record as of December 8, 2011 in proportion to their respective holdings, which will be paid on June 15, 2012; that per the Corporate Secretary's Certificate issued by ABB-Phil on March 7, 2012, as of the date of record, ABB-Swiss, including five (5) shares held by its nominee directors, holds 1,231,799 common shares in ABB-Phil, and which represents 100% ownership of the latter. It is finally represented per the Sworn Statement issued by ABB-Phil dated March 14, 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. SIaHDA 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%). 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" Thus, Article 10 of the Philippines-Switzerland tax treaty, which you invoke, may apply to the instant case. It provides: "Article 10 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 laws of that State, but if the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed: a) 10 percent of the gross amount of the dividends if the beneficial owner is a company (excluding partnerships) which holds directly at least 10 percent of the capital of the paying company; b) 15 percent of the gross amount of the dividends in all other cases. 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 that State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions of Article 10, dividends paid by a Philippine corporation to a resident of Switzerland may be taxed at a rate not exceeding 10 percent of the gross amount of dividends if the recipient is a company which holds directly at least 10 percent of the capital of the Philippine corporation; and 15 percent if the shareholdings of the recipient company is below 10 percent of the capital of the paying company. cIaCTS In view thereof, considering that ABB-Swiss is a resident of Switzerland which holds 100% ownership of ABB-Phil, this Office is of the opinion and so holds that the dividend payment of ABB-Phil to ABB-Swiss is subject to 10 percent preferential tax rate pursuant to Article 10 (2) (a) of the Philippines-Switzerland tax treaty. (BIR Ruling No. ITAD-053-10 dated October 18, 2010) 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