ITAD BIR Ruling No. 224-13

August 15, 2013 ITAD BIR RULING NO. 224-13 Article 10 (Dividends), Philippines-Denmark tax treaty Sycip Gorres Velayo & Co. SGV I 6760 Ayala Avenue Makati City Attention: Atty. Antonette C. Tionko Gentlemen : This refers to your tax treaty application ("TTRA") filed on May 3, 2013, requesting confirmation that dividend paid by DMCI Holdings, Inc. ("DMCI") to Asiatiske Emerging Markets Aktier ("Asiatiske") is subject to income tax at the rate of 15% pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the Kingdom of Denmark with respect to Taxes on Income ("Philippines-Denmark" tax treaty) . DHECac It is represented that Asiatiske is a subfund of Professional Forening Institutional Investor, which is a non-resident foreign corporation organized and existing under the laws of Denmark. Asiatiske is a resident of Denmark within the meaning of Article 4 of the Convention between the Philippines and Denmark for the avoidance of double taxation with principal address in Otto Monsteds Plads 9, 1780 Copenhagen, Denmark. It is not registered as a corporation or a partnership in the Philippines per certification of non-registration issued by the Securities and Exchange Commission on May 2, 2013. On the other hand, DMCI, is a domestic corporation duly organized and existing under the laws of the Philippines with principal address at 3rd Floor, Dacon Building, 2281 Chino Roces Avenue, Makati City. It is also represented that Asiatiske is the registered owner of One Million Forty Five Thousand Five Hundred Twenty (1,045,520) common shares as of April 26, 2013 constituting .0394% of the issued and outstanding shares of DMCI; that on April 11, 2013, the board of directors of DMCI has declared cash dividends in the amount of Php1.20 per outstanding common share and special cash dividend of Php1.00 per outstanding common share to the stockholders of record as of April 26, 2013 out of the unrestricted retained earnings of the corporation as of December 31, 2012 payable on May 10, 2013; and as per certification issued by Hongkong and Shanghai Banking Corporation (HSBC) on June 20, 2013, a net cash dividends amounting to Php1,955,122.40 was credited to the account of JP Morgan & Chase Bank on May 10, 2013 under account name JPMCB Denmark Clients, the beneficial owner of which is Asiatiske as confirmed by JP Morgan & Chase Bank. It is further represented, per sworn certification dated April 30, 2013, that the issue subject of the above request is not under any investigation or on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal. In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" Tax Code "),as amended, dividends paid to Asiatiske are subject to income tax at the rate of 30 percent, thus: "SEC. 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Non-resident 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 interests, 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) and (d) above: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." aHcACT However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 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." For this purpose, you invoke the Philippines-Denmark tax treaty. Paragraphs 1 & 2 of Article 10 thereof provide: "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 laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends; IHDCcT b) 15 per cent of the gross amount of the dividends in all other cases. The competent authorities of the Contracting States may by mutual agreement settle the mode of application of these limitations. 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" Under paragraph 2 above, dividends arising in the Philippines and paid to a resident of Denmark may be taxed in the Philippines at a rate not to exceed (a) 10 percent if the recipient of the dividends is a company other than a partnership which owns directly at least twenty-five percent (25%) of the capital of the company paying the dividends; and (b) 15 percent in all other cases. Accordingly, considering that Asiatiske ,a company registered in Denmark, holding 1,045,520 common shares ,constituting .0394% of the stocks of DMCI which is less than 25% of the issued and outstanding stocks of the latter, the dividend paid by DMCI to Asiatiske is subject to income tax at the rate of fifteen percent (15%) of the gross amount of dividend, pursuant to Article 10 (2) (b) of the Philippines-Denmark 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 n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.