ITAD BIR Ruling No. 230-12

June 5, 2012 ITAD BIR RULING NO. 230-12 Salvador & Associates Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue, Makati City Attention: Euney Marie J. Mata-Perez Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on March 16, 2011 , on behalf of your client, IPG Nederland B.V. ("IPG") , requesting confirmation that dividends paid by Treyna Holdings, Inc. ("Treyna") to IPG are subject to the preferential tax rate 10 percent pursuant to Article 10 of the Convention between the Republic of the Philippines and the Government of the Kingdom of the Netherlands on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . It is represented that IPG is a corporation organized and existing under the laws of the Netherlands and is a resident of the Netherland based on its Articles of Association and the Declaration of Residence issued by the Tax and Customs Administration of the Netherlands dated November 17, 2010; that IPG is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated March 3, 2011; and that, on the other hand, Treyna is a corporation organized and existing under the laws of the Philippines, situated at 6th Floor, Citibank Center, 8761 Paseo de Roxas, Makati City, Philippines. It is further represented, as certified by the Corporate Secretary of Treyna on December 20, 2010, that the Board of Directors of Treyna declared dividends in 2008 amounting to Php7,000,000.00, but which were paid only in August and November 2009 and in February and March 2010, in four equal payments of Php1,750,000.00; that as of the dates of payments, Interpublic Group of Companies, Inc. ("Interpublic") , a corporation organized and existing under the laws of the United States of America, holds 490,200 common shares of stock of Treyna (with a par value of Php10.00 each), equivalent to 40 percent of the outstanding capital stock of Treyna ; that on February 5, 2009, Interpublic and IPG entered into a Deed of Assignment where Interpublic transferred its 490,200 shares in Treyna to IPG; that Interpublic acknowledges that as of such date, all rights, title, interests and privileges over the shares shall be fully enjoyed by IPG, such as but not limited to the right to receive dividends, right to inspect corporate books, and voting rights. cCaEDA It is finally represented that the dividends subject of this TTRA are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based Certification issued by the Treasurer of Treyna on January 14, 2010. In reply, please be informed that under Section III (2) of Revenue Memorandum Order No. 1-00 (Procedures for Processing Tax Treaty Relief Application) ("RMO 1-2000") , any availment of tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed at the International Tax Affairs Division ("ITAD") of this Bureau at least 15 days before the intended transaction or payment of income, thus: "III. Policies: In order to achieve the above-mentioned objectives, the following policies shall be observed: xxx xxx xxx 2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e., payment of dividends, royalties, etc., accompanied by supporting documents justing the relief . . ." (Emphasis ours) This condition was emphasized by the Court of Tax Appeals in Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 6382 dated June 7, 2005) where it ruled: " However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation . In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked. Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the persons or corporations duly entitled to the same . aECSHI The Court notes that nowhere in the records of the case was it shown that petitioner indeed took the liberty of properly observing the provisions of the said order. Petitioner quotes various BIR, as well as ITAD, Rulings issued to several foreign corporations seeking for a tax relief from the office of the respondent. However, not any one of these rulings pertains to the petitioner. It must be stressed that BIR rulings are issued based on the facts and circumstances surrounding particular issue/issues in question and are resolved on a case-to-case basis. It would be thus erroneous to invoke the ruling of the respondent in specific cases, which have no bearing to the case of petitioner." (Emphasis ours) This decision was also upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement laid down in RMO 1-2000 is reiterated in subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (C.T.A. EB Case No. 456 dated May 29, 2009), CBK Power Company Ltd. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 6699, 68844 and 7166 dated March 29, 2010) and Manila North Tollways Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 7864 dated April 12, 2011) . In view of the foregoing, since the subject dividends declared in favor of the stockholders on record of Treyna in 2008 amounting to Php7,000,000.00 were paid on August and November 2009 , and on February and March 2010 , and the TTRA was filed only on March 16, 2011 , in violation of Section III (2) of RMO 1-2000, said dividends of IPG are hereby DENIED relief for having been filed beyond the 15-day period prescribed by the RMO. Accordingly, the subject dividends shall be subject to income tax at the regular rate provided for under Section 28 (B) (1) (a) of the Tax Code of 1997, as amended. Please be guided accordingly. SITCcE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue