ITAD BIR Ruling No. 233-14

October 8, 2014 ITAD BIR RULING NO. 233-14 Article 10, Philippines-Italy tax treaty Ms. Arlene D. Singca No. 1225 Tangile Street L&S Subdivision, Subdivision, Barangay Santo Domingo Angeles City, Philippines Madam : This refers to your Tax Treaty Relief Application (TTRA) filed on November 23, 2011 , on behalf of OCCHIPINTI, FABRIZIO, requesting confirmation that the dividends paid by O&G LEATHER MANUFACTURING CORPORATION ("O&G Leather") are subject to the preferential tax rate of 15 percent pursuant to 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 to Prevent Fiscal Evasion ( "Philippines-Italy tax treaty" ). Facts It is represented that OCCHIPINTI, FABRIZIO with address at No. 73 Viale Cortina D Ampezzo, Rome, Italy, is a resident of Italy within the meaning of Article 4 of the Philippines-Italy tax treaty, per Certificate of Residence issued by the Tax Agency, Provincial Office of Rome, Italy on July 12, 2011; that OCCHIPINTI, FABRIZIO does not have any registered business in the Philippines per the Negative Certification issued by the Philippine Department of Trade and Industry dated November 18, 2011; and that, on the other hand, O&G Leather is a corporation organized and existing under the laws of the Philippines with principal address at Building 4A1-2 Philexcel Business Park, Clark Freeport Zone, Pampanga, Philippines. CITSAc It is further represented, per Secretary's Certificate issued by O&G Leather dated October 19, 2011, that on November 8, 2011, the Board of Directors declared cash dividends amounting to Php8,000,000.00 out of its retained earnings to be distributed to its stockholders of record as of November 15, 2010, payable not later than January 28, 2012 ; and that OCCHIPINTI, FABRIZIO is the registered owner of 20,000 common shares of O&G Leather with a total par value of Php100.00 per share, representing approximately 5% of the total outstanding capital stock of O&G Leather. It is finally represented 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 per sworn statement issued by O&G Leather dated November 9, 2011. Ruling In reply, please be informed that Section 25 (B) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to income derived in the Philippines by a nonresident alien individual not engaged in trade or business within the Philippines. It provides: "SEC. 25. Tax on Nonresident Alien Individual. xxx xxx xxx (B) Nonresident Alien Individual Not Engaged in Trade of Business Within the Philippines. There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every nonresident alien individual not engaged in trade or business within the Philippines as . . . dividends . . ., a tax equal to twenty-five percent (25%) of such income. . . HECTaA 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 invoked, 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. HEcIDa The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 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." Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of Italy who is the beneficial owner of the dividends the tax so charged shall not exceed 15 per cent of the gross amount of the dividend. Such being the case, OCCHIPINTI, FABRIZIO being the recipient and the beneficial owner of the dividends, the tax so charged shall not exceed preferential tax rate of 15 per cent of the gross amount of the dividends, pursuant to Article 10 (2) 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue