ITAD BIR Ruling No. 237-14

October 9, 2014 ITAD BIR RULING NO. 237-14 Article 10 (Dividend), Philippines-Netherlands tax treaty Castillo Laman Tan Pantaleon & San Jose Valero Tower, 122 Valero Street, Salcedo Village Makati City Attention: Atty. Ma. Victoria D. Sarmiento Authorized Representative Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on July 30, 2012, requesting confirmation that dividends paid to GREIF INTERNATIONAL HOLDINGS B.V. ( "Greif-Netherlands" ) by GREIF PHILIPPINES, INC. ( "Greif-Philippines" ) are subject to income tax at a preferential rate of 10 percent pursuant to the Convention between the Kingdom of the Netherlands and the Republic of the Philippines for 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 Greif-Netherlands is a corporation duly organized and existing under the laws of the Netherlands and is a resident thereof based on its Articles of Association, and on the Declaration of Residence issued by the Tax Administration of Rivierenland/Kantoor Arnhem, The Netherlands on May 31, 2012; that Greif-Netherlands is situated at Bergseweg 6 3633 AK Vreeland, The Netherlands; that Greif-Netherlands has an authorized capital amount of 113,500,000.00 Euros which is divided into 500,000 shares of stock, each with a par value of 227 Euro; that Greif-Netherlands 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 on June 13, 2012; and that Greif-Philippines, on the other hand, is a domestic corporation situated at PSPC Refinery Compound, Barangay Maloya, Pililla, Rizal, Philippines. It is further represented that the Board of Directors of Greif-Philippines, at its special meeting on June 30, 2012, declared cash dividends in the amount of P76,221,119.00 out of the unrestricted retained earnings of Greif-Philippines as of October 31, 2011 in favor of all stockholders of record of Greif-Philippines and payable on July 31, 2012; and that since April 1, 2011 up to present, Greif-Netherlands holds 30,717,500 subscribed shares at a par value per share of P1.00 or a total of P30,717,500.00 which represent 100 percent of the outstanding shares of Greif-Philippines. It is finally represented that the dividends subject of this ruling 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 on the Sworn Statement issued by the authorized representative of Greif-Philippines on July 30, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ( "Tax Code" ), as amended, provides that dividends payable to Greif-Netherlands, a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: DAEcIS "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 . . ., dividends, . . .: 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 provides that such dividends may be exempt from income tax or subject to reduced rate to the extent required by any treaty obligation on the Philippines, viz .: "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" With respect to a treaty, you invoke the Philippines-Netherlands tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: TCaEAD "Article 10 Dividends 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the 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 per cent of the gross amount of the dividends if the recipient is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10 per cent of the capital of the company paying the dividends; b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be taxed in the Philippines at a rate not to exceed: (a) 10 percent of the gross amount of dividends if the recipient of the dividends is a company the capital of which is wholly or partly divided into shares and which holds directly at least 10 percent of the capital of the company paying the dividends; and (b) 15 percent of the gross amount of the dividends in all other cases. Accordingly, inasmuch as Greif-Netherlands, the recipient of the dividends from Greif-Philippines, is a company in the Netherlands whose capital is wholly divided into shares, and since Greif-Netherlands holds directly 100 percent of the capital of Greif-Philippines, such dividends paid by Greif-Philippines to Greif-Netherlands are subject to income tax at the rate of 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Netherlands tax treaty. AcSHCD 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 Bureau of Internal Revenue