ITAD BIR Ruling No. 238-12

June 6, 2012 ITAD BIR RULING NO. 238-12 Article 10, Philippines-Switzerland tax treaty; BIR Ruling No. ITAD-053-10 Manabat Sanagustin & Co. 9th Floor, KPMG Center 6787 Ayala Avenue Makati City 1226 Attention: Roberto L. Tan Principal, Tax Gentlemen : This refers your Tax Treaty Relief Application ("TTRA") filed on December 19, 2011, on behalf of Galderma Philippines, Inc. ("Galderma-Phil") , requesting confirmation that dividend payments by Galderma-Phil to Galderma Pharma S.A. ("Galderma-Swiss") are 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"). CETDHA It is represented that Galderma-Swiss , with principal address at World Trade Center, Avenue Gratta-Paille 2, 1018 Lausanne, Switzerland, is a resident of Switzerland within the meaning of Philippines-Switzerland tax treaty per the Certificate of Residence issued on October 13, 2011 by the Administration Cantonale des Impts, Division de la taxation Tax Administration of Switzerland; that it is not registered either as a corporation or partnership in the Philippines per certification issued by the Securities and Exchange Commission dated April 2, 2012; and that, on the other hand, Galderma-Phil is a corporation organized and existing under the laws of the Philippines with principal address at Unit 3001 Atlanta Center, 31 Annapolis Street, Greenhills, San Juan, Metro Manila. It is further represented that at the meeting of the Board of Directors of Galderma-Phil on April 5, 2011, a resolution was adopted declaring cash dividends in the total amount of Forty-Four Million Thirty-One Thousand Eight Hundred Thirty-Eight & 31/100 Pesos (PhP44,031,838.31), to be distributed among stockholders of record as of December 31, 2010, pro-rata to their respective shareholdings, based on the number of shares held by them as of December 31, 2010; that per the Corporate Secretary's Certificate issued by Galderma-Phil on December 9, 2011, that as of the date of declaration of the dividends, Galderma-Swiss , including its five (5) nominee shares, is a registered shareholder of 124,995 common shares in Galderma-Phil, and which represents 100% of the outstanding capital stock of the latter; and that, based on the proof of bank remittance issued by Citibank, the subject dividends was remitted to Galderma-Swiss on December 20, 2011. It is finally represented per the Sworn Statement issued by Galderma-Phil dated October 20, 2011, 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. 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%). AaECSH 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 per cent of the gross amount of the dividends if the beneficial owner is a company (excluding partnerships) which holds directly at least 10 per cent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. EHSAaD 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. In view thereof, considering that Galderma-Swiss owns 100% of the capital of Galderma-Phil, this Office is of the opinion and so holds that the dividend payments by Galderma-Phil to Galderma-Swiss are 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