ITAD BIR Ruling No. 242-11

November 3, 2011 ITAD BIR RULING NO. 242-11 Article 10, Philippines-Netherlands Tax Treaty; BIR Ruling No. ITAD-99-08; BIR Ruling No. ITAD-46-10; BIR Ruling No. ITAD-37-10; BIR Ruling No. ITAD-29-10; BIR Ruling No. ITAD-21-10 Holcim Philippines, Inc. 7th Floor, Two World Square McKinley Hill, Fort Bonifacio Taguig City Attention: Ms. Shirley S. Go Authorized Representative Gentlemen : This refers to your tax treaty relief application dated June 24, 2011, on behalf of Holderfin B.V. ("Holderfin") , requesting confirmation that dividend payments made by Holcim Philippines, Inc. ("Holcim") to Holderfin are subject to 10 percent preferential tax rate 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 Holderfin , with address at De Lairessestraat 131-135, 1075HJ Amsterdam, Netherlands, is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty based on the Certificate of Residence issued by the Inspector of the Tax and Customs Administration of the Netherlands dated May 17, 2011; that based on its Articles of Association, Holderfin is a company incorporated under the laws of the Netherlands with authorized capital of fifteen million euro (15,000,000) divided into thirty thousand (30,000,000) shares, each having a nominal value of five hundred euros (500) each; that Holderfin is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on May 27, 2011; and that, on the other hand, Holcim is a domestic corporation duly organized and existing under Philippine laws, located at the 7th Floor, Two World Square, McKinley Hill, Fort Bonifacio, Taguig City. ITESAc It is further represented, as shown in the Secretary's Certificate issued by Holcim dated June 3, 2011, that at the meeting of the Board of Directors held on May 12, 2011, the Board of Directors approved the declaration of dividends in the amount of Php0.40 per share to all stockholders of record as of May 26, 2011, payable not later than June 3, 2011; and that as of May 26, 2011, Holderfin holds 1,148,726,044 common shares with par value of Php1.00 each share, representing 17.80% outstanding shares in Holcim ; that per certification issued by AB Capital Securities, Inc. said company holds for and in behalf of Holderfin the 19,724,953 shares representing 0.31% ownership in Holcim ; and that Holderfin owns the total 18.11% of the outstanding shares in Holcim . It is finally represented, based on the same Secretary's Certificate, that the transaction subject of the request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal of the taxpayer/s involved. cADTSH In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (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 . . ., 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 of 1997, as amended, provides that any income may be exempt from tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "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, what you invoke for this purpose is the Philippines-Netherlands tax treaty. Its Article 10 provides: "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. CcHDSA 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 5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as income from debt-claims participating in profits and income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. ESTcIA xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be subject to income tax in the Philippines, but the rate of tax that may be imposed thereon shall not 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, since Holderfin holds directly 18.11% percent of the capital of Holcim (which is actually more than the required minimum shareholding of 10 percent), such dividends to be paid by Holcim to Holderfin are subject to income tax in the Philippines at the rate of 10 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD-46-10 dated October 5, 2010; BIR Ruling No. ITAD-37-10 dated September 16, 2010; BIR Ruling No. ITAD-29-10 dated August 27, 2010; BIR Ruling No. ITAD-21-10 dated August 20, 2010; BIR Ruling No. ITAD-99-08 dated November 17, 2008) 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. ITESAc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue