ITAD BIR Ruling No. 242-13

August 16, 2013 ITAD BIR RULING NO. 242-13 Article 10, Philippines-Netherlands Tax Treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Wilfredo U. Villanueva Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on 20 March 2013 ,requesting confirmation that the dividend payment by Takata (Philippines) Corp. ("Takata PH") ,to Takata International Finance B.V. ("Takata") ,is subject to the preferential tax rate of 10 percent pursuant to Article 10 (2) (a) of 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") . 1 HSAcaE It is represented that Takata is a corporation organized and existing under the laws of Netherlands with an authorized capital of Nine Hundred Million Euro (900,000,000.00) divided into Five Hundred Thousand (500,000) preference shares and One Million Five Hundred Thousand (1,500,000) ordinary shares with a nominal value of Four Hundred Fifty Euro (450.00) each, as evidenced by its Articles of Association duly authenticated by the Vice Consul of the Embassy of the Republic of the Philippines at The Hague, The Netherlands, dated 28 February 2012, that Takata is a resident of Netherlands with business address at Kerkstraat 339-B, 1017 HV Amsterdam, as evidenced by the Certificate of Residence issued by the Tax and Customs Administration of the Netherlands dated 26 February 2013, which was authenticated by the Consul of the Republic of the Philippines at The Hague, the Netherlands, dated 07 March 2013; that Takata 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 19 March 2013; and that, on the other hand, Takata PH is a corporation organized and existing under the laws of the Philippines with principal address at 106 East Main Avenue, Special Economic Zone, Laguna Technopark, Bian, Laguna. It is further represented, as certified by the Corporate Secretary of Takata PH, executed on 08 April 2013, that in a meeting of the Board of Directors of Takata PH held on 22 March 2013, the latter declared cash dividends amounting to Twelve Million United States Dollars (USD12,000,000.00) for all stockholders on record as of 06 March 2013; that as of date of declaration of dividends, Takata holds Fourteen Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety (14,999,990) shares of outstanding stock of Takata PH, or equivalent to 99.99% of its outstanding and voting shares. It is further represented that the payment of the subject dividends were made by Takata PH through Bank of Tokyo-Mitsubishi UFJ in favor of Takata ,in the amount of Ten Million Eight Hundred Thousand United States Dollars (USD10,800,000.00),on 22 March 2013. 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 on the Certification issued by the Chief Financial Officer of Takata PH executed on 14 March 2013. ASEcHI Ruling In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" Tax Code "),as amended, dividends paid to Takata are subject to income tax at the rate of 30 percent, thus: "SEC. 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 percent (30%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, 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) and (d) above. * " However, under Section 32 (B) (5) of the Tax Code, such dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 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." AICHaS With respect to a treaty, you invoke the Philippines-Netherlands tax treaty. Paragraphs 1 and 2 of Article 10 thereof provide: "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." Under paragraph 2 (a) of Article 10, dividends arising in the Philippines and paid to a resident of Netherlands may be taxed in the Philippines at a rate not to exceed 10% of the gross amount of the dividends if the company recipient of the dividends has a capital which is wholly or partly divided into shares and which holds directly at least 10% of the capital of the company paying the dividends. Accordingly, since Takata is a corporation which holds directly more than 10% of Takata PH (in fact 99.99%),the dividend paid by Takata PH to Takata is 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. 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. ESCcaT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Its provisions on taxes apply on income derived or which accrued beginning January 1, 1992.