ITAD BIR Ruling No. 245-13

August 16, 2013 ITAD BIR RULING NO. 245-13 Article 9 (Dividends), Philippines-United Kingdom tax treaty Intertek Testing Services Phils., Inc. INTERTEK Bldg., #2310 Pasong Tamo Extension, Makati City Attention: Julie Ann T. Donato Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application (TTRA) filed on 21 June 2012 requesting confirmation that the dividends paid by Intertek Testing Services Phils., Inc. ("Intertek-Philippines") to Intertek Testing Services Pacific limited ("Intertek-UK") are subject to the preferential tax treaty rate of 15 percent pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-UK tax treaty") . SacTAC It is represented that Intertek-UK is a non-resident foreign corporation organized and existing under the laws of the United Kingdom with principal address at 25 Savile Row, London, W1S 2ES England based on the consularized and notarized Certificate of Residency issued by the HM Revenue & Customs of the United Kingdom and consularized and notarized Memorandum of Association. The company Intertek-UK 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 28 May 2012. On the other hand, Intertek-Philippines , is a domestic corporation with principal address at INTERTEK Building, #2310 Pasong Tamo Extension, Makati City. It is represented that Intertek-Philippines has a subscribed capital divided into 7,699,995 shares valued at One Peso (P1.00) per share and acquired on 15 December 1992. As of 31 May 2012, Intertek-UK is the registered and beneficial owner of 7,699,995 shares in Intertek-Philippines representing 100% of the outstanding capital of Intertek-Philippines and that on 05 June 2012, the Board of Directors of Intertek-Philippines approved the declaration of cash dividends in the amount of Ninety Five Million Pesos (Php95,000,000.00) based on the notarized Secretary's Certificate issued by the Corporate Secretary of Intertek-Philippines on 21 June 2012. The cash dividends are payable as follows: Amount Date of Payment P27,500,000.00 25 June 2012 35,500,000.00 24 September 2012 32,000,000.00 26 November 2012 It is further represented that on 28 June 2012, Intertek-Philippines remitted the amounts of Two Hundred Thousand US Dollars (US$200,000.00) and Three Hundred Forty Eight Thousand Nine Hundred Sixty US Dollars (US$348,960.00) to Intertek-UK based on the notarized Certification issued by the Bank of the Philippine Islands. 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, judicial or administrative protest, collection proceedings or judicial appeal based on the notarized and certified true copies of telegraphic transfer application forms issued by Banco de Oro, Chino Roces, Makati Branch and Bank of the Philippine Islands, Pasong Tamo, Makati Branch. aIHSEc In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("NIRC of 1997") , as amended, dividends paid to Intertek-UK 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-five percent (35%) 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: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, these 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." EaCDAT For this purpose, you invoke the Philippines-United Kingdom tax treaty. Paragraph 1, sub-paragraphs (a) and (b) of Article 9 on Dividends thereof provide: "Article 9 Dividends 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; b) in all other cases 25% of the gross amount of the dividends. 2. Dividends derived from a company which is a resident of the United Kingdom by a resident of the Philippines may be taxed in the Philippines. Such dividends may also be taxed in the United Kingdom and according to the laws of the United Kingdom, but where such dividends are beneficially owned by a resident of the Philippines the tax so charged shall not exceed: a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; b) in all other cases 25% of the gross amount of the dividends." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of the United Kingdom may be taxed in the Philippines at a rate (a) not to exceed 15% if the company recipient of the dividends holds directly at least 10% of the voting shares of the paying company; and (b) 25% in all other cases. ICTaEH Considering that Intertek-UK owns 100% of the shares in Intertek-Philippines , the dividends paid by Intertek-Philippines to Intertek-UK are subject to the preferential tax rate of 15 percent of the gross amount thereof pursuant to Article 9, paragraph 1, sub-paragraph (a) of the Philippines-UK 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.