ITAD BIR Ruling No. 246-11

November 9, 2011 ITAD BIR RULING NO. 246-11 Article 10 Philippines-Netherlands tax treaty; BIR Ruling No. ITAD 56-10; BIR Ruling No. ITAD 46-10; BIR Ruling No. ITAD 37-10 Manabat Sanagustin & Co. The KPMG Center 9th Floor 6787 Ayala Avenue Makati City Attention: Herminigildo G. Murakami Principal, Tax Gentlemen : This refers to your application for tax treaty relief dated June 7, 2011, on behalf of your client, DP World Mabuhay First BV ("DP World") , requesting confirmation that the dividends paid by Daven Holdings, Inc. ("Daven") to DP World are subject to the preferential rate of 15 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 DP World is a corporation organized and existing under the laws of the Netherlands and is a resident of the Netherlands with principal address at Albert Plesmanweg 43G 3088 GB Rotterdam, based on its Declaration of Residence dated June 16, 2011 issued by the Inspector of the Tax Administration of the Netherlands; that DP World has an authorized capital amounting to Ninety Thousand Euros (Eur90,000.00), divided into ninety thousand (90,000) shares, with a nominal value of One Euro (Eur1.00) per share based on its Articles of Association; that it is not registered as a corporation or as a partnership in the Philippines, per Certification of Non-Registration dated November 23, 2010 issued by the Securities and Exchange Commission; and, that, on the other hand, Daven is a corporation organized and existing under the laws of the Philippines, with office address at 7th Floor, Philfirst Building, 6764 Ayala Avenue, Makati City. It is further represented that the Board of Directors of Daven, during its meeting on May 30, 2011, declared cash dividends in the amount of PhP46,386,821.30 out of its retained earnings to its stockholders of record as of May 31, 2011 based on the Secretary's Certificate issued by the Corporate Secretary of Daven on June 1, 2011; that DP World is the owner of 240,000 common shares of the corporation with total par value of PhP24,000.00 as of June 15, 2011; that DP World owns .59% of the equity of Daven as of May 31, 2011 and June 15, 2011 based on the same Secretary's Certificate; and that the cash dividends are payable on or before June 15, 2011. AEDISC It is finally represented that the dividends subject of the application for tax treaty relief 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 dated April 1, 2011 issued by Corporate Secretary of Daven. In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows, viz. : "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 above-cited provisions, a preferential tax rate of 10 percent on dividends applies when the beneficial owner 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. In all other cases, a 15 percent preferential tax rate applies. This being the case, and since DP World is a company in the Netherlands the capital of which is divided into shares holding .59% of the equity of Daven as of the date of declaration and payment of the subject dividends on May 31, 2011 and June 15, 2011, respectively, this Office is of the opinion and so holds that such dividend payments by Daven to DP World are subject to the preferential tax rate of 15 percent, based on the gross amount of dividends, pursuant to Article 10 (2) (b) of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD 056-10 dated October 22, 2010; BIR Ruling No. ITAD 046-10 dated October 5, 2010; BIR Ruling No. ITAD 037-10 dated September 16, 2010). ADCTac 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