ITAD BIR Ruling No. 249-14

October 9, 2014 ITAD BIR RULING NO. 249-14 Article 10, Philippines-France tax treaty Tam-Yap Caga & Ilao Law Offices Unit 15B, ACT Tower No. 135 H.V. dela Costa Street Salcedo Village, Makati City Attention: Teresa R. Tam-Yap Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on September 13, 2012, requesting confirmation that dividends paid by TOLLWAYS MANAGEMENT CORPORATION ("TMC Philippines") to EGIS ROAD OPERATION S.A. ("EGIS France") are subject to 10 percent preferential tax rate pursuant to Article 10 of the Convention between the Republic of the Philippines and the Government of French Republic for the Avoidance of Double Taxation with Respect to Taxes on Income as amended by a Protocol 1 ("Philippines-France tax treaty, as amended"). It is represented that EGIS France, with principal address at 11 Avenue Du Centre, 78280 Guyancourt, France is a corporation organized and existing under the laws of France, and is resident of France within the meaning of the Philippines-France tax treaty per the Certificate of Residence issued by the Tax Authority of France on January 17, 2012; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated August 30, 2012; and that on the other hand, TMC Philippines is a corporation duly organized and existing under the laws of the Philippines, with principal office address at Km. 12 North Luzon Expressway, Balintawak, Quezon City. It is further represented, that at the meeting of the Board of Directors of TMC Philippines held on July 26, 2012, a resolution was approved declaring cash dividends in the amount of Two Hundred Twenty Six Million Seven Hundred Thousand Pesos (PhP226,700,000.00) payable to all stockholders of record as of July 26, 2012, payable on or before September 30, 2012; that based on the Corporate Secretary's Certificate of TMC Philippines issued on August 17, 2012, beginning August 30, 2006 and as of the date of payment of the subject dividends, EGIS France owns a total of 129,200 shares as of July 26, 2012 which represents 34% ownership in TMC Philippines; and that based on a telegraphic transfer confirmation form such dividends was remitted to EGIS France on September 28, 2012. It is finally represented, based on the Certification issued by the Chief Financial Officer of TMC Philippines on September 10, 2012, 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, collection proceedings, or judicial appeal. aDcETC 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 income 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%) . . . ." HCacDE 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." In relation thereto, Article 10 of the Philippines-France tax treaty, which you invoked, may apply to the instant case. It provides: "Article 10 Dividends 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 be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law 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 (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; ITHADC b) in all other cases, 15 per cent of the gross amount of the dividends. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. The term "dividends" as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' 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 the State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of France at a rate not exceeding 10 percent if the last-mentioned company holds directly at least 10 percent of the capital of the company paying the dividend. Accordingly, considering that EGIS France is a company which holds 34% or more than 10% of the outstanding capital stock of TMC Philippines, this Office is of the opinion and so holds that the dividends paid by TMC Philippines to EGIS France are subject to the preferential tax rate of 10 percent of the gross amount of the dividends pursuant to Article 10 (2) (a) of the Philippines-France tax treaty. 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. CHIScD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Footnotes 1. Protocol Amending the Convention between the Republic of the Philippines and Government of French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income effective January 1, 1998.