ITAD BIR Ruling No. 250-13

August 22, 2013 ITAD BIR RULING NO. 250-13 Article 9 (Dividends), Philippines-UK tax treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Antonette C. Tionko Principal, Tax and Customs Services Gentlemen : This refers to your tax treaty application ("TTRA") filed on March 26, 2013, requesting confirmation that dividends paid by Philippine Long Distance Company ("PLDT") to Newton Asian Income Fund ("NAIF") are subject to income tax at the rate of 25% pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom and Northern Ireland with respect to Taxes on Income . DETACa It is represented that BNY Mellon Investment Funds (BNY Mellon) is an open-ended investment company with variable capital, incorporated under the laws of England and Wales under registered IC27 and maintains its principal place of business at the BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA, England. It has been established as an "umbrella company" and therefore different Sub-Funds may be formed but subject for approval by the Depositary and the Financial Service Authority. The assets of each Sub-Fund are treated as separate from those of every other Sub-Fund and will be invested in accordance with that Sub-Fund's own investment objective and policy. 1 One of its separate and distinct fund series is Newton Asian Income Fund (NAIF) . Its objective is to achieve income together with long-term capital growth predominantly through investments in securities in the Asia Pacific region. It is not registered as a corporation or a partnership in the Philippines per certification of non-registration issued by the Securities and Exchange Commission on March 22, 2013. On the other hand, Philippine Long Distance Telephone Company (PLDT) is a domestic corporation duly organized and existing under the laws of the Philippines with principal address in Ramon Cojuangco Building, Makati Avenue, Makati City 1200. It is represented that NAIF is the registered owner of Two Million Six Hundred Thousand (2,600,000) common shares as of March 19, 2013 and is the legal and beneficial owner of 1.203393% of the issued and outstanding shares in PLDT; and that on March 5, 2013 the board of directors of PLDT declared the following cash dividends out of the company's audited unrestricted retained earnings as of December 31, 2012: a. Final regular dividend of P60.00 per outstanding share of the Company's Common Stock, payable on April 18, 2013 to the holders of record on March 19, 2013; b. Special dividend of P52.00 per outstanding share of the Company's Common Stock, payable on April 18, 2013 to the holders of record on March 19, 2013. It is also represented that on April 18, 2013 the net cash dividends amounting to P218,400,000.00 were credited to the account of Bank of New York Mellon under account name Mellon ABN 25PCT TREATY OMNIBUS, the beneficial owner of which is NAIF, as shown in the notarized certification issued by the Hongkong and Shanghai Banking Corporation Limited (HSBC) dated April 23, 2013. HIAEaC It is further represented, per sworn certification issued by the Assistant Vice-President of the Tax Planning Center of PLDT on April 18, 2013 that the issue subject of the above request is not under any investigation or on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal. 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 NAIF 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 Non-resident 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: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." TCaEIc 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." For this purpose, you invoke the Philippines-UK tax treaty. Paragraph 1, Article 9 thereof provides: "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; DIEcHa b) in all other cases 25% of the gross amount of the dividends. xxx xxx xxx" Under paragraph 1 above, dividends arising in the Philippines and paid to a resident of the United Kingdom may be taxed in the Philippines at a rate not to exceed (a) 15 percent if the recipient of the dividends is a company which controls directly or indirectly at least ten percent (10%) of the capital of the company paying the dividends; and (b) twenty-five percent (25%) in all other cases. Accordingly, considering that NAIF only holds 2,600,000 common shares, constituting 1.203393% of the stocks of PLDT, which is not more than ten percent (10%) of its capital, the dividends paid by PLDT to NAIF are subject to income tax at the rate of twenty-five percent (25%) of the gross amount thereof, pursuant to Article 9 (1) (b) of the Philippine-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 Footnotes 1. Prospectus of BNY Investment Fund, no. 1.7, page 14, September 13, 2012.