ITAD BIR Ruling No. 263-11

November 11, 2011 ITAD BIR RULING NO. 263-11 Article 11, Philippines-US tax treaty Rohm and Haas Philippines, Inc. Aguilar Avenue, CAA Road, Las Pias City Attention: Rebecca R. Pales Attorney-in-Fact Gentlemen : This refers to your tax treaty relief application filed on December 29, 2010, requesting confirmation that the dividends paid by ROHM AND HAAS PHILIPPINES, INC. ("Rohm-Phil") to ROHM AND HAAS COMPANY ("Rohm-US") are subject to the preferential tax rate of 20 percent, pursuant to the provisions of Article 11 (2) (b) of the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income ("Philippines-US tax treaty") . It is represented that Rohm-US, with principal office at 100 Independence Mall West, Philadelphia, Pennsylvania, US, is a corporation duly organized and existing under the laws of the State of Delaware, US, and is a resident of the US for purposes of the US taxation per certification of the Internal Revenue Service dated August 23, 2010; that Rohm-US was granted a license to transact business in the Philippines in 1996 but that said license was revoked by the Securities and Exchange Commission (SEC) on January 26, 2011 for non-compliance with reportorial requirements as certified by the SEC on February 15, 2011; and that Rohm-Phil, on the other hand, is a corporation duly organized and existing under the laws of the Philippines, with principal office address at CAA Road, Aguilar Avenue, Pamplona, Las Pias City. It is also represented that at a special meeting held on August 24, 2010, the Board of Directors of Rohm-Phil passed a resolution to declare cash dividends in the total amount of Twenty-nine Million Eight Hundred Seventy-nine Thousand Two Hundred Thirty-one Philippine Pesos (PHP29,879,231.00), to be distributed to stockholders of record of Rohm-Phil no later than December 31, 2010 pro-rata to their respective shareholdings, based on the number of shares held by them as of December 31, 2009, per the Secretary's Certificate issued by Rohm-Phil dated December 17, 2010. SATDHE It is further represented that as of the date of the aforementioned declaration Rohm-US was and continues to be a stockholder of record of (a) Fifty-Two Million Three Hundred Three Thousand Five Hundred Eighty-one (52,303,581) common, voting shares of Rohm-Phil with a par value of PhP1.00 per share, for a total par value of PHP52,303,581.00, and (b) One Hundred Ten Million One Hundred Eighty-four Thousand Four Hundred Ninety-eight (110,184,498) preferred, non-voting shares with a par value of PhP1.00 per share, for a total par value of PhP110,184,498.00, which common shares and preferred shares represent 99.99% of Rohm-Phil's total outstanding capital stock; that the said common voting shares were acquired by Rohm-US on various dates from April 10, 1975 to March 5, 2010, and the preferred shares were acquired by Rohm-Phil on November 2, 1992 and March 5, 2010. It is finally represented that the transaction subject of the above request for ruling is not under investigation, or subject of an on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. 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 dividends 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 . . ., dividends, . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: HcSETI "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. xxx xxx xxx" In accordance with the foregoing, Article 11 of the Philippines-US tax treaty which you invoke may apply to the instant case. It provides: TSacID "Article 11 DIVIDENDS 1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. 2. The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed: a. 25 percent of the gross amount of the dividend; or b. When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. xxx xxx xxx 5. The term 'dividends' as used in this Convention means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the corporation making the distribution is a resident. xxx xxx xxx" Based on the above provisions, the Philippines may tax the dividends paid by a Philippine company to a US resident company at a rate not exceeding 20 percent if during the part of the Rohm-Phil's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the Rohm-Phil was owned by Rohm-US. In all other cases, the 25 percent preferential tax rate shall apply. In view of the foregoing, since Rohm-US owns more than 10 percent of the outstanding shares of the voting stock of Rohm-Phil, the paying corporation, during the part of the latter's taxable year which precedes the date of payment and during the whole of its prior taxable year, this Office is of the opinion and so holds that the cash dividends to be remitted by Rohm-Phil to Rohm-US are subject to the preferential rate of 20 percent withholding tax pursuant to Article 11 (2) (b) of the Philippines-US tax treaty. IDcTEA 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