ITAD BIR Ruling No. 263-13

September 12, 2013 ITAD BIR RULING NO. 263-13 Article 10 (Dividends), Philippines-Netherlands tax treaty Salvador & Perez Attorneys-at-Law 815-816 Exchange Plaza Ayala Triangle Ayala Avenue 1226 Makati City Attention: Atty. Gerardo V. Francisco Authorized Representative Gentlemen : This refers to your tax treaty application ("TTRA") filed on May 29, 2013, requesting confirmation that dividend paid by Lowe, Inc. ("Lowe-RP") to Lowe Worldwide Holdings, B.V. ("Lowe-NL") is subject to income tax at the rate of 10% pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the Kingdom of the Netherlands with respect to Taxes on Income ("Philippines-Netherlands" tax treaty) . EaCSHI Lowe-NL is a non-resident foreign corporation organized and existing under the laws of the Netherlands, the capital of which is divided into shares as evidenced by Article 4 on Capital and Shares of its Articles of Incorporation. It is a resident of the Netherlands within the meaning of Article 4 of the Convention for the avoidance of double taxation between the Philippines and the Netherlands, with principal address at Amstelveenseweg 404, 1076CT Amsterdam. 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 April 30, 2013. On the other hand, Lowe-RP, is a domestic corporation duly organized and existing under the laws of the Philippines with principal address at 15th-16th Floors, Rufino Pacific Tower, Ayala Avenue, Makati City. It is represented that Lowe-NL is the registered owner of Five Hundred Twenty Five Thousand (525,000) common shares of Lowe-RP as of March 23, 2012 constituting 30% of the issued and outstanding shares of Lowe-RP; that on April 10, 2013 and May 14, 2013, the board of directors of Lowe-RP has declared cash dividends in the amount of Php26,000,000.00 and Php6,000,000.00 to all stockholders of record as of April 10, 2013 and May 14, 2013 respectively, in proportion to their respective shareholdings and payable in three equal installments; and that on June 21, 2013 Citibank N.A. Manila has effected an outward remittance to Bank Mendes Gans N.V. via Citibank of New York under telegraphic transfer Reference No. 3553172691 the amount of Thirty Eight Thousand Seven Hundred Ninety Nine Euro and 07/100 (EUR38,799.07) or Fifty Two Thousand Five Hundred Eighty Two & 05/100 (US$52,582.05) inclusive of charges. This has been debited from the account of Lowe, Inc. under USD Current Account No. 0/600265/016 at the exchange rate of 1.35408/USD1.00 per certification issued by Citibank N.A. Manila on July 2, 2013. ISADET It is further represented, per sworn certification dated April 15, 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 Lowe-NL 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%)." CcAITa 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-Netherlands tax treaty. Paragraphs 1 & 2 of Article 10 thereof provide: "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; EaSCAH b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx" Under paragraph 2 above, dividends arising in the Philippines and paid to a resident of Netherlands may be taxed in the Philippines at a rate not to exceed (a) 10 percent if the recipient of the dividends is a company the capital of which is wholly or partly divided into shares and which owns directly at least ten percent (10%) of the capital of the company paying the dividends; and (b) 15 percent in all other cases. Accordingly, considering that Lowe-NL , a registered company in the Netherlands with capital divided into shares, holds 525,000 common shares , constituting 30% of the stocks of Lowe-RP which is more than 10% of the issued and outstanding stocks of the latter, the dividend paid by Lowe-RP to Lowe-NL is subject to income tax at the rate of ten percent (10%) of the gross amount of dividend, pursuant to Article 10 (2) (a) of the Philippines-Netherlands 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