ITAD BIR Ruling No. 265-13

September 16, 2013 ITAD BIR RULING NO. 265-13 Article 10 (Dividends), Philippines-Netherlands tax treaty CLSA Exchange Capital, Inc. 3F Corporate Business Centre, 151 Paseo de Roxas, Makati City 1229 Attention: Rufia Dorothy C. Vera Authorized Representative Gentlemen : This refers to your application for tax treaty relief dated 23 May 2013 requesting confirmation that dividends paid by CLSA Exchange Capital, Inc. ("CLSA-Philippines") to CLSA B.V. ("CLSA-Netherlands") are subject to final withholding tax at the preferential rate of ten percent (10%) 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") . STcAIa It is represented that CLSA-Netherlands is a non-resident foreign corporation organized and existing under the laws of the Netherlands with principal address at Strawinskylaan 729, Toren B-07, 1077 XX Amsterdam, Netherlands based on a notarized and consularized Declaration of Residence issued by the Ministerie Van Financien of the Netherlands and is engaged in the business of financing and administering companies based on the notarized and consularized Articles of Association of CLSA-Netherlands .The company CLSA-Netherlands is not registered as a corporation or as a partnership based on a Certification of Non-Registration of Company issued by the Securities and Exchange Commission on 16 May 2013. On the other hand, CLSA-Philippines is a domestic corporation with principal address at 3F Corporate Business Centre, 151 Paseo de Roxas, Makati City 1229. It is represented that as of 19 April 2013, CLSA-Netherlands is a registered shareholder of CLSA-Philippines with a subscription of Eight Hundred Ninety Eight Thousand Four Hundred Ninety Eight (898,498) common shares valued at One Hundred Pesos (Php100.00) per share with a total value of Eighty Nine Million Eight Hundred Forty Nine Thousand Eight Hundred Pesos (Php89,849,800.00);One Hundred Forty Eight Thousand Five Hundred Fifty One (148,551) shares were acquired by purchase from Exchange Equity Corporation on 14 December 2001; Seven Hundred Forty Nine Thousand Nine Hundred Forty One (749,941) shares were acquired by purchase from Exchange Equity Corporation on 18 December 2001; and that CLSA-Netherlands owns 60% of the total subscribed capital stock of CLSA-Philippines based on a notarized Secretary's Certificate executed by the Assistant Corporate Secretary of CLSA-Philippines . It is represented that on 19 April 2013, CLSA-Philippines declared cash dividends in the amount of Forty Four Million Nine Hundred Sixteen Thousand Nine Hundred Seventy Eight Pesos (Php44,916,978.00) to stockholders of record as of 31 March 2013 based on a notarized Secretary's Certificate executed by the Assistant Corporate Secretary of CLSA-Philippines . TSIaAc It is further represented that on 29 May 2013, CLSA-Philippines remitted cash dividends in the amount of Five Hundred Ninety Four Thousand Four Hundred Eighty Nine US Dollars and Forty One Cents (US$594,489.41) via international telegraphic transfer based on the notarized Certification of Outward Remittance issued by the Makati Branch of Security Bank Corporation. It is finally represented 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, judicial or administrative protest, collection proceedings or judicial appeal based on a notarized Sworn Statement executed by the Ms. Rufia Dorothy C. Vera, Director for Investment, Banking, Finance and Operations of CLSA-Philippines . In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("NIRC of 1997") ,as amended, dividends paid to CLSA-Netherlands 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 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 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%)." ECTHIA 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. Article 10 on Dividends 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. EScaIT 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." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of the Netherlands may be taxed in the Philippines at a rate (a) of 10% of the gross amount of the dividends if the recipient is a company the capital of which is wholly or partly holds directly at least 10% of the capital of the company paying the dividends; and (b) 15% of the gross amount of the dividends in all other cases. Considering that CLSA-Netherlands is a company which owns 60 percent of the shares of CLSA-Philippines ,the dividends paid by CLSA-Philippines to CLSA-Netherlands are subject to the preferential tax rate of 10 percent of the gross amount thereof pursuant to Article 10 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. DaTICc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue