ITAD BIR Ruling No. 268-11

November 10, 2011 ITAD BIR RULING NO. 268-11 Article 9, Philippines-United Kingdom of Great Britain and Northern Ireland tax treaty SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Veronica A. Santos Tax Services Gentlemen : This refers to your letter dated August 27, 2010, requesting confirmation that dividends paid by GLOBE TELECOM, INC. ("GLOBE") to GOLDMAN SACHS INTERNATIONAL ("Goldman Sachs") (formerly, Trushelfco [No. 1266] Ltd.) are subject to income tax at the reduced rate of 25 percent pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-United Kingdom tax treaty") . It is represented that Goldman Sachs is a private unlimited company duly incorporated in the United Kingdom, based on its Certificate of Incorporation, as amended, and on the Certificate by Her Majesty's Revenue and Customs on January 1, 2010; that Goldman Sachs is situated at Peterborough Court, 133 Fleet Street, London EC4A 2BB, England, United Kingdom; that Goldman Sachs is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Philippine Securities and Exchange Commission on August 13, 2010; and that, on the other hand, GLOBE is a domestic corporation situated at 5th Floor, Globe Telecom Plaza, Pioneer corner Madison Streets, Mandaluyong City, Philippines. It is further represented that on August 3, 2010, the Board of Directors of GLOBE, at its meeting, declared cash dividends of Php40.00 per common share to all stockholders of record of GLOBE as of August 17, 2010, and payable on September 13, 2010, based on the Secretary's Certificate issued by Assistant Corporate Secretary of GLOBE on August 6, 2010; that Goldman Sachs holds 71,176 shares of stock of GLOBE representing 0.05378150 percent of the capital stock of GLOBE, based on the Certification issued by Standard Chartered Bank 1 on August 24, 2010. DIETcH 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, collection proceedings, or judicial appeal, based on the Affidavit issued by the Authorized Representative of Goldman Sachs on August 27, 2010. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, provides that dividends paid to Goldman Sachs , being a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "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 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): 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 Code provides that such dividends may be exempt from tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "Section 32. Gross Income . HAIDcE 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" Thus, you invoke the Philippines-United Kingdom 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; b) in all other cases 25% of the gross amount of the dividends. xxx xxx xxx" Based on the foregoing, dividends arising in the Philippines and paid to a resident of the United Kingdom may be taxed in the Philippines at a reduced rate of: (a) 15 percent of the gross amount of dividends if the company recipient of the dividends controls directly or indirectly 10 percent of the voting power of the company paying the dividends; and (b) 25 percent of the gross amount of the dividends in all other cases. cTDaEH In view thereof, and considering that Goldman Sachs does not control directly or indirectly at least 10 percent of the common voting shares of stock of GLOBE (in fact, it merely controls 0.05378150 percent of the outstanding capital stock of GLOBE), this Office is of the opinion and so holds that dividends paid by GLOBE to Goldman Sachs are subject to income tax at the preferential rate of 25 percent of the gross amount thereof, pursuant to paragraph l (b), Article 9 of the Philippines-United Kingdom 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. cASTED Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Situated at Standard Chartered Bank Building, 6788 Ayala Avenue, Makati City, Philippines.