ITAD BIR Ruling No. 282-14

October 10, 2014 ITAD BIR RULING NO. 282-14 Article 10, Philippines-France Tax Treaty, as amended Tam-Yap Caga & Associates Attorneys-at-Law Unit B, 15th Floor, ACT Tower H.V. Dela Costa Street Salcedo Village, Makati City Attention: Atty. Teresa R. Tam-Yap Gentlemen : This refers to your application for tax treaty relief filed on March 12, 2013, on behalf of EGIS ROAD OPERATION S.A. ("Egis"), requesting confirmation that the dividend paid by TOLLWAYS MANAGEMENT CORPORATION ("TMC") to Egis is subject to 10 percent preferential tax rate pursuant to the amended Convention between the Government of the Republic of the Philippines and the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-France tax treaty, as amended"). It is represented that Egis, with office address at 11 Avenue Du Centre, 78 286 Guyancourt, Cedex, France, is corporation duly organized and existing under the laws of France and is a resident of France per the duly authenticated copy of Certificate of Residence issued by the Ministere Du Budget Des Comptes Publics Et De La Fonction Publique on January 3, 2013; that Egis is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated March 5, 2013; that, on the other hand, TMC is a domestic corporation duly organized and existing under the laws of the Philippines, with principal office at Km. 12 North Luzon Expressway, Balintawak, Quezon City. It is further represented that during the meeting of the Board of Directors of TMC on February 20, 2013, a resolution was passed and approved declaring cash dividends in the aggregate amount of Two Hundred Fifty-Six Million Eighty Thousand Four Hundred Thirty-Six Pesos (PhP256,080,436.00) payable to the stockholders of record as of February 20, 2013 based on their respective shareholdings as of said date; that as of February 20, 2013, Egis is the legal and beneficial owner of 129,100 or 34% of the total number of shares of TMC, with details as follows: Date of No. of Total Par Value Mode of Acquisition Shares of Shares Acquisition August 2, 2000 340 Php34,000 Subscription August 30, 2006 128,860 Php12,860,000 and that the said dividend was paid to EGIS on April 19, 2013 through telegraphic transfer effected by BDO Unibank, Inc. as evidenced by an Affidavit of Guarantee dated May 24, 2013 issued by the Chief Financial Officer of TMC. EDCTIa Finally, it is represented that the transaction subject of the herein request for ruling is not under investigation, on going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayers involved per the Sworn Statement issued by TMC dated February 28, 2013. "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, rents, royalties . . .: 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: "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. DITEAc xxx xxx xxx" Thus, Article 10 of the Philippines-France tax treaty, as amended, which you invoke may apply to the instant case. It provides: "Article 10 Dividends 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law 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 beneficial owner is a company (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; b. in all other cases 15 per cent of the gross amount of the dividends. 3. The term 'dividends' as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of the State of which the company making the distribution is a resident. 4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or Article 14, as the case may be, shall apply. SDAaTC xxx xxx xxx" Based on the foregoing, the Philippines may tax the dividends paid by a Philippine company to a resident of France at a rate not exceeding 10 percent if the beneficial owner/recipient of the dividends owns at least 10 percent of the voting shares of the paying company. In view thereof, considering that Egis is a resident of France with no fixed base of business in the Philippines and as of February 20, 2013, Egis holds 129,200 shares in TMC representing 34% of the total number of shares of TMC, which is more than the required shareholding of 10 percent, the dividend paid by TMC to Egis is subject to a preferential tax rate of 10 percent of the gross amount of the dividend, pursuant to the Philippines-France tax treaty, as amended. 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 Bureau of Internal Revenue