ITAD BIR Ruling No. 285-14

October 10, 2014 ITAD BIR RULING NO. 285-14 Article 10, Philippines-France tax treaty Cochingyan & Peralta Law Offices 12th Floor, 139 Corporate Center 139 Valero Street Salcedo Village, Makati City Attention: Jose Cochingyan III Managing Partner Gentlemen : This refers to your tax treaty relief application dated December 27, 2013 on behalf of MERIAL S.A.S. ("Merial S.A.S."), requesting confirmation that the dividends paid by MERIAL PHILIPPINES, INC. ("Merial Phils") to Merial S.A.S. is subject to the preferential tax rate of ten percent (10%) pursuant to the 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 by a Protocol. 1 Facts It is represented that Merial S.A.S. is a foreign corporation organized and existing under the laws of France with principal office address at 13bis, Avenue Albert Einstein, 69623 Villeurbanne Cedex, France with Tax Identification Number: 590 800 215 as evidenced by the Attestation De Residence Fiscale dated November 27, 2013; that Merial S.A.S. is not registered as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration issued by the Securities and Exchange Commission on November 5, 2013; and that, on the other hand Merial Phils is a corporation duly organized and existing under the laws of the Republic of the Philippines, with office address at 5/F Feliza Building 108 V.A. Rufino Street, Legaspi Village, Makati City. It is further represented that on October 16, 2013, the Board of Directors of Merial Phils authorized the payment of cash dividends from the surplus retained earnings accumulated as of fiscal year ending December 31, 2012, amounting to Twelve Million Five Hundred Thousand Pesos (Php12,500,000.00) to its stockholders of record as of December 27, 2013; that since August 18, 1997 until October 16, 2013 Merial S.A.S. is the principal stockholder of Merial Phils holding Nine Hundred Forty Nine Thousand Nine Hundred Eight Five (949,985) * shares, out of the Nine Hundred Fifty Thousand (950,000) total issued and outstanding common shares of stock of Merial Phils with a par value of P100 per share representing 99.99% of the outstanding shares of stock of Merial Phils. as evidenced by the Corporate Secretary's Certificate dated December 26, 2013; and that the subject transaction 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. Ruling 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. It provides: SHTEaA "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: "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 relation thereto, Article 10 of the Philippines-France tax treaty, as amended, provides: TDCAIS "Article 10 Dividends 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other State may be taxed in that other State. 2. However, such dividends may also 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 recipient 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." Under Article 10, dividends arising in the Philippines and paid to a resident of France may be taxed in the Philippines at a rate not to exceed 10 percent if the recipient is a company (excluding partnership) which holds directly at least 10 percent of the voting shares of the company paying the dividends and 15 percent in all other cases. Accordingly, since Merial S.A.S. is a resident of France which holds 99.99% of the outstanding and voting shares of Merial Phils as of December 27, 2013, the dividends paid by Merial Phils to Merial S.A.S. are subject to income tax rate of 10 percent, pursuant to paragraph 2 (a), Article 10 of 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 connected. aCIHAD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Footnotes 1. Protocol to the Tax Convention between the Government of the Republic of the Philippines and the Government of the French Republic Signed on January 9, 1976.