ITAD BIR Ruling No. 288-15

October 28, 2015 ITAD BIR RULING NO. 288-15 Article 9 of the Philippines-United Kingdom tax treaty SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Antonette C. Tionko Principal, Tax Services Gentlemen : This refers to your tax treaty relief application filed on September 9, 2013, requesting confirmation that the dividends paid by Philippine Long Distance Telephone Company (" PLDT ") to Newton Asian Income Fund ("NAIF") are subject to the preferential tax rate of 25 percent of the gross amount of the dividends pursuant to Article 9 (1) (b) of 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") . CAIHTE It is represented that NAIF is a resident corporation in the United Kingdom based on Certificate of Residence issued by the HM Inspector of Taxes, HM Revenue & Customs dated January 1, 2013; that it is not registered as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated March 27, 2013; and that, on the other hand, PLDT is a corporation organized and existing under the laws of the Philippines. It is further represented that at the meeting of the Board of Directors of PLDT held on August 7, 2013, the Board of Directors of PLDT declared out of its unaudited unrestricted retained earnings as of June 30, 2013, a regular dividend of P63.00 per outstanding share of PLDT's Common Stock, payable on September 27, 2013; that based on the Corporate Secretary's Certificate issued by PLDT dated September 25, 2013, HSBC Securities Services, Custodian of various non-resident foreign shareholders of PLDT, dated September 16, 2013, NAIF is the beneficial holder of PLDT's 3,000,000 common shares with a total par value of Php8,634,000,000.00 which represents 1.388530 percent ownership in PLDT. It is finally represented, per the Sworn Statement issued by PLDT dated September 25, 2013, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, or judicial appeal. 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, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporations . (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 interest, 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%)." However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: DETACa "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." Thus, the provisions of Article 9 (1) (a) of the Philippines-United Kingdom tax treaty, which you invoke, may apply to the instant case. It 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. aDSIHc xxx xxx xxx 4. The term 'dividends' as used in this Article means income from shares, or other rights, not being debt-claims, participating in profits, as well as income from corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. 5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on a trade or 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 13, as the case may be, shall apply. xxx xxx xxx" Based on the foregoing, dividend payments to a company which is a resident of the United Kingdom and which does not have a permanent establishment in the Philippines shall be taxed at a preferential rate not exceeding fifteen percent (15%) of the gross amount of dividends if the said recipient is a company which owns at least 10 percent of the voting power in the company paying the dividends; and at a rate not exceeding twenty five percent (25%) of the gross amount of the dividends in all other cases. Such being the case and since NAIF is a company resident of the United Kingdom with no fixed place of business in the Philippines, and which holds 1.388530 percent ownership in PLDT, then the dividends paid by PLDT to NAIF are subject to the preferential tax rate of 25 percent, based on the gross amount thereof, pursuant to the Philippines-United Kingdom tax treaty. This ruling is issued on the basis of the foregoing 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. ETHIDa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue