ITAD BIR Ruling No. 290-14

October 10, 2014 ITAD BIR RULING NO. 290-14 Article 11, Philippines-US Tax Treaty SGV & Co. 6760 Ayala Avenue Makati City Attention: Ms. Antonette C. Tionko Principal, Tax Services Gentlemen : This refers to your tax treaty relief application filed on March 26, 2013, on behalf of WisdomTree Emerging Markets Equity Income Fund ("WEMEI") requesting confirmation that the dividends paid by the Philippine Long Distance Telephone Company ("PLDT") to WEMEI are subject to 25 percent preferential tax rate pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income ("Philippines-US tax treaty"). It is represented that WEMEI, with office address at 380 Madison Avenue, 21st Floor, New York, New York, United States of America (US), is a resident of the US for purposes of US taxation based on the Certificate of Residency issued by the Internal Revenue Service dated February 19, 2013; that WEMEI is not registered as corporation or as partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on March 10, 2011; and that, on the other hand, PLDT is a domestic corporation duly organized and existing under Philippine laws with office located at the Ramon Cojuangco Building, Makati Avenue, Metro Manila. It is also represented, as certified by the HSBC Securities Service, that as of March 19, 2013, WEMEI is the holder and beneficial owner of 605,260 common shares valued at Php1,640,254,600.00 constituting 0.280141% shares in PLDT; that these shares were acquired by purchase on various dates by WEMEI; that at a meeting held on March 25, 2013, the Board of Directors of PLDT has approved the declaration of the following cash dividends out of the PLDT's audited unrestricted retained earnings as of December 31, 2012: a) Regular dividend of P60.00 per outstanding share of PLDT's common stock as of record of March 19, 2013; and b) Special dividend of P52.00 per outstanding shares as of PLDT's common stock as of record of March 19, 2013. that the said dividends were credited to the account of WEMEI on April 18, 2013 as evidenced by a Certification issued by The Hongkong and Shanghai Banking Corporation Limited on June 20, 2013. DTcHaA It is finally represented, based on the Sworn Statement by PLDT on April 25, 2013, that the transaction subject of the 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 judicial appeal of the taxpayer/s involved. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (Tax Code), 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. 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 that any income may be exempt or partially exempt from income tax to the extent required by any treaty obligation binding upon the Philippine Government, thus: "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. ATcEDS xxx xxx xxx" With respect to a treaty, what you invoke for this purpose is Article 11 of the Philippines-US tax treaty. It provides: "Article 11 Dividends 1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. 2. The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed (a) 25 percent of the gross amount of the dividend; or (b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. xxx xxx xxx 5. The term 'dividends' as used in this Convention means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the corporation making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provision, dividends arising in the Philippines and paid to a resident of the US may be subject to income tax in the Philippines, but the rate of tax that may be imposed thereon shall not exceed: (a) 25 percent of the gross amount of dividends; and (b) 20 percent if the corporation holds directly at least 10 percent of the outstanding shares of the voting stock of capital of the company paying the dividends. EaCSHI In view of the foregoing, since the shareholdings of WEMEI is less than 10 percent of the outstanding shares of PLDT which constitutes 0.280141%, this Office is of the opinion and so holds that the cash dividends received by WEMEI from PLDT are subject to the preferential tax rate of 25 percent of the gross amount of the dividends pursuant to Article 11 (2) (a) of the Philippines-US tax treaty. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the 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