ITAD BIR Ruling No. 293-12

July 23, 2012 ITAD BIR RULING NO. 293-12 Salvador & Associates Attorneys-At-Law 815-816 Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue 1226 Makati City Attention: Mary Rose V. Pascual Rosa Margarita A. De Guzman Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on February 27, 2012, on behalf of DBP-Daiwa Capital Markets Philippines, Inc. ("Daiwa-Phil'') , requesting confirmation that dividends paid to Daiwa Capital Markets Asia Holding B.V. ("Daiwa-Netherlands") by Daiwa-Phil are subject to 10 percent preferential tax rate pursuant to Article 10 of the Convention between the Republic of the Philippines and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . It is represented that Daiwa-Netherlands, with principal address at Teleport Boulevard 136-142, 1043 EJ Amsterdam, The Netherlands, is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty per Declaration of Residence issued on June 14, 2011 by the Tax and Customs Administration of the Netherlands; that it is a corporation organized and existing under the laws of the Netherlands with authorized capital of one billion eight hundred million euros (EUR1,800,000,000.00) divided into One billion eight hundred million (1,800,000,000) shares with a par value of one euro (EUR1) each; that it is not registered either as a corporation or as a partnership in the Philippines per certification issued by the Securities and Exchange Commission dated July 4, 2011; and that, on the other hand, Daiwa-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 18/F Citibank Tower, 8741 Paseo de Roxas, Makati City 1226. It is further represented that at the special meeting of the Board of Directors of Daiwa-Phil held on May 26, 2011, the Board declared to pay 40% of the Net Income After Tax as dividends to the common and preferred shareholders; that Daiwa-Netherlands is one of the shareholders which will receive dividend amounting to P14,320,000.00 for its Common shares, and P11,933,333.33 for its Preferred shares; that as of May 26, 2011, Daiwa-Netherlands owns 73.33% of the outstanding capital stock of Daiwa-Phil, consisting of 40% common and 33.33% preferred shares; and that, per the proof of bank remittance issued by Citibank, were remitted to Daiwa-Netherlands on September 19, 2011. Relative thereto, please be informed that Section 14 of Revenue Memorandum Order ("RMO") No. 72-2010, published in the Manila Bulletin on October 20, 2010, and effective November 4, 2010, provides, as follows: " Section 14. When and Where to File the TTRA . All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms of any necessary documents are submitted to any other BIR Office, the application shall be considered as improperly filed. cCTESa Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO . " (Emphasis supplied) In view thereof, since the TTRA was filed only on February 27, 2012, after the date of the payment of dividend on September 19, 2011, this Office hereby DENIES relief on said dividends paid before the filing of the TTRA on February 27, 2012, in violation of the requirement under RMO 72-2010 that filing of the TTRA should be made BEFORE the transaction, that is the payment of dividend. Accordingly, said dividends shall be subject to tax at the rate provided for in Section 28 of the National Internal Revenue Code ("Tax Code") of 1997, as amended. "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 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%). . . . (Emphasis ours) Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue