ITAD BIR Ruling No. 295-15

November 24, 2015 ITAD BIR RULING NO. 295-15 Article 10, Philippines-Switzerland tax treaty Navarro Amper & Co. 19th Floor Net Lima Plaza 5th Avenue corner 26th Street Bonifacio Global City, Taguig 1634 Attention: Richard R. Lapres Partner Tax and Corporate Gentlemen : This refers to your tax treaty relief application filed on December 5, 2014, on behalf of UBS AG ("UBS-Swiss") , requesting confirmation that dividends paid by UBS Securities Philippines, Inc. ("UBS-Phil") to UBS-Swiss are subject to final withholding tax at the rate of 10 percent, pursuant to Article 10 of the Convention between the Republic of the Philippines and the Swiss Federation for the Avoidance of Double Taxation with Respect to Taxes on Income ("Philippines-Switzerland tax treaty") . It is represented that UBS-Swiss is a resident corporation in Switzerland within the meaning of the Philippines-Switzerland based on the Certificate of Residence issued by the Chancery of State of the Canton of Zurich, Switzerland dated October 22, 2014; that it was licensed to engage in business in the Philippines per Securities and Exchange Commission under the name and style ("UBS AG-Representative Office") ; that per Sworn Certification issued by UBS AG-Representative Office dated June 9, 2015, the cash dividends to be paid by UBS-Phil to UBS-Swiss is not in any way connected to UBS AG-Representative Office , and that UBS AG-Representative Office is not a material factor in the realization of dividends paid by UBS-Phil to UBS-Swiss , and that the shares of UBS-Swiss on which the dividends paid are not in used in, nor held for use in, the conduct of trade or business of UBS AG-Representative Office ; and that, on the other hand, UBS-Phil is a corporation organized and existing under the laws of the Philippines. It is further represented that during the Organizational Meeting of the Board of Directors of UBS-Phil held on May 29, 2014, the Board of Directors of UBS-Phil declared cash dividends for the year 2014 in the amount of PHP700,000,000 from its unrestricted retained earnings as shown in UBS-Phil 's audited financial statements for the period ended December 31, 2013, to all stockholders of record as of May 29, 2014 payable on or before December 31, 2014; that as of May 29, 2014, UBS-Swiss held 1,899,995 common shares which represents 99.99 percent of the total outstanding capital stock of UBS-Phil ; and that, the said shares was acquired by UBS-Swiss through various dates of subscription since April 28, 2006. 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 . 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%)." 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" Thus, Article 10 of the Philippines-Switzerland tax treaty, which you invoke, may apply to the instant case. It provides: "Article 10 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 also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws 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 partnerships) which holds directly at least 10 per cent of the capital of the paying company; b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 3. 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 other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of that State of which the company making the distribution is a resident. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner 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 independent personal 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 case, the provisions of Article 7 (Business Profits) or Article 14 (Independent Personal Services), as the case may be, shall apply. xxx xxx xxx" Based on the aforequoted provisions of Article 10, dividends paid by a Philippine corporation to a resident of Switzerland may be taxed at a rate not exceeding 10 percent of the gross amount of dividends if the recipient is a company which holds directly at least 10 percent of the capital of the Philippine corporation; and 15 percent if the shareholdings of the recipient company is below 10 percent of the capital of the paying company. In view thereof, considering that UBS-Swiss is a resident corporation in Switzerland with no fixed place of business in the Philippines, and directly owns 99.99 percent of the total outstanding capital stock of UBS-Phil, this Office is of the opinion and so holds that the dividends paid by UBS-Phil to UBS-Swiss are subject to 10 percent preferential tax rate pursuant to Article 10 (2) (a) of the Philippines-Switzerland 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue