ITAD BIR Ruling No. 298-13

October 29, 2013 ITAD BIR RULING NO. 298-13 Article 11, Philippines-USA tax treaty SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Antonette C. Tionko Gentlemen : This refers to your applications for tax treaty relief filed on February 27, 2013, requesting confirmation that the dividends paid by Globe Telecom Incorporated ("Globe") to Wisdom Tree Global Equity Income Fund ("Wisdom Tree") shall be subject to the preferential rate of 25 percent 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-USA tax treaty") . It is represented that Wisdom Tree is a foreign corporation and a resident of the United States of America (USA) based on the Certificate of Residence issued by the tax authority of USA with principal address at 380 Madison Avenue, 21st Floor, New York, New York, USA; that Wisdom Tree is not registered as a corporation or a partnership in the Philippines based on the Certificate issued by the Philippine Securities and Exchange Commission on March 10, 2011; and that on the other hand, Globe is a domestic corporation with principal address at the 5th Floor, Globe Telecom Plaza, Pioneer corner Madison Streets, Mandaluyong City. It is further represented that the Board of Directors of Globe ,during its meeting on February 5, 2013, declared cash dividends of PhP33.50 per common share to all shareholders of record as of February 19, 2013 based on the Certificate issued by the Corporate Secretary of Globe on February 25, 2013; that as of February 19, 2013, the Wisdom Tree holds 5,570 shares in Globe out of 132,412,772 total shares of Globe or 0.004207 percent based on the Certification issued by the Hongkong and Shanghai Banking Corporation Limited (HSBC) on March 22, 2013; that the dividends were remitted by Globe to Wisdom Tree on March 12, 2013 based on the same Certification by HSBC. cSDIHT It is finally represented that the dividends subject of the application for tax treaty relief are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Sworn Statement issued by the representative of Wisdom Tree on March 1, 2013. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") ,as amended, provides that dividends derived by non-resident foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "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 same Code provides that such dividends may be exempt or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: aAIcEH "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. DcCEHI xxx xxx xxx" With respect to a treaty, Article 11 of the Philippines-USA tax treaty provides as follows, viz. : "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. 3. Dividends paid by a corporation of one of the Contracting States to a person other than a citizen or resident of the other Contracting State may be taxed by the other Contracting State, but only if TECIHD a) Such dividends are treated as income from sources within that other Contracting State and, in the case of the Philippines, the additional tax described in paragraph 6 has not been paid with respect to the earnings distributed, or b) The recipient of the dividends has a permanent establishment or fixed base in the other Contracting State and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. 4. Paragraph 2 shall not apply if the recipient of dividends derived from 15 (Independent Personal Services),as the case may be, shall apply. 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 above-cited provisions, a preferential tax rate of 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. DHACES This being the case, and since the Wisdom Tree is a resident of USA and holds 0.004207 percent of the total outstanding shares of Globe or less than 10 percent, this Office is of the opinion and so holds that such dividend payment by Globe to the Wisdom Tree is subject to the preferential tax rate of 25 percent, based on the gross amount of dividends, pursuant to Article 11 (2) (a) of the Philippines-USA tax treaty. 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 concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue