ITAD BIR Ruling No. 309-11

December 2, 2011 ITAD BIR RULING NO. 309-11 Article 10, Philippines-France tax treaty, as amended; BIR Ruling No. ITAD 34-10; BIR Ruling No. ITAD 17-10; BIR Ruling No. DA-ITAD 57-10; BIR Ruling No. DA-ITAD 15-10; BIR Ruling No. DA-ITAD 196-03 Philippine Axa Life Insurance Corporation Ground Floor, Philippine AXA Life Centre Sen. Gil Puyat Avenue corner Tindalo St., Makati City Attention: Jean A. Israel Financial Controller Gentlemen : This refers to your Tax Treaty Relief Application filed on June 16, 2011, on behalf of AXA SA, requesting confirmation that the dividends paid by PHILIPPINE AXA LIFE INSURANCE CORPORATION ("Phil.-AXA") to AXA SA are subject to the preferential tax rate of 10 percent pursuant to Article 10 (2) (a) of the Convention between the Government of the Republic of the Philippines and the Government of the French Republic for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-France tax treaty") , as amended. It is represented that AXA SA is a corporation organized and existing under the laws of France and is a resident of France, with registered office address at 25 Avenue Matignon, 75008 Paris France per Certificate of Residence issued by the Tax Authority of France dated April 18, 2011; that AXA SA is engaged in the business of acquiring holdings in all forms in all French or foreign companies or businesses; that AXA SA is not registered as a corporation or as a partnership in the Philippines as evidenced by the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated May 2, 2011; and that, on the other hand, Phil.-AXA is a domestic corporation with office address at Ground Floor, Philippine AXA Life Centre, Sen. Gil Puyat Avenue corner Tindalo St., Makati City. It is also represented that as of April 1, 2011, AXA SA owns 1,575,185 common shares of Phil.-AXA, and that the aforementioned shares represent 45.007% of the outstanding capital stock of Phil.-AXA per Secretary's Certificate dated June 14, 2011; that at the meeting of the Board of Directors of Phil.-AXA held on April 28, 2011, it was resolved that a cash dividend amounting to Five Hundred One Million Pesos (Php501,000,000.00) be distributed among Phil.-AXA's stockholders of record as of April 28, 2011, to be paid on September 9, 2011; and that, per Sworn Statement of Phil.-AXA dated May 13, 2011, the dividends subject of the application for tax treaty relief are not subject of an investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. HacADE 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 . . ., 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: "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-France tax treaty, which you invoked, 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 law 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 recipient is a company (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; ISaTCD b) in all other cases, 15 per cent of the gross amount of the dividends. 3. The term 'dividends' as used in this Article means income from shares, "jouissance" shares or "jouissance" rights, mining shares, founders' 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 the State of which the company making the distribution is a resident. 4. The provisions of paragraphs 1 and 2 shall not apply if the recipient 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 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 Article 14, as the case may be, shall apply. xxx xxx xxx" Based on the above provisions, the Philippines may tax the dividends paid by a Philippine company to a company which is a resident of France at a rate not exceeding 10 percent of the gross amount dividends if the latter holds directly at least 10 percent of the voting shares of the first-mentioned company. In all other cases, the 15 percent preferential tax rate shall apply. In view of the foregoing, since AXA SA owns 45.007% of the outstanding capital stock of Phil.-AXA, the paying corporation, this Office is of the opinion and so holds that the cash dividends to be paid by Phil.-AXA to AXA SA are subject to the preferential tax rate of 10 percent of the gross amount thereof, pursuant to Article 10 (2) (a) of the Philippines-France tax treaty, as amended. (BIR Ruling No. ITAD 34-10 dated September 14, 2010; BIR Ruling No. ITAD 17-01 dated February 19, 2001; BIR Ruling No. DA-ITAD 57-10 dated June 4, 2010; BIR Ruling No. DA-ITAD 15-10 dated February 1, 2010; BIR Ruling No. ITAD 196-03 dated December 30, 2003) 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. HTCaAD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue