ITAD BIR Ruling No. 321-14

December 15, 2014 ITAD BIR RULING NO. 321-14 Article 9, Philippines-United Kingdom tax treaty Cochingyan & Peralta Law Offices Twelfth Floor, 139 Corporate Center 139 Valero Street, Salcedo Village Makati City 1227 Attention: Jose Cochingyan, III Managing Partner Gentlemen : This refers to your tax treaty relief application filed on July 25, 2013, on behalf of Regus Group Limited ("Regus-UK") , requesting confirmation that the dividends paid by Regus PLT Centre, Inc. ("Regus-PLT") are subject to a preferential tax rate of 15 percent pursuant to Article 9 of the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-United Kingdom tax treaty") . It is represented that Regus-UK , with principal address at 3000 Hillswood Drive, Hillswood Business Park, Chertsey Surrey, KT16 ORS, is a corporation organized and existing under the laws of the United Kingdom, and is a resident thereof based on the Certificate of Residency 2012 issued on December 12, 2012 by the HM Inspector of Taxes of HM Revenue & Customs, Local Compliance; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated July 17, 2013; and that, on the other hand, Regus-PLT is a corporation organized and existing under the laws of the Philippines with principal address at 18/F Philamlife Tower, 8767 Paseo de Roxas, Makati City. It is further represented, that at the special meeting of the Board of Directors of Regus-PLT held on July 1, 2013, the Board of Directors of Regus-PLT approved the declaration of cash dividends from the surplus retained earnings of Regus-PLT accumulated as of fiscal year ending December 31, 2012, in the total amount of Fifteen Million One Hundred Eighty Thousand Pesos (Php15,180,000.00), to the stockholders of record as of May 31, 2012 and payable on or before July 31, 2013; that based on the Secretary's Certificate of Regus-PLT dated July 22, 2013, Regus-UK is the principal stockholder of Regus-PLT since March 2, 2010 and until July 1, 2013, holding Ninety-One Thousand Nine Hundred Ninety-Four (91,994) shares out of the Ninety-Two Thousand (92,000) total issued and outstanding common shares of stocks of Regus-PLT with a total par value of Nine Million One Hundred Ninety-Nine Thousand Four Hundred Pesos (Php9,199,400.00), consequently representing 99.99% of the outstanding shares of stocks of Regus-PLT. cDEICH It is finally represented, per Certificate of No Pending Case dated July 22, 2013 issued by Regus-PLT, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. 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. (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: EHCcIT "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." Thus, the provisions of Article 9 (1) (a) of the Philippines-United Kingdom tax treaty, which you invoke, may apply to the instant case. It provides: "Article 9 Dividends 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; b) in all other cases 25% of the gross amount of the dividends. EATcHD xxx xxx xxx 4. 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 corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. 5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on a trade or 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 13, as the case may be, shall apply. . . ." Based on the foregoing, dividends paid to a company which is a resident of the United Kingdom and which does not have a permanent establishment in the Philippines shall be taxed at a preferential rate not exceeding fifteen percent (15%) of the gross amount of dividends if the said recipient is a company which owns at least 10 percent of the voting power in the company paying the dividends; and at a rate not exceeding twenty-five percent (25%) of the gross amount of the dividends in all other cases. Such being the case and since Regus-UK is a resident of the United Kingdom with no fixed place of business in the Philippines and owns 99.99% shares in Regus-PLT, the dividends paid by Regus-PLT to Regus-UK are subject to the preferential tax rate of 15 percent, based on the gross amount thereof, pursuant to the Philippines-United Kingdom 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. CSIDEc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue