ITAD BIR Ruling No. 323-13

December 2, 2013 ITAD BIR RULING NO. 323-13 Articles 10 (Dividends), Philippines-Germany tax treaty Aranas Law Office Ground Floor Le Metropolis Building Corner Dela Costa and Tordesillas Streets Salcedo Village, Makati City Attention: Atty. Jesus Clint O. Aranas Gentlemen : This refers to your tax treaty relief application filed on September 26, 2012 on behalf of your client, Wincor Nixdorf International GMBH ("Wincor Germany") requesting confirmation that dividends received by Wincor Germany from Wincor Nixdorf (Philippines),Inc. ("Wincor Phil") are subject to the preferential rate of 10 percent pursuant to the Agreement between the Republic of the Philippines and the Federal Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital ("Philippines-Germany tax treaty") . It is represented that Wincor Germany is a corporation organized and existing under the laws of Germany and is a resident thereof with principal business address at Binger Strasse 173, 55216 Ingleheim am Rheim, Germany, based on the Certificate of Residence issued by the German Tax Authorities on November 29, 2011; that Wincor Germany is not registered as a corporation or partnership in the Philippines based on the Certification issued by the Securities and Exchange Commission on June 6, 2012; and that on the other hand, Wincor Phil is a domestic corporation situated at the 24th Floor Trident Tower, 312 Sen. Gil Puyat Avenue, Makati City. It is further represented, based on the Certificate issued by the Corporate Secretary of Wincor Phil on September 24, 2012, the Board of Directors of Wincor Phil through a special meeting held on even date, declared cash dividends in favor of the stockholders of record as of August 15, 2012 in the amount of PhP31,457,721.00, payable not later than September 2012; that Wincor Germany is the registered owner of 100,985 common shares of stock, inclusive of 5 nominee shares comprising 100% of the outstanding and issued capital stock of Wincor Phil ;and that on September 28, 2012, the amount of PhP28,311,948.90 was remitted as dividends in favor of Wincor Germany based on the Certification issued by Wincor Germany on March 19, 2013. ScaHDT In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") ,as amended, dividends paid to Wilcon Germany are subject to income tax at the rate of 30 percent, thus: "SEC. 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 interests, 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) and (d) above: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 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: cEaCAH 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." For this purpose, you invoke the Philippines-Germany tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: "Article 10 Dividends 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 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 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 partnerships) which owns directly at least 25 per cent of the capital of the company paying the dividends; b) in all other cases, 15 per cent of the gross amount of dividends." Under paragraph 2 above, dividends arising in the Philippines and paid to a resident of Germany may be taxed in the Philippines at a rate not to exceed (a) 10 percent if the recipient of the dividends is a company which owns directly at least 25 percent of the capital of the company paying the dividends; and (b) 15 percent in all other cases. cEHSIC Accordingly, considering that Wilcon Germany holds directly at least 25 percent of the capital of Wilcon Phil (in fact, 99.99 percent),such dividend paid by Wilcon Phil to Wilcon Germany is subject to income tax at the rate of 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Germany 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