ITAD BIR Ruling No. 328-12

September 3, 2012 ITAD BIR RULING NO. 328-12 Article 10, Philippines-Netherlands tax treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: W.U. Villanueva Principal, Tax Services Gentlemen : This refers to your Tax Treaty Relief Application dated January 17, 2012 filed on behalf of DGA Ilijan B.V. ("DGA BV"), requesting confirmation that the dividend payment to be paid by Team Diamond Holding Corporation ("TDHC"), is subject to the preferential tax rate of 10 percent, pursuant to the Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . Facts It is represented that DGA BV, situated at Claude Debussylaan 28, 12th Floor 1082 MD Amsterdam, The Netherlands, is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty, per the Declaration of Residence issued by the Inspector of the Tax Administration of the Netherlands; that DGA BV is a corporation organized and existing under the laws of the Netherlands with an authorized capital of Ninety Thousand Euro (EURO90,000), divided into Ninety Thousand (90,000) shares of one euro (EURO1.00) per share; that DGA BV is not registered either as corporation or as a partnership in the Philippines per certification issued by the Securities and Exchange Commission dated January 11, 2012; and that, on the other hand, TDHC is a corporation organized and existing under the laws of the Philippines with office address at CTC Building, 2232 Roxas Boulevard, Pasay City, Philippines. On January 11, 2012, the Board of Directors of TDHC approved and declared cash dividends amounting to US$8,577,000.00 out of the unrestricted retaining earnings of TDHC in favor of all of stockholders of record as of January 11, 2012, payable on or before January 31, 2012 per Secretary's Certificate dated January 16, 2012; that DGA BV is the beneficial owner (according to the Declaration of Trust dated June 10, 2011 signed by the Mitsubishi Corporation pursuant to the Deed of Exchange between Mitsubishi Corporation and DGA BV) of 12,370,684 common shares, representing 51.21% of the TDHC total shares; and that a certification from Citibank, N.A. was submitted as a proof of remittance for the date (January 12, 2012) of payment of dividend income to DGA BV. Ruling Relative thereto, please be informed that Section 14 of Revenue Memorandum Order ("RMO") No. 72-2010 , published in the Manila Bulletin on October 20, 2010, and effective November 4, 2010, provides that: DaScAI "SECTION 14. WHEN AND WHERE TO FILE THE TTRA . All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms of any necessary documents are submitted to any other BIR office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event . Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO . " (Emphasis Supplied) This condition was emphasized by the Court of Tax Appeals in Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 6382 dated June 7, 2005) where it ruled: " However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation . In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked. ASETHC Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the persons or corporations duly entitled to the same . The Court notes that nowhere in the records of the case was it shown that petitioner indeed took the liberty of properly observing the provisions of the said order. Petitioner quotes various BIR, as well as ITAD, Rulings issued to several foreign corporations seeking for a tax relief from the office of the respondent. However, not any one of these rulings pertains to the petitioner. It must be stressed that BIR rulings are issued based on the facts and circumstances surrounding particular issue/issues in question and are resolved on a case-to-case basis. It would be thus erroneous to invoke the ruling of the respondent in specific cases, which have no bearing to the case of petitioner." (Underscoring ours) This decision was also upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement laid down in RMO 1-2000 is reiterated in subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (C.T.A. Case No. EB 456 dated May 29, 2009), CBK Power Company Ltd. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 6699, 6844 and 7166 dated March 29, 2010) and Manila North Tollways Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 7864 dated April 12, 2011) . In view of the foregoing and considering that the dividends received by DGA BV were paid on January 12, 2012 per Certification dated May 28, 2012, while the subject TTRA was only filed on January 17, 2012 , in violation of the requirement of RMO 72-2010 that filing of the TTRA should be made BEFORE the transaction, that is the payment of dividend, this Office holds that the subject TTRA is hereby denied. Accordingly, said dividend payment shall be subject to tax at the rate of 30 percent as provided in Section 28 of the Tax Code of 1997, as amended. HCacTI 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