ITAD BIR Ruling No. 330-14

December 18, 2014 ITAD BIR RULING NO. 330-14 Article 10, Philippines-Sweden tax treaty Isla Lipana & Co. 29F Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Harold S. Ocampo Authorized Representative Gentlemen : This refers to your tax treaty relief application filed on October 12, 2012, requesting confirmation that dividends paid by VISTA LAND & LIFESCAPES, INC. ("VLLI Philippines") to SPEAKING PARTNERS AB ("SPAB Sweden") are subject to 15 percent preferential tax rate pursuant to Article 10 of the amended Convention between the Republic of the Philippines and the Kingdom of Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Sweden tax treaty, as amended"). It is represented that SPAB Sweden, with principal address at Municipality of Gothenburg, Vastra Gotaland County, Sweden is a corporation organized and existing under the laws of Sweden, and is resident of Sweden within the meaning of the Philippines-Sweden tax treaty per the Certificate of Residence issued by the Tax Authority of Sweden on September 10, 2012; 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 August 15, 2012; and that on the other hand, VLLI Philippines is a corporation duly organized and existing under the laws of the Philippines, with principal office address at 3F Starmall Las Pias, CV Starr Avenue, Pamplona, Las Pias City. It is further represented, that at the meeting of the Board of Directors of VLLI Philippines held on September 17, 2012, a resolution was approved declaring cash dividends of Php0.0839 on each share of stock, payable to all stockholders of record as of October 2, 2012, payable on October 26, 2012; that based on the Corporate Secretary's Certificate of VLLI Philippines issued on October 15, 2012, SPAB Sweden owns a total of 352,352,000 shares as of October 2, 2012 which represents 4.1923% ownership in VLLI Philippines; and that based on a Bank Certification such dividends was remitted to SPAB Sweden on October 26, 2012. cACEaI It is finally represented, based on the Certificate issued by the Corporate Secretary of VLLI Philippines on October 8, 2012, that the dividends subject of this ruling are not under investigation, on-going audit, administrative protest, claim 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 income 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 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: "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." In relation thereto, Article 10 of the Philippines-Sweden tax treaty, which you invoked, may apply to the instant case. It provides: LLpr "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 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 25 per cent of the capital of the paying company; b) 15 percent of the gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. 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 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. xxx xxx xxx Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Sweden at a rate not exceeding 10 percent if the beneficial owner holds directly at least 25 percent of the capital of the company paying the dividend. In all other cases, the 15 percent preferential tax rate shall apply. IHEDAT Accordingly, considering that SPAB Sweden is a company which holds 4.1923% of the outstanding capital stock of VLLI Philippines, this Office is of the opinion and so holds that the dividends paid by VLLI Philippines to SPAB Sweden are subject to the preferential tax rate of 15 percent of the gross amount of the dividends pursuant to Article 10 (2) (b) of the Philippines-Sweden 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue