ITAD BIR Ruling No. 333-14

December 18, 2014 ITAD BIR RULING NO. 333-14 Article 10, Philippines-Canada tax treaty Phelps Dodge International Philippines, Inc. 2nd Floor, Karrivin Plaza Pasong Tamo Extension, Makati City Attention: Jennifer Jill I. Lim Authorized Representative Gentlemen : This refers to your tax treaty relief application filed on November 29, 2012, requesting confirmation that dividends paid by Phelps Dodge International Philippines, Inc. ("PDI Philippines") to General Cable Company ("General Cable") are subject to 15 percent preferential tax rate pursuant to Article 10 of the Convention between the Philippines and Canada for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Canada tax treaty"). It is represented that General Cable, with principal address at 156 Parkshore Drive, Brampton, Ontario, Canada is a corporation organized and existing under the laws of Canada, and is resident of Canada within the meaning of the Philippines-Canada tax treaty per the Certificate of Residence issued by the Canada Revenue Agency Tax Services Office on November 2, 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 December 20, 2012; and that on the other hand, PDI Philippines is a corporation duly organized and existing under the laws of the Philippines, with principal office address at 2nd Floor, Karrivin Plaza, 2316 Pasong Tamo Extension, Makati City. It is further represented that on November 22, 2012 the Board of Directors of PDI Philippines declared cash dividends in the amount of One Hundred Twelve Million Pesos (PhP112,000,000.00) payable to all stockholders of record as of December 31, 2011, payable on or before December 12, 2012; that as of the date of record, General Cable owns a total of 3,539,960 shares of stock which represents 60% ownership in PDI Philippines. CSHEca It is finally represented, based on the Certification issued by the Corporate Secretary of PDI Philippines on November 22, 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-Canada tax treaty, which you invoked, may apply to the instant case. It provides: caTESD "Article 10 Dividends 1. Dividends paid by a company which is a resident of Canada to a resident of the Philippines may be taxed in the Philippines. However, such dividends may also be taxed in Canada, but where the beneficial owner of the dividends is a resident of the Philippines, the tax so charged shall not exceed 15 percent of the gross amount of the dividends. 2. Dividends paid by a company which is a resident of the Philippines to a resident of Canada may be taxed in Canada. However, such dividends may be taxed in the Philippines, but where the beneficial owner of the dividends is a resident of Canada the tax so charged shall not exceed: a) 15 per cent of the gross amount of any dividend paid to a company which is a resident of Canada which controls at least 10 percent of the voting power of the company paying the dividend; or b) 25 per cent of the gross amount of the dividends in all other cases. 3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company on the profits out of which the dividends are paid. 4. 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 assimilated to 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, dividends arising in the Philippines and paid to a resident of Canada may be taxed in the Philippines at a rate not to exceed 15 percent of the gross amount of dividends if the company which is a resident of Canada holds at least 10 percent of the voting power of the issuing company. Otherwise, the preferential tax rate of 25 percent applies. ITSacC Accordingly, considering that General Cable is a resident of Canada which controls 60% of the shares of stocks of PDI Philippines, this office is of the opinion and so holds that the dividends paid by PDI Philippines to General Cable are subject to the preferential tax rate of 15 percent of the gross amount of the dividends pursuant to Article 10 (2) (a) of the Philippines-Canada 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