ITAD BIR Ruling No. 334-13

December 6, 2013 ITAD BIR RULING NO. 334-13 Article 10, Philippines-Sweden Tax Treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Mr. Harold S. Ocampo Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on 30 May 2013 , requesting confirmation that the dividend payment by Robinsons Land Corporation ("Robinsons") , to Speaking Partners AB ("SPAB") , is subject to the preferential tax rate of 15 percent pursuant to Article 10 (2) (a) of The 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") . 1 It is represented that SPAB is a corporation organized and existing under the laws of Sweden and is a resident thereof with business address at Municipality of Gothenburg, Vastra Gotaland County, Sweden, as evidenced by the Certificate of Residence issued by the Swedish tax Agency dated 07 March 2013, which was authenticated by the Consul of the Embassy of the Philippines in Oslo, Norway, executed on 29 April 2013; that SPAB is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated 16 May 2013; and that, on the other hand, Robinsons is a corporation organized and existing under the laws of the Philippines with principal address at 43F Robinsons-Equitable Tower, ADB Avenue corner Poveda Street, Ortigas Center, Pasig City. It is further represented, as certified by the Corporate Secretary of Robinsons , executed on 03 June 2013, that in a meeting of the Board of Directors of Robinsons held on 18 April 2013, the latter declared cash dividend of P0.36 per share for all stockholders of record as of 10 May 2013; that SPAB acquired by purchase on 26 April 2013, Eighty Million Nine Hundred Eighty Six Thousand Nine Hundred Twenty Nine (80,986,929) shares of the outstanding stock of Robinsons , or equivalent to 1.98% of its outstanding shares. It is further represented that the payment of the subject dividends were made by Robinsons through Citibank NA Securities and Funds Services ("Citibank") in favor of SPAB, in the amount of Twenty Million Four Hundred Eight Thousand Seven Hundred Six and 11/100 Philippine Pesos (PhP20,408,706.11) on 06 June 2013, as evidenced by the Certification by Citibank executed on 15 November 2013. It is finally represented that the dividend subject of this TTRA is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Certification issued by the Senior Vice President of Robinsons executed on 03 June 2013. Ruling 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 SPAB 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 percent (30%) 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" n However, under Section 32 (B) (5) of the Tax Code, such 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: 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." With respect to a treaty, you invoke the Philippines-Sweden tax treaty. Paragraphs 1 and 2 of 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 also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed: (a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (excluding partnerships) which holds directly at least 25 per cent of the capital of the paying company; (b) 15 per cent 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." Under paragraph 2 (a) and (b) of Article 10, dividends arising in the Philippines and paid to a resident of Sweden may be taxed in the Philippines at a rate not to exceed 10% of the gross amount of the dividends if the company recipient holds directly at least 25% of the capital of the company paying the dividends. On the other hand, a tax of 15% of the gross amount of the dividends shall be imposed on all other cases. Accordingly, since SPAB is a corporation which holds directly 1.98% of the outstanding shares of Robinsons , the dividend paid by Robinsons to SPAB is subject to income tax at the rate of 15 percent of the gross amount thereof, pursuant to paragraph 2 (b), Article 10 of the Philippines-Sweden 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 Footnotes 1. Date of effectivity of taxes on income: January 1, 2004.