ITAD BIR Ruling No. 339-12

September 6, 2012 ITAD BIR RULING NO. 339-12 Article 10, Philippines-Netherlands Tax Treaty; BIR Ruling ITAD-106-12 Manuel V. Pangilinan 10/F MGO Building, Legazpi cor. Dela Rosa Streets Legazpi Village 0721 Makati City, Manila Re: Tax Treaty Relief Application in favor of Asia Link B. V. Control No. 10-0689-D Sir : This refers to your Tax Treaty Relief Application ("TTRA") received by this Office on 14 May 2010, requesting confirmation that Dividends paid by Philex Mining Corporation ("Philex Mining") to Asia Link B.V. ("Asia Link") are subject to 10 percent preferential tax rate as set forth under Article 10 (2) (a) of 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 Asia Link with address at Prins Bernhardplein 200, 1097 JB Amsterdam is a resident of The Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty as evidenced by a Declaration of Residence issued by the Inspector of the Tax Administration, The Netherlands, on 30 September 2010; that it is a private company with limited liability duly organized and incorporated under the laws of The Netherlands with an authorized capital stock of EUR91,000.00 and which authorized capital stock is divided into 910 shares with a nominal value of EUR100 each as shown by its Articles of Association dated 17 April 1990 and Amended Articles of Incorporation dated 29 July 2003; that it is not registered as a corporation or partnership in the Philippines per Certification of Non-registration of Company issued by the Philippine Securities and Exchange Commission on 16 August 2010; that Philex Mining, on the other hand, having its principal office address at 27 Brixton corner Fairlane Streets, Pasig City, is a corporation duly incorporated and organized under the laws of the Republic of the Philippines, registered with the Board of Investments (BOI) as expanding export producer of copper concentrates including gold and silver as shown in its BOI Certificate of Registration No. EP 2004-080 dated 16 July 2004; that a Notarized Certification was executed by the Corporate Secretary of Philex Mining, certifying under oath that as of 30 April 2010, Asia Link owns 1,023,275,990 shares representing 20.83 percent of the outstanding capital stock of Philex Mining. CHcETA It is further represented, as certified by the Corporate Secretary of Philex Mining on 4 May 2010, that the Board of Directors of Philex Mining through a Board Resolution declared dividends in the amount of nine centavos (Php0.09) per share to all stockholders of record of the Corporation as of 12 May 2010 and shall be paid on 31 May 2010, and that the cash dividends, subject of the TTRA filed by Asia Link ,are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding or judicial appeal. Ruling 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 dividends received by a non-resident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporation. (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 . . ., dividends, . . . 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 provides that any income may be exempt to the extent required by any treaty obligation binding upon the Philippine Government, thus: Section 32. Gross Income. (B) Exclusions from gross Income The following items shall not be included in gross income and shall be exempt from taxation under this Title: (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 your application, you invoke the Philippines-Netherlands tax treaty ,Article 10 thereof provides in part: HTDcCE "Article 10 Dividends 1. Dividends paid by a company which is a resident of one of the States to a resident of the other State may be taxed in that other State. 2. However, such dividends may also be taxed in the State of which the company paying the dividends is a resident and according to the laws 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 the capital of which is wholly or partly divided into shares and which holds directly at least 10 per cent of the capital of the company paying the dividends; b) 15 percent of the gross amount of the dividends in all other cases.'' Based on the afore-quoted provisions, insofar as the Philippines is concerned, the 10 percent preferential tax rate on dividends applies when the following conditions concur: 1) the payor and recipient of the dividends are separately treated as a "company";2) the payor of the dividends is a resident of the Philippines; 3) the recipient of the dividends is a resident of the The Netherlands; 4) the recipient of the dividends is the beneficial owner thereof; 5) the capital of such recipient is wholly or partly divided into shares; and 6) the recipient holds directly at least 10 percent of the capital of the payor of the dividends. In all other cases, the 15 percent preferential rate shall apply. Considering that Asia Link is a resident company of the Netherlands, the capital of which is divided into shares, and since it holds 1,023,275,990 shares of the outstanding capital stock of Philex Mining representing 20.18% of the outstanding capital stock of Philex Mining ,which shareholdings are more than the 10 percent requirement to qualify for the 10 percent preferential rate, this Office is of the opinion as it hereby holds that the dividends paid to Asia Link by Philex Mining are subject to income tax in the Philippines at the rate of 10 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD-106-2012 dated February 24, 2012) This ruling is issued on the basis of the facts 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