ITAD BIR Ruling No. 352-15

December 10, 2015 ITAD BIR RULING NO. 352-15 Article 9, Philippines-United Kingdom tax treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Carlos Hilario Mateo Authorized Representative Gentlemen : This refers to your tax treaty relief application filed on December 23, 2013, on behalf of A. Boake Roberts & Co. (Holdings) Limited ("ABRCHL") , requesting confirmation that dividends paid by International Flavors & Fragrances (Philippines), Inc. ("IFFPI") to ABRCHL are subject to the preferential tax rate of 15 percent of the gross amount of the dividends pursuant to Article 9 of the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-United Kingdom tax treaty") . It is represented that ABRCHL is a resident corporation in the United Kingdom based on Certificate of Residence issued by the HM Inspector of Taxes, HM Revenue & Customs dated November 11, 2013; that it is not registered 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 11, 2013; and that, on the other hand, IFFPI is a corporation organized and existing under the laws of the Philippines. It is further represented that at the special meeting of the Board of Directors of IFFPI held on November 20, 2013, the Board of Directors of IFFPI approved the declaration of cash dividends amounting to P110,983,390.12 out of IFFPI's unrestricted retained earnings as of December 31, 2012, to stockholders of record as of December 20, 2013, payable on December 31, 2013; that as of December 20, 2013, ABRCHL is the registered owner of 8,417,603 shares which represents 70 percent of the voting capital stock of IFFPI; that the said shares was acquired by ABRCHL on October 1, 2002. It is finally represented, per the Sworn Statement of No Pending Case issued by IFFPI dated December 19, 2013, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, 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 dividends derived in the Philippines by a nonresident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporations . (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." Thus, the provisions of Article 9 (1) (a) of the Philippines-United Kingdom tax treaty, which you invoke, may apply to the instant case. It provides: "Article 9 Dividends 1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: a) 15% of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; b) in all other cases 25% of the gross amount of the dividends. xxx xxx xxx 4. 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 corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident and also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. 5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on a trade or business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or 13, as the case may be, shall apply. . . ." Based on the foregoing, dividend payments to a company which is a resident of the United Kingdom and which does not have a permanent establishment in the Philippines shall be taxed at a preferential rate not exceeding fifteen percent (15%) of the gross amount of dividends if the said recipient is a company which owns at least 10 percent of the voting power in the company paying the dividends; and at a rate not exceeding twenty five percent (25%) of the gross amount of the dividends in all other cases. Such being the case and since ABRCHL is a company resident of the United Kingdom with no fixed place of business in the Philippines, and which holds 70 percent of the voting capital stock of IFFPI, then the dividends paid by IFFPI to ABRCHL are subject to the preferential tax rate of 15 percent, based on the gross amount thereof, pursuant to Article 9 of Philippines-United Kingdom 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 of Internal Revenue