ITAD BIR Ruling No. 409-12

December 26, 2012 ITAD BIR RULING NO. 409-12 Article 10, Philippines-Netherlands tax treaty; BIR Ruling No. ITAD-037-10 Salvador & Associates Attorneys-At-Law 815-816 Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue 1226 Makati City Attention: Gerardo V. Francisco Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on December 16, 2011, on behalf of CASOP Atlas B.V. ("CASOP-Netherlands") , requesting confirmation that dividends paid by CASOP Atlas Corporation ("CASOP-Phil") to CASOP-Netherlands are subject to the preferential tax rate of 10 percent of the gross amount of the dividends pursuant to Article 10 of the Convention between the Republic of the Philippines and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . It is represented that CASOP-Netherlands is a corporation organized and existing under the laws of The Netherlands with principal address at Prins Bernhardplein 200, 1097 JB Amsterdam, The Netherlands, and is a resident thereof within the meaning of Article 4 of the Philippines-Netherlands tax treaty per the Declaration of Residence issued on August 10, 2011 by the Tax and Customs Administration of the Netherlands; that the authorized capital of CASOP-Netherlands amounts to ninety thousand euros (90,000.00) divided into nine hundred (900) shares, with a nominal value of One Hundred euro (100.00) per share; that it is not registered either as corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated July 13, 2011; that, on the other hand, CASOP-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 815-816 Tower One & Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City; and that as of December 14, 2011, CASOP-Netherlands has 200,000 fully subscribed Common Stock and beneficially and legally owns 20% of the subscribed and Common Stock of CASOP-Phil. cCESTA It is further represented that at the meeting of the Board of Directors of CASOP-Phil on December 14, 2011, a resolution was passed and approved declaring cash dividends in the amount of US$19,051,078.32 or in its Philippine Peso equivalent, out of the unrestricted retained earnings in favor of the common stockholders of record as of December 14, 2011 and shall be payable on December 19, 2011; and that, per the proof of bank remittance issued by the Bank of the Philippine Islands Ayala-Paseo Branch, such dividends were remitted to CASOP-Netherlands on December 19, 2011. 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: ACcISa 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-Netherlands tax treaty, which you invoked, may apply to the instant case. It provides: "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 percent 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 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as income from debt-claims participating in profits and 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. . . ." aAIcEH Based on the above-cited provisions, the 10 percent preferential tax rate on dividends applies whenever the beneficial owner of the dividends is a company, the capital of which is divided into shares, and owns at least 10 percent of the capital of the paying company. In all other cases, 15 percent preferential tax rate applies. Such being the case and considering that the capital of CASOP-Netherlands is wholly divided into shares, and that CASOP-Netherlands holds 20% of the subscribed Common Stock or more than 10 percent of the capital of CASOP-Phil, this Office is of the opinion and so holds that the dividend payments by CASOP-Phil to CASOP-Netherlands shall be subject to the preferential tax rate of 10 percent of the gross amount of the dividends pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD-037-10 dated September 16, 2010) 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