ITAD Ruling No. 001-03

January 9, 2003 ITAD RULING NO. 001-03 Art. 10 (b), RP-Spain BIR Ruling No. DA-ITAD-129-02 Buag & Associates Suite 17-E, 17th Floor, Strata Bldg., Emerald Avenue, Ortigas Center 1600 Pasig City Gentlemen : This refers to your application for relief from double taxation dated October 16, 2002, on behalf of your client, Roxas & Co., Inc., requesting confirmation of your opinion that the cash or property dividends paid to its individual stockholders residents of Spain particularly Ms. Beatriz Roxas Olgado and Ms. Marta Roxas dela Rica, are subject to 15% preferential tax rate on the gross amount of the dividends pursuant to Article 10(b) of the RP-Spain tax treaty. It is represented that Roxas & Co., Inc. is a corporation organized and existing under the laws of the Philippines with principal office address at 7th Floor, CG bldg., 101 Aguirre St., Legazpi Village, Makati City; that Ms. Beatriz Roxas Olgado and Ms. Marta Roxas dela Rica are residents of Spain as certified by the Philippine Embassy in Spain dated September 11, 2002; that both are stockholders of Roxas & Co., Inc. respectively holds 6.23% and 9.04% of the total shares of Roxas & Co., Inc.; that on May 27, 2002, the Board of Directors declared a cash dividend in the amount of P5,000,000.00 or P.02055 per share on the outstanding shares to be taken from the unrestricted retained earnings of the corporation as of December 31, 1998; that the said dividends shall be payable on or before May 29, 2002 to all stockholders of record as of May 27, 2002. In reply please be informed that Article 10 of the RP-Spain tax treaty provides: "Article 10 "Dividends "1. Dividends paid by a corporation which is resident of a Contracting State to a resident of other Contracting State may taxed in that other State. "2. However, such dividends may be taxed in the Contracting State of which the corporation 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 corporation (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; "(b) 15 per cent of the gross amount of the dividends in all other cases. "3. . . . "4. . . . "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 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." "xxx xxx xxx" Based on the aforequoted provisions, dividends paid by a Philippine company to a resident of Spain may be taxed at a rate not exceeding 10 per cent (10%) of the gross amount of the dividends if the recipient is a company/individual which holds directly at least 10 per cent of the voting shares of the Philippine corporation and 15 per cent (15%) tax in all other cases. ( BIR Ruling No . DA-ITAD-129-02 dated August 2, 2002 ) In view thereof, since Ms. Beatriz Roxas Olgado and Ms. Marta Roxas dela Rica respectively holds less than 10 per cent of the total shares of stocks to Roxas & Co., Inc., the dividends received by them shall be subject to 15 per cent preferential tax rate pursuant to Article 10(b) of the RP-Spain tax treaty, which tax rate shall also apply to other stockholders residents of Spain under similar conditions. HTSaEC This ruling is issued based on facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service