ITAD Ruling No. 004-02

January 11, 2002 ITAD RULING NO. 004-02 RP-France Protocol (dividends) BIR Ruling No. ITAD 17-01 Sycip Gorres Velayo & Co. 6760 Ayala Avenue, 1226 Makati City Attention: M.F.A. Balili Tax Division Gentlemen : This refers to your application for relief from double taxation dated 26 October 2000 on behalf of your client, AVENTIS CROPSCIENCE PHILS., INC. (Aventis-Phils), formerly Rhone-Poulenc Agro, Phils., Inc., requesting for a refund/tax credit of the excess/overpaid withholding tax on dividends amounting to P3,250,000.00 pursuant to Sections 204 and 229 of the Tax Code in relation to the Protocol amending the RP-France Tax Treaty. It is represented that Aventis-Phils. is a domestic corporation duly organized and existing under the laws of the Philippines with principal office at the 8th Floor, Philamlife Bldg., Madrigal Business Park, 1207 Acacia Avenue, Alabang, 1770 Muntinlupa City; that is a wholly-owned subsidiary of Aventis Cropscience SA (Aventis-France); that Aventis-France (formerly Rhone Poulenc Agro-France) is a non-resident foreign corporation duly established under the laws of France, with office address at 25 Quis Paul Doumer 92408 Courbevoie, Cedex, France; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines as per certification dated December 5, 2000 issued by the Securities and Exchange Commission; that Aventis-Phils. is primarily engaged in the business of manufacturing, processing, selling, dealing, and trading on wholesale basis, on any and all types of agricultural chemicals, registered with the Bureau of Internal Revenue (BIR) with Taxpayer's Identification Number 000-060-792; that as of March 31, 1999, Aventis-France owns 99.99% of the shares of Aventis-Phils.; that on May 6, 1999, Aventis-Phils., through its Board of Directors, declared cash dividends in the amount of P50M (Fifty Million Pesos), half of which is payable not later than June 20, 1999 and the remaining half payable not later than September 20, 1999 as evidenced by the Secretary's Certificate dated May 17, 1999. Based on the foregoing and pursuant to the provision of the Protocol amending the RP-France Tax Treaty which reduced, among others, the withholding tax rate on dividends from 15% to 10%, you are claiming that Aventis-Phils. has an excess or overpaid withholding tax on dividends amounting to P3,250,000.00. In reply, please be informed that Article 10 of the RP-France Tax Treaty provides: "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. cTDECH "2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: "a) 15 per cent of the gross amount of the dividends if the beneficial owner is a company (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends; "b) in all other cases, 25 per cent of the gross amount of the dividends.. "xxx xxx xxx" The 15% preferential tax rate on dividend applies whenever the beneficial owner/recipient of the dividends owns at least 10% of the voting shares of the paying company. Please be informed, however, that a Protocol amending the foregoing provisions took effect on January 1, 1998, which reads as follows: "In Article 10 of the Convention: - in paragraph 2, the rates of "15 percent" and "25 percent" are replaced respectively by "10 percent" and "15 percent" Based on the above provisions of the Protocol, the dividends payable to Aventis-France by Aventis-Phils. shall be subject to withholding tax at the rate of 10% of the gross amount of dividends considering that the transaction transpired after the effectivity of the Protocol and Aventis-France owns 99.99% of the total outstanding stocks of Aventis-Phils. as of record date being the holder and beneficial owner thereof. ( BIR Ruling No. ITAD 17-01 ) With respect to your application for refund, please be informed that we have endorsed it to the Office of Deputy Commissioner for Operations Group for processing. Relative thereto, please address your communication to the following: Office of the Deputy Commissioner Operations Group 4th Floor, Rm. 404 Bureau of Internal Revenue National Office Building, Diliman, Quezon City, Philippines Tel. No. 920-75-08 Fax No. 920-75-10 This ruling is issued on the basis of the foregoing facts as represented wand will be considered null and void if upon investigation it will be disclosed that the facts are different. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group