ITAD Ruling No. 011-03

January 23, 2003 ITAD RULING NO. 011-03 Art. 10 of RP-Japan tax treaty BIR Ruling No. DA-ITAD-129-02 Quisumbing Torres 11th Floor, Pacific Star Bldg., Makati City Attention: Atty. Jose R. Sandejas Atty. Franklin A. Prestousa Gentlemen : This refers to your letter dated October 22, 2002, requesting confirmation of your opinion that the dividend payments by Merisant Sweetener (Philippines), Inc. (Merisant-Philippines) to Merisant Netherlands B. V. (Merisant-Netherlands) are subject to 10% preferential tax rate pursuant to the RP-Netherlands tax treaty. It is represented that Merisant-Netherlands is a corporation duly organized and existing under the laws of The Netherlands with principal address at Orlypein 85, 1043 DS Amsterdam, The Netherlands; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines as certified by the Securities and Exchange Commission dated October 14, 2002; that Merisant-Philippines is a corporation duly organized and existing under the laws of the Philippines with principal address at 3rd Floor, Bonaventure Plaza, Ortigas Avenue, Green Hills, San Juan; that as of February 28, 2002, Merisant-Netherlands holds Four Hundred Fifty-Five Thousand Five-Hundred (455,500) class A shares of Merisant-Philippines with a total par value of P4,555,000 inclusive of nominees; that in a meeting of the Board of Directors of Merisant-Philippines held on October 11, 2002, it was resolved that the corporation declares cash dividends in the total amount of Thirteen Million Six Hundred Sixty Five Thousand Pesos (P13,665,000.00) to be distributed pro-rata among the stockholders of record as of February 28, 2002 based on the number of shares held by them as of the same date; that the cash dividends shall be paid not later than October 28, 2002. In reply, please be informed that Article 10 of the RP-Netherlands tax treaty provides, viz; "Article 10 "DIVIDENDS "1. Dividends paid by a company which is 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 taxed 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; IHcTDA "(b) 15 per cent 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 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. "xxx xxx xxx" Based on the aforequoted provisions, dividends paid by a Philippine company to a resident of The Netherlands may be taxed at a rate not exceeding 10 per cent of the gross amount of the dividends if the recipient is a company which holds directly at least 10 per cent of the capital of the Philippine corporation. (BIR Ruling No. DA-ITAD-129-02 dated August 2, 2002) In view thereof, since the shareholdings of Merisant-Netherlands represent fifty per cent (50%) of the outstanding capital stock of Merisant-Philippines as of February 28, 2002, the dividends received by Merisant-Netherlands shall be subject to the preferential tax rate of 10 per cent pursuant to Article 10 of the RP-Netherlands tax treaty. This ruling is issued on the basis of the 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