ITAD Ruling No. 017-01

February 19, 2001 ITAD RULING NO. 017-01 RP-France Article 10 Castillo Laman Tan Pantaleon & San Jose Law Offices The Valero Tower 122 Valero St., Salcedo Village 1227 Makati City Attention: Atty . Ma . Victoria D . Sarmiento Atty . Carlos Paulo M . Villaruz Gentlemen : This refers to your application for relief from double taxation dated June 26, 2000 on behalf of Essilor Manufacturing Philippines, Inc. (Essilor) and Essidev S. A. (Essidev), requesting confirmation that the dividends payable to Essidev by Essilor shall be subject to withholding tax at the rate of 15% of the gross amount of dividends pursuant to Article 10 of the RP-France Tax Treaty. TCADEc It is represented that Essidev is a non-resident foreign corporation organized and existing under the laws of France, with office address at 147, rue de Paris 94227 Charenton-le-Pont, Cedex, France; that it is not licensed to do business in the Philippines as per certification dated August 17, 2000 issued by the Securities and Exchange Commission; that Essilor is a PEZA-registered enterprise with principal address at SFB#10, BEPZ, Mariveles, Bataan, that Essilor is a wholly owned subsidiary of Essidev; that as of May 4, 2000 Essidev owns 99.99% of the shares of Essilor; that on May 4, 2000 Essilor's Board of Directors declared cash dividends in the amount of P18,636,200.00 payable to its stockholder's of record as of that date, and payable on or before July 31, 2000 as evidenced by the Secretary's Certificate dated June 29, 2000. 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. "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, 2000 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 Essidev by Essilor 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 Essidev owns 99.99% of the total outstanding stocks of Essilor as of record date being the holder and beneficial owner thereof. This ruling is issued on the basis of the foregoing facts as represented and will be considered null and void if upon investigation it will be disclosed that the facts are different. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue