ITAD Ruling No. 028-00

February 1, 2000 ITAD RULING NO. 028-00 RP-Netherlands, Art. 10 ITAD 28-99 DA-055-2-2-96 UN-009-1-4-95 Castillo Laman Tan Pantaleon & San Jose Law Offices The Valero Tower, 122 Valero St., Salcedo Village, 1227 Makati City Attention: Atty . Dina D . Lucenario and Atty . Virginia B . Viray Gentlemen : This refers to your application for tax treaty relief dated October 28, 1999 on behalf of your clients, Carrier Air Conditioning Philippines Inc. (CACPI) and Carrier HVACR Investments B.V. (HVACR) requesting confirmation of your opinion that the cash dividends declared by CACPI in favor of HVACR is subject to final withholding tax at the preferential tax rate of 10% pursuant to Article 10 (2)(a) of the RP-Netherlands Tax Treaty. It is also requested that said rate will likewise apply to future declaration of cash dividend under the same circumstances and conditions. LexLib It is represented that HVACR is a foreign corporation organized and existing under the laws of Netherlands with principal office at Herengracht 548 1017GC Amsterdam, The Netherlands, while CACPI is a domestic corporation duly organized and existing under Philippine Laws, with business address at KM 20 East Service Road South Superhighway, Alabang, Muntinlupa, Metro Manila; that on September 23, 1999, the Board of Directors of CACPI declared cash dividends out of its retained earnings in the amount of PHP42,000,000.00 to its stockholders of record as of said date; that as of even date, HVACR owns 69,995 shares out of a total 70,000 shares of CACPI. In reply, please be informed that Article 10 of the RP-Netherlands Tax Treaty declares: "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 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; b) 15 per cent of the gross amount of the dividends in all other cases." Accordingly, your opinion that the PHP42,000,000.00 cash dividends, as shown in the Secretarys Certificate dated October 26, 1999, declared by CACPI in favor of HVACR is subject to 10% preferential tax rate pursuant to the RP-Netherlands Tax Treaty is hereby confirmed considering that recipient HVACR is the beneficial owner of the dividends which holds directly 99.99% of the capital of CACPI.(BIR Rulings No. ITAD 28-99, DA-055-2-2-96 and UN-009-1-4-95). As requested, this ruling shall likewise apply to future declaration of cash dividends by CACPI in favor of HVACR for as long as the facts and the conditions under the above-stated treaty are complied with e.g. that HVACR holds at least 10% of the capital of CACPI. This ruling is being issued based on facts as represented. However, if upon investigation, it will be discovered or disclosed that the facts are different, then this ruling shall be considered as null and void. LexLib Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group