ITAD Ruling No. 050-02

April 15, 2002 ITAD RULING NO. 050-02 RP-Netherlands, Article 10 BIR Ruling No. ITAD-029-01; 004-00 SGV & Co. 6760 Ayala Avenue Makati City Attention: Mr. Joel L. Tan-Torres Gentlemen : This refers to your application for relief from double taxation dated November 13, 2001, on behalf of Sun Life of Canada (Phils.), Inc. (Sun Life-Phil), requesting confirmation that its dividend payments to its non-resident shareholder, Sun Life of Canada (Netherlands), B.V. (Sun Life-Netherlands), are subject to final withholding tax at a preferential rate of ten (10) per cent pursuant to Article 10(2)(a) of the RP-Netherlands tax treaty. It is represented that Sun Life-Netherlands is a non-resident foreign corporation organized and existing under the laws of The Netherlands with business address at Strawinskylaan 3105, 1077 ZX Amsterdam, The Netherlands; that is not registered either as a corporation or as a partnership licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated November 13, 2001; that Sun Life-Phil is a domestic corporation organized and existing under the laws of the Philippines with principal office at The Enterprise Center, 6766 Ayala Ave. corner Paseo de Roxas, Makati City; that Sun Life Phil carries on life insurance business in the Philippines; that at a Special Meeting on August 30, 2001, the board of directors of Sun Life-Phil declared cash dividends in the amount of One Hundred Forty Pesos (Php140.00) per share or Seven Hundred Million Pesos (Php700,000,000.00) out of its retained earnings; that the dividends are payable to its stockholders of record as of August 30, 2001; that at the time of the declaration of the dividends, Sun Life-Phil has a total outstanding capital stock of Five Hundred Million Pesos (Php500,000,000.00) of which Four Hundred Ninety Nine Million Nine Hundred Ninety Nine Thousand and Five Hundred Pesos (Php499,999,500.00) or 99.99% was subscribed and paid-up by Sun Life-Netherlands. In reply, please be informed that Article 10 of the RP-Netherlands tax treaty provides: "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 partially 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. xxx xxx xxx." In view of the foregoing, this Office is of the opinion and so holds that since Sun Life-Netherlands owns 99.99% of the total capital stock of Sun Life-Phil as of August 30, 2001 the cash dividends to be paid and remitted to it by Sun Life-Phil are subject to final withholding tax at 10 per cent of the gross amount of the dividends pursuant to Article 10(2)(a) of the RP-Netherlands tax treaty. (BIR Ruling No. ITAD-029-01 dated March 12, 2001) This ruling shall likewise apply to future cash dividends declarations by Sun Life-Phil in favor of Sun Life-Netherlands for as long as Sun Life-Netherlands continues to hold at least 10% of the capital of Sun Life-Phil in compliance with the conditions set forth under Article 10(2)(a) of the RP-Netherlands tax treaty. (BIR Ruling No. ITAD-004-00 dated January 19, 2000) This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service