ITAD Ruling No. 052-02

April 16, 2002 ITAD RULING NO. 052-02 Article 10, RP-Germany BIR Ruling No. 559-88 Laya Mananghaya & Co. 22/F Philamlife Tower 8767 Paseo de Roxas Makati City 1226 Attention: Remigio A. Noval Partner, Tax Corporate Services Ma. Georgina J. Soberano Director, Tax and Corporate Services Gentlemen : This refers to your letter dated February 11, 2002 on behalf of SIEMEN'S POWER OPERATIONS, INC. (SPOI) requesting confirmation that the dividends payable by SPOI to SIEMENS AKTIENGESELLSCHAFT (Siemens AG) are subject to Philippine withholding tax at the rate of ten (10%) per cent, pursuant to the RP-Germany tax treaty. It is represented that Siemens AG is a corporation duly organized and existing under the laws of the Federal Republic of Germany; that it is not licensed to engage in business in the Philippines either as a corporation or as a partnership per Securities and Exchange Commission certification dated January 17, 2002; that SPOI, on the other hand is a corporation duly organized and existing under the laws of the Philippines primarily engaged in the operation, maintenance, service and repair of power plants for the generation of electric power and the importation of raw materials, components and spare parts for power plants; that the authorized capital stock of SPOI is Twenty Million Pesos (P20,000,000.00) divided into 20,000 shares with par value of One Thousand Pesos (P1,000.00) per share; that 5,254 shares of the said capital stock, or P5,254,000.00 are subscribed and paid up; that as of November 22, 2001, Siemens AG holds and owns a total of 5,249 shares valued at Five Million Two Hundred Forty Nine Thousand Pesos (P5,249,000.00), constituting 99.90% of the stock ownership in SPOI; that on November 22, 2001, the Board of Directors of SPOI approved the declaration of cash dividends equivalent to Two Hundred Million Pesos (P200,000,000.00), payable on January 31, 2001 to all stockholders of record as of even date. In reply, please be informed that Article 10 of the RP-Germany tax treaty provides, viz : "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 the tax so charged shall not exceed: "(a) 10 per cent of the gross amount of the dividends if the recipient is a company (excluding partnerships) which owns directly at least 25 per cent of the capital of the company paying the dividends; "(b) in all other cases, 15 per cent of the gross amount of dividends. "xxx xxx xxx "4. The term "dividends" as used in this Article means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident, and income derived by a sleeping partner from his participation as such and distributions on certificates of an investment-trust." "xxx xxx xxx" Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Germany at a rate not exceeding 10 per cent if the last-mentioned company holds directly at least 25 per cent of the capital of the company paying the dividend. Accordingly, since Siemens AG holds directly 99.90% of the voting shares of SPOI, your opinion that the dividends to be paid by SPOI to Siemens AG are subject to the 10 per cent preferential tax rate pursuant to the RP-Germany tax treaty, is hereby confirmed. (BIR Ruling No. 559-88 dated November 24, 1988) 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 rendered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service