ITAD Ruling No. 054-04

May 26, 2004 ITAD RULING NO. 054-04 Article 10 Philippines-Netherlands tax treaty BIR Ruling No. DA-ITAD-89-03 Bisazza Philippines Inc . Warehouse No. 2-A Solid State Complex CEPZ Compound Rosario, Cavite Attention: Reynaldo P . Honor General Manager Gentlemen : This refers to your letter dated April 14, 2004 requesting for a preferential tax rate of ten percent (10%) on the dividend payments of Bisazza Philippines, Inc. (Bisazza Phils) to Bisazza Holding BV (Bisazza Holding) pursuant to the Philippines-Netherlands tax treaty. HCSEIT It is represented that Bisazza Holding is a nonresident foreign corporation organized and existing under the laws of Netherlands with principal office at Herengracht 469, 1017 BS Amsterdam, 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 per certification dated March 17, 2004 issued by the Securities and Exchange Commission; that Bisazza Phils is a corporation organized and existing under the laws of the Philippines; that Bisazza Holding is a registered owner of 694,995 shares out of the outstanding issued shares of 695,000 or equivalent to 99.99% of the authorized capital stock of Bisazza Phils; that on March 24, 2004, the Board of Directors of Bisazza Phils declared cash dividends in the amount of Thirty Million Pesos (P30,000,000.00) to all the stockholders on the basis of the outstanding stock held as of December 31, 2003. In reply, please be informed that Article 10 of the Philippines-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 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. "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, the dividends paid by a Philippine company to a resident of Netherlands may be taxed at a rate not exceeding 10% of the gross amount of the dividends if the recipient is the beneficial owner of such dividends and is a company which holds directly at least ten percent (10%) of the capital of the Philippine corporation. Accordingly, inasmuch as Bisazza Holding holds 99.99% of the authorized capital stock of Bisazza Phils, this Office is of the opinion and so holds that the dividends remitted by Bisazza Phils to Bisazza Holding are subject to the preferential rate of ten percent (10%), pursuant to Article 10(2)(a) of the Philippines-Netherlands tax treaty. ( BIR Ruling No. DA-ITAD-89-03 dated July 2, 2003 ) ICaDHT This ruling is issued based on 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