ITAD Ruling No. 063-04

June 29, 2004 ITAD RULING NO. 063-04 Article 10, Philippines-Netherlands tax treaty BIR Ruling No. 070-81 Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza, 8741 Paseo de Roxas Makati City Attention: Jose Salvador Y. Mirasol Ronaldo Modesto J. Ventura Jayson L. Fernandez Gentlemen : This refers to your application for relief from double taxation dated February 18, 2004, on behalf of your client, Summit Global Management II B.V. (Summit Global), requesting confirmation of your opinion that the dividends paid by First Generation Holdings Corporation (First Generation) to Summit Global are subject to the preferential tax rate of 15%, pursuant to Article 10 of the Philippines-Netherlands tax treaty. It is represented that Summit Global is a corporation organized and existing under the laws of the Netherlands with address at Weena Zuid 108, 3012 NC Rotterdam, Netherlands; that it is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty as evidenced by a Declaration of Residence dated March 23, 2004 issued by the tax authority of the Netherlands; that it is not registered either as a corporation or partnership in the Philippines per certification dated February 2, 2004 issued by the Securities and Exchange Commission (SEC); that First Generation is a corporation organized and existing under Philippine laws with office address at 6th Floor Benpres Building, Meralco Avenue corner Exchange Road, Pasig City; that as of April 30, 2004, Summit Global is a stockholder of record of First Generation and holds (1) 430,801 common shares at Php10 per share, equivalent to a total par value of P4,308,010.00 representing 3.81% of the outstanding common stock of First Generation, and (2) 141,392 preferred redeemable shares at Php100 per share, equivalent to a total par value of P14,139,200.00, representing 3.88% of the outstanding preferred redeemable stock of First Generation; that on June 14, 2004, the Board of Directors of First Generation declared cash dividends of Twenty Million US Dollars (US$20,000,000.00) on all outstanding common shares for its stockholders of record as of the date of the declaration proportionate to their shareholdings; and that the amount to be received by Summit Global as a common stockholder is Seven Hundred Sixty Two Thousand US Dollars (US$762,000.00). In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows, viz : "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. "xxx xxx xxx" "4. 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 above-cited provisions, the 10 percent preferential tax rate on dividends apply whenever the beneficial owner/recipient of the dividend owns at least 10 percent of the outstanding voting shares of the paying company, and 15 percent preferential tax rate in all other cases. Such being the case and considering that Summit Global holds approximately 7.69 percent of the capital of First Generation, this Office is of the opinion and so holds that the dividend payments by First Generation to Summit Global shall be subject to the preferential tax rate of 15 percent, based on the gross amount of dividends pursuant to Article 10(2)(b) of the Philippines-Netherlands tax treaty. ( BIR Ruling No. 070-81 dated April 8, 1981. ) This ruling is issued on the basis of 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. aCATSI Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service