ITAD Ruling No. 064-01

July 31, 2001 ITAD RULING NO. 064-01 RP-France Protocol Art. 10/5 ITAD 20-99/41-99 SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines Attention: M . F . A . Balili Tax Division Gentlemen : This refers to your application for relief from double taxation dated June 5, 2000 on behalf of Rhodia Philippines, Inc. (RHODIA), requesting for refund or tax credit of the excess/overpaid withholding tax amounting to P501,000.00 on cash dividend payment to Rhone Poulenc S A-France (RHONE) applying the ten percent (10%) tax treaty rate provided for under Article 5 of the Protocol amending Paragraph 2 of Article 10 of the RP-France Tax Treaty. EaScHT It is represented that RHONE is a non-resident foreign corporation duly established under the laws of France with principal office at 25 Quia Paul Doumer 92408 Courbevoie, Cedex, France; that it is not registered as a corporation/partnership licensed to do business in the Philippines as per certification dated June 14, 2000 issued by the Securities and Exchange Commission; that RHODIA is a corporation duly registered and organized under Philippine laws with principal office at the 5th Floor, Gammon House, 110 Rada St. Legaspi Village, Makati City; that RHONE holds thirty percent (30%) of the voting stock of RHODIA; that on May 18, 1998, RHODIA declared a cash dividend to RHONE in the amount of P10,020,000.00 on which RHODIA withheld the amount of P1,503,000.00 representing the 15% withholding tax on dividends; and that this P1,503,000.00 was paid and remitted by RHODIA to BIR on June 5, 1998. In reply, please be informed that Article 10 of the RP-France Tax Treaty provides as follows: "Article 10 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 Contracting 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 laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: "a) 15 percent of the gross amount of the dividends if the recipient is a company (excluding partnership) which holds directly at least 15 per cent of the voting shares of the company paying the dividends; b) in all other cases, 25 per cent of the gross amount of the dividends." Pursuant to Article 5 of the Protocol to the Tax Convention between the Government of the Republic of the Philippines and the Government of the French Republic signed on January 9, 1976 and which became effective on January 1, 1998, the above-mentioned rates were reduced to 10% and 15%, respectively, which reads, viz :. "Article 5 "In Article 10 of the Convention: in paragraph 2, the rates of "15 percent" and "25 percent" are replaced respectively by "10 percent and 15 percent"; xxx xxx xxx In view of the foregoing, and since RHONE holds thirty per cent (30%) of the voting stock of RHODIA and considering the fact that it was on May 18, 1998, after the Protocol took effect on January 1, 1998, when RHODIA through its Board of Directors declared a cash dividend to RHONE in the amount of P10,020,000.00, the applicable rate is 10% pursuant to the Protocol. EaICAD With respect to your application for refund on behalf of RHODIA, we have endorsed the same to the Office of the Deputy Commissioner-Operations Group for processing. Relative thereto, please address your communication to the following: Office of the Deputy Commissioner Operations Group 4th Floor, BIR Building, Diliman, Quezon City, Philippines Tel. No. 920-75-08 Fax No. 920-75-10 This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will 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.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group