ITAD Ruling No. 064-03

April 25, 2003 ITAD RULING NO. 064-03 RP-France, Article 10 BIR Ruling No. DA-ITAD-83-02; 17-01 Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza 8741 Paseo de Roxas, Makati City Attention: Priscilla B. Valer Gentlemen : This refers to your letter dated March 5, 2003 on behalf of your client, Sanofi Synthelabo S.A. (SS France), requesting for confirmation of your opinion that any dividends payable by Sanofi Synthelabo Philippines, Inc. (SS Phils.) to SS France are subject to withholding tax at the preferential rate of 10% pursuant to Article 5 of the Protocol amending Paragraph 2 of Article 10 of the RP-France tax treaty. It is represented that SS France is a non-resident foreign corporation organized and existing under the laws of France with principal office address at 174 Avenue de France 75013 Paris; 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 5, 2002 issued by the Securities and Exchange Commission; that SS Phils. is a corporation duly registered and organized under Philippine laws with principal office at 3rd Floor Feliza Bldg., 108 Herrera St., Legaspi Village, Makati City; that SS Phils. intends to declare and/or pay dividends to its parent company SS France sometime during the year 2003; that as of March 5, 2003, SS France holds 99.99% of the voting stock of SS Phils. as evidenced by the Secretary's Certificate dated March 5, 2003. In reply, please be informed that Article 10 of the RP-France Tax Treaty provides as follows: "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 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 law 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 10 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." xxx xxx xxx" 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 : aEHASI "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" Based on the above provisions of the Protocol, the dividends payable to SS France by SS Phils. shall be subject to withholding tax at the rate of 10% of the gross amount of the dividends considering that the transaction takes place after the effectivity of the Protocol and SS France owns 99.99% of the total outstanding stocks of SS Phils. as of record date being the holder and beneficial owner thereof. ( BIR Ruling No. DA-ITAD-17-01 dated February 19, 2001 ) It is understood that the obligations to deduct and withhold the tax arises at the time that the cash dividend is paid or becomes payable, whichever comes first. The term "payable" refers to the date the obligation becomes due, demandable or legally enforceable. Accordingly, the obligations to deduct and withhold the tax arise at the time the cash dividends become payable in accordance with the terms of the resolution of the Board of Directors, that is, within 10 days reckoned from the end of month that it becomes paid or payable. ( BIR Ruling No. DA-ITAD-83-02 dated May 2, 2002 ) 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. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service