ITAD Ruling No. 082-00

August 1, 2000 ITAD RULING NO. 082-00 RP-Netherlands Article 10 ITAD #28-00 Joaquin Cunanan & Co. 14TH Floor Multinational Bancorporation Centre 6805 Ayala Avenue 1226 Makati City Attention: Ms . Mary Assumption S . Bautista Principal Tax Services Department Gentlemen : This refers to your letter dated October 26, 1998 requesting confirmation of your opinion that the dividends to be paid and remitted by your client, Warner Lambert Philippines, Inc. (Warner) to its non-resident shareholder, Parke Davies B.V. (Parke Davis) are subject to final withholding tax at the preferential rate of 10 per cent pursuant to Article 10 (2)(a) of the RP-Netherlands Tax Treaty. It is represented that Parke Davis is a non-resident foreign corporation duly organized and existing under the laws of Netherlands with principal office at Saturnusstraat 72132 HB Hoofddorp, The Netherlands; that it is not registered as a corporation/partnership in the Philippines as per Securities and Exchange Commission certification issued November 4, 1998; that Warner is a corporation duly organized and existing under Philippine Laws and is engaged in the manufacture and distribution of pharmaceutical and confectionery products; that on October 21, 1998 the Board of Directors of Warner declared cash dividends out of its unrestricted retained earnings in the amount of PHP15,000,000.00 to its stockholders of record as of October 23, 1998; that payment of the said dividends shall be made on or before October 30, 1998; and that at the time of the declaration of said dividends Parke Davies owns 126,404 shares with a total par value of PHP12,640,400.00 representing 99.9960% of Warner's outstanding capital stock. In reply please be informed that Article 10 of the RP-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 percent 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 : (emphasis supplied) b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx" In view of the foregoing, and since Parke Davis owns 99.99% of the total capital stock of Warner as of record date, your opinion is hereby confirmed. The cash dividends to be paid and remitted by Warner Lambert Philippines, Inc. (Warner) to Parke Davies B.V. (Parke Davies), are subject to final withholding tax at the preferential rate of 10 per cent pursuant to the aforequoted provisions of the RP-Netherlands Tax Treaty. This ruling is being 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, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group