ITAD Ruling No. 089-03

July 2, 2003 ITAD RULING NO. 089-03 Art. 10, RP-Netherlands tax treaty BIR Ruling No. DA-ITAD-50-03 Del Monte Fresh Produce (Philippines) Inc. (DMFPPI) Powerhouse Bldg., JP Laurel Ave., Km. 9, Bo. Pampanga, Sasa, Davao City Attention: Maria Carlota P. Montecillo Controller Gentlemen : This refers to your letter dated May 23, 2003, requesting confirmation that your dividend payments to Del Monte Fresh Produce B.V. (DMFP-Netherlands) are subject to the 10% preferential tax rate pursuant to the RP Netherlands tax treaty. It is represented that DMFP-Netherlands is a corporation organized and existing under the laws of The Netherlands with principal office address at Parklaan 17, 3016 BA Rotterdam, 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 May 16, 2003 issued by the Securities and Exchange Commission; that DMFPPI is a corporation organized and existing under the laws of the Philippines; that DMFP-Netherlands is the registered owner of 334,575 shares out of the outstanding issued shares of 334,580 or equivalent to almost 99% of the authorized capital stock of DMFPPI, the remaining five shares being held by individual shareholders who are nominees thereof and holding one qualifying share each; that on April 25, 2003, the Board of Directors of DMFPPI declared a cash dividend in the amount of FOURTEEN MILLION SEVEN HUNDRED TWENTY ONE THOUSAND FIVE HUNDRED TWENTY PESOS (P14,721,520.00) to the stockholders of record as of April 25, 2003 payable on May 15, 2003. In reply, please be informed that Article 10 of the RP-Netherlands tax treaty provides: "Article 10 "DIVIDEND "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; HCITcA "(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' sharer 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 The Netherlands may be taxed at a rate not exceeding ten percent (10%) of the gross amount of the dividends if the recipient is the beneficial owner of such dividends and a company which holds directly at least ten percent (10%) of the capital of the Philippine corporation. Accordingly, inasmuch as DMFP-Netherlands holds 99% of the authorized capital stock of DMFPPI, this Office is of the opinion and so holds that the dividends remitted by DMFPPI to DMFP-Netherlands 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-50-03 dated April 8, 2003 ) This ruling is issued based on facts as represented. However, if upon investigation it shall be disclosed that the facts as 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