ITAD Ruling No. 099-00

August 2, 2000 ITAD RULING NO. 099-00 RP-Netherlands Article 10 ITAD 28-00 The Bengzon Firm SOL Building 112 Amorsolo Street Legaspi Village, 1229 Makati City Attention: Mr . Hubert E . Molina Ms . Mary Jane B . Austria-Delgado Gentlemen : This refers to your letter dated February 10, 2000 requesting confirmation of your opinion that the dividends to be paid by your client, Servier Philippines, Inc. (SPI) to Servier International B.V. (SIBV) are subject to the preferential tax rate of 10 per cent pursuant to the RP-Netherlands Tax Treaty. It is represented that SIBV is a non-resident foreign corporation organized and existing under the laws of Netherlands; that it is not registered as a corporation/partnership in the Philippines as per certification dated May 17, 2000 issued by the Securities and Exchange Commission; that SPI is a corporation duly organized and existing under the laws of the Philippine; that on August 15, 1999, the Board of Directors of SPI declared cash dividends out of its unrestricted retained earnings in the amount of Ten Million Pesos (PHP10,000,000) to its stockholders of record as of the said date; that the said dividends are payable on or before January 31, 2000; and that at the time of the declaration of said dividends, SIBV owns 89,934 shares with a total par value of PHP8,993,400.00 representing 30 per cent of SPI'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 Contracting 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 ; (emphasis supplied) b) 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx" "5. The term "dividends" as used in this Article means income from shares. jouissance" shares or "jouissance" rights, mining shares, founder's 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" In view of the foregoing, since SIBV owns more than ten per cent (10%) of the total capital stock of SPI as evidenced by the Secretary's Certificate dated February 18, 2000, the cash dividends to be paid by SPI to SIBV are subject to 10 per cent final withholding tax rate pursuant to the above quoted provision of the RP-Netherlands Tax Treaty. In fine, your opinion is hereby confirmed. The dividend payments by your client, Servier Philippines, Inc. (SPI) to Servier International B.V. (SIBV) are subject to the preferential tax rate of 10 percent pursuant to 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