ITAD Ruling No. 101-04

September 13, 2004 ITAD RULING NO. 101-04 Art. 10, Philippines-France tax treaty; Protocol BIR Ruling No. ITAD-17-01 Stepan Philippines, Inc. Cocochem Agro-Industrial Park Bauan, Batangas Attention: Jean-Charles Leroy General Manager Gentlemen : This refers to your application for relief from double taxation dated April 30, 2004, requesting confirmation of your opinion that the dividend payments by Stepan Philippines, Inc. (Stepan) to United Coconut Planters International S.A. (UCPI), is subject to the preferential final tax rate of 10%, pursuant to the Philippines-France tax treaty. It is represented that UCPI is a corporation organized and existing under the laws of France with address at #34 Avenue, Des Champs, Elysees, 75008 Paris, France; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated April 30, 2004; that Stepan is a BOI-registered corporation organized and existing under the laws of the Philippines with principal address at Cocochem Agro-Industrial Park, Bauan, Batangas, with an extension office at the 7th Flr., NOL Tower, Commerce Avenue, Madrigal Business Park, Ayala Alabang, Muntinlupa City; that as of March 31, 2004, UCPI holds 1,800,117 shares representing 39.9993% of the voting shares of Stepan; that on the meeting of the Board of Directors of Stepan held on March 23, 2004, it was resolved that cash dividends, in the total amount of Four Million US Dollars (US$4,000,000.00) in its Peso equivalent, out of the unrestricted retained earnings of Stepan as of March 31, 2004, be declared for distribution to all stockholders of record in proportion to their shareholdings; and that the said dividends shall be distributed and paid to the stockholders on or before May 31, 2004. In reply, please be informed that Article 10 of the Philippines-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 percent of the gross amount of the dividends." "xxx xxx xxx" In accordance with the foregoing, the 15% preferential tax rate on dividends apply whenever the beneficial owner/recipient of the dividends owns at least 10% of the voting shares of the paying company. However, in the Protocol amending the foregoing provisions which took effect on January 1, 2000 reads as follows: "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';" Based on the above provisions of the Protocol, the dividends payable to UCPI by Stepan shall be subject to withholding tax at the rate of 10% of the gross amount of dividends considering that the transaction transpired after the effectivity of the Protocol and UCPI is the holder and beneficial owner of 39.9993% of the total voting shares of Stepan as of March 31, 2004. (BIR Ruling No. ITAD-17-01 dated February 19, 2001) 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. AETcSa Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service