ITAD Ruling No. 117-04

October 27, 2004 ITAD RULING NO. 117-04 Article 10, Philippines-Netherlands tax treaty BIR Ruling No. 70-81 AstraZeneca Pharmaceuticals (Phils . ) Inc . AstraZeneca Building Km 14 South Superhighway Paraaque City 1700 Philippines Attention: Josephine L . Carpio Finance Director Gentlemen : This refers to your application for relief from double taxation dated July 21, 2004, requesting confirmation of your opinion that the dividends paid by AstraZeneca Pharmaceuticals (Phils.), Inc. (APPI) to AstraZeneca Continent BV (AZC) are subject to the preferential tax rate of 15% pursuant to Article 10 of the Philippines-Netherlands tax treaty. It is represented that AZC is a nonresident foreign corporation organized and existing under the laws of the Netherlands, with address at Louis Pasteurlaan 5, NL-2719 EE Zoetermeer, The Netherlands; that it is not registered either as a corporation or a partnership licensed to do business in the Philippines per certification dated July 14, 2004 issued by the Securities and Exchange Commission; that APPI is a corporation organized and existing under laws of the Philippines, with office address at AstraZeneca Building, Km. 14 South Superhighway, Paraaque, Metro Manila; that as of December 31, 2003, AZC owns and holds Two Hundred Fifty-Seven (257) common shares of APPI equivalent to a total value of Twenty Five Thousand Seven Hundred Pesos (Php25,700.00), representing less than 0.01% of the total outstanding and issued shares of APPI; and that on June 17, 2004, the Board of Directors of APPI declared cash dividends in the aggregate amount of One Hundred Fifty Million Pesos (Php150,000,000.00) to all stockholders of record as of December 31, 2003 to be distributed in proportion to their respective stockholdings, payable on or before December 31, 2004. In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows, viz : "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 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; b) 15 per cent of the gross amount of the dividends in all other cases. HEITAD "xxx xxx xxx" "5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' 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" Based on the above-cited provisions, the 10% preferential tax rate on dividends shall apply whenever the recipient, who is the beneficial owner of the dividends, owns at least 10% of the capital of the paying company. In all other cases, the 15% preferential tax rate shall apply. Such being the case and considering that AZC holds approximately 0.01% of the capital of APPI, this Office is of the opinion and so holds that the dividend payments by APPI to AZC shall be subject to the preferential tax rate of 15%, based on the gross amount of dividends; pursuant to Article 10(2)(b) of the Philippines-Netherlands tax treaty. (BIR Ruling No. 070-81 dated April 8, 1981) 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, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service