ITAD Ruling No. 127-04

November 10, 2004 ITAD RULING NO. 127-04 Philippines-United States Tax Treaty Article 11 BIR Ruling No. DA-ITAD-215-02 Sycip Gorres Velayo & Co . 6760 Ayala Avenue 1226 Makati City Attention: J.A. OSANA Tax Division Gentlemen : This refers to your letter dated September 8, 2004 requesting confirmation that the payment and remittance of dividends by your client, AIG Credit Card Company Philippines, Inc. (AIG Credit) to AIG Consumer Finance Group, Inc. (AIG CFGI), is subject to the preferential tax rate of twenty percent (20%) pursuant to Article 11 (2) of the Philippines-United States tax treaty. It is represented that AIG CFGI is a nonresident foreign corporation organized and existing under the laws of the State of Delaware, U. S. A. with business address at 70 Pine Street, New York City, New York, USA; that AIG CFGI is the parent company of AIG Credit; that the primary purpose of AIG Credit is to promote the sale and/or patronage of goods, merchandise and services of producers and traders who accept the credit, debit and/or charge cards issued by the AIG Credit to qualified clientele; that AIG CFGI was licensed to transact business in the Philippines on March 2, 1999, but said license was cancelled per Certificate of Cancellation of License of a Foreign Corporation approved on January 9, 2001, as showed in the Certificate of Corporate Filing/Information issued by the Securities and Exchange Commission dated August 13, 2004; that AIG Credit is a corporation organized and existing under the laws of the Philippines with principal office at 15/F San Miguel Properties Center, #7 St. Francis Avenue, Ortigas Center, Mandaluyong City; that AIG CFGI owned from the time of its incorporation and still currently owns 2,750,000 shares or representing 50% of the outstanding shares of AIG Credit per Certificate issued by AIG Credit's Corporate Secretary dated October 19, 2004; that on June 17, 2004, the Board of Directors of AIG Credit declared cash dividends of Ten Pesos and Fifty Two Centavos (P10.52) per share, or a total of Fifty Seven Million Eight Hundred Seventy Eight Thousand Seventy-six Pesos (P57,878,076.00), in favor of all stockholders of record as of June 17, 2004 payable by the end of July 2004. In reply, please be informed that Article 11 of the Philippines-United States tax treaty provides: "Article 11 "DIVIDENDS "1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. AHDaET "2. The rate of tax imposed by one of the Contracting States on the dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed a) 25 percent of the gross amount of the dividend; or b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any) at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. "xxx xxx xxx" In view of the foregoing, and since the recipient of the dividends, AIG CFGI, owns 50% of the outstanding shares of the voting stock of the paying corporation, AIG Credit, during the part the latter's taxable year which precedes the date of payment and during the whole of its prior taxable year, your opinion that the dividends to be paid to AIG Credits to AIG CFGI is subject to the preferential rate of 20%, is hereby confirmed. (BIR Ruling No. DA-ITAD 215-02 dated December 11, 2002) This ruling is issued based on 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