ITAD Ruling No. 129-02

August 2, 2002 ITAD RULING NO. 129-02 Article 10, RP-Netherlands BIR Ruling No. DA-ITAD-32-99 Foster Wheeler (Philippines) Corporation 7th Floor PDCP Bank Center Herrera Corner Leviste Street Salcedo Village, Makati City Attention: Rodolfo Eusebio President Gentlemen : This refers to your letter dated May 15, 2002, availing of the preferential tax treaty rate of ten per cent (10%) on the dividend payments of Foster Wheeler (Philippines) Corporation (Wheeler-Phils.) to Foster Wheeler Europe BV (Wheeler-Europe) pursuant to paragraph (2)(a) Article 10 of the RP-Netherlands tax treaty. It is represented that Wheeler-Europe is a non-resident foreign corporation with business address at PO Box 7241, 1007 JE Amsterdam, The 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 issued by the Securities and Exchange Commission dated December 12, 2001; that Wheeler-Phils. is a domestic corporation with principal office at 7th Floor PDCP Bank Center, Herrera corner Leviste Street, Salcedo Village, Makati City; that as of March 31, 2001, Wheeler-Europe, a registered shareholder of Wheeler-Phils., holds One Hundred Thirty Thousand Four Hundred Sixty Four (130,464) common shares with a total par value of P13,046,400; that on October 16, 2001, Wheeler-Phils. declared cash dividends in the total amount of Fifty Million Pesos (P50,000,000.00), to be distributed among stockholders of record as of 30 November 2001 pro-rata to their respective shareholdings, based on the number of shares held by them as of March 30, 2001. In reply, please be informed that Article 10 paragraph 2(a) of the RP-Netherlands tax treaty provides, 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. "3. . . . "4. . . . "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 aforequoted provisions, dividends paid by a Philippine company to a resident of The Netherlands may be taxed at a rate not exceeding 10 per cent of the gross amount of the dividends if the recipient is a company which holds directly at least 10 per cent of the capital of the Philippine corporation. ( BIR Ruling No. ITAD 129-00 dated September 1, 2000 ) In view thereof, since Wheeler-Europe has been holding 99.99% of the stock of Wheeler-Phils. as of March 31, 2001, the dividends received by Wheeler-Europe shall be subject to the preferential tax rate of 10 per cent pursuant to Article 10 of the RP-Netherlands tax treaty. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service