ITAD Ruling No. 140-05

November 18, 2005 ITAD RULING NO. 140-05 Art. 10, Philippines-Netherlands tax treaty BIR Ruling No. DA-ITAD-117-04 Picazo Buyco Tan Fider & Santos Law Office 18th, 19th & 17th Floors, Liberty Center 104 H.V. dela Costa Street, Salcedo Village Makati City Attention: Mr. Peter D.A. Barot Gentlemen : This refers to your letter dated September 2, 2005, on behalf of your clients, Marina Trading Corporation (Marina) and Mr. James Reid, requesting confirmation of your opinion that the dividends to be paid by Marina to Mr. Reid are subject to fifteen percent (15%) income tax pursuant to Article 10 of the Philippines-Netherlands tax treaty. It is represented that Marina is a corporation organized and existing under the laws of the Philippines with office address at 6/F CG Building, 101 Aguirre St., Legaspi Village, Makati City; that Mr. James Reid is a resident of The Netherlands with address at Diepenbrockstraat 19, 1077 VX Amsterdam, The Netherlands; that per Certification dated September 1, 2005, the Corporate Secretary of Marina certifies that as of date thereof, Mr. Reed owns Thirteen Thousand Nine Hundred Eighty Seven (13,987) Marina shares, or 2.55% of the 547,974 total outstanding shares of Marina; that on August 12, 2005, the Board of Directors of Marina declared cash dividends in the amount of One Hundred Thirty Eight Pesos (P138) per share, to stockholders of record as of September 14, 2005 and shall be payable on or around September 14, 2005. In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows: "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: DCcHIS 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. 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 Mr. Reid holds 2.55% of the capital of Marina, this Office is of the opinion and so holds that the dividend payments by Marina to Mr. Reid 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. 117-04 dated October 27, 2004) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service