ITAD Ruling No. 144-03

September 25, 2003 ITAD RULING NO. 144-03 RP-Germany Art. 4 & 10 BIR Ruling No. ITAD 109-02 Consultancy by Technicus Corporation 17th Floor, Globe Isla Plaza Cardinal Rosales Ave., cor. Samar Loop Cebu Business Park, Cebu City Attention: Hubert D. Tubio Managing Director Gentlemen : This refers to your application for relief from double taxation dated January 27, 2003, seeking this Bureau's opinion on the applicability of the RP-Germany tax treaty on the dividends to be remitted by Consultancy by Technicus Corporation (CbyT) to Deutsche Telekom AG (DTAG). It is represented that DTAG is a corporation duly organized and existing under the laws of the Federal Republic of Germany; that it is a stock company which has its business headquarters in Friedrich-Ebert-Allee 140, D-53113 Bonn, Germany; 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 January 9, 2003; that it owns fifty two thousand eight hundred six (52,806) shares representing 99.99% ownership of CbyT; that CbyT is a corporation duly organized and existing under the laws of the Republic of the Philippines, with business address at 17F Globe-Isla Plaza, Cardinal Rosales Avenue corner Samar Loop, Cebu Business Park, Cebu City; that at the Special Meeting held on 29 November 2002, CbyT's board of directors declared cash dividend in favor of its stockholders on record as of 06 December 2002, payable not earlier than April 15, 2003 amounting to P13,352,375.00. In reply, please be informed that Article 10 of the RP-Germany tax treaty provides: "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 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 the tax so charged shall not exceed: "a) 10 per cent of the gross amount of the dividends if the recipient is a company (excluding partnerships) which owns directly at least 25 per cent of the capital of the company paying the dividends; "b) in all other cases, 15 per cent of the gross amount of the dividends. "xxx xxx xxx "4. The term 'dividends' as used in this Article means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well, as income from other corporate rights assimilated to income from share by the taxation law of the State of which the company making the distribution is a resident, and income, derived by a sleeping partner from his participation as such and distributions on certificates of an investment-trust. "xxx xxx xxx" Based on the foregoing provisions, the Philippines may tax the dividends paid by a Philippine company to a Germany company which owns directly at least 25 per cent of the capital of the Philippine company paying the dividends at a rate not exceeding 10 per cent (10%)of the gross amount thereof. Since DTAG is a resident of Germany for tax purposes, this Office is of the opinion and so holds that the provisions of the RP-Germany tax treaty apply to DTAG. Accordingly, inasmuch as DTAG owns 99.99% of the outstanding stock of CbyT, the dividends to be remitted by CbyT to DTAG are subject to Philippine withholding tax at the rate of 10% pursuant to Article 10 of the RP-Germany tax treaty. (BIR Ruling No. DA-ITAD 109-02) 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