ITAD Ruling No. 146-02

August 22, 2002 ITAD RULING NO. 146-02 Art. 10, RP-Switzerland BIR Ruling No. ITAD 129-00 Castillo Laman Tan Pantaleon & San Jose The Valero Tower, 122 Valero Street Salcedo Village, Makati City Attention: J. Gregson A. Castillo Nini Priscilla D. Sison Gentlemen : This refers to your request dated June 11, 2002 for confirmation of your opinion that the dividends received by Firmenich Trading Corporation (Firtrac) from its subsidiary, Firmenich Philippines, Inc. (Firphil), are subject to 10% final withholding tax in accordance with Article 10(2)(a) of the RP-Switzerland tax treaty. It is represented that Firtrac is a non-resident foreign corporation duly organized and existing under the laws of Switzerland, with principal office at I, route des Jeunes, 1211-Geneva 8, Switzerland; 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 Certificate of Non-Registration dated June 20, 2002 issued by the Securities and Exchange Commission; that Firphil is a domestic corporation organized and existing under the laws of the Philippines with principal address at 2/F UPRC III Building, Don Chino Roces Ave. Extension 2281, Makati City; that Firtrac is the beneficial owner of 130,745 shares of stock of Firphil with a par value of P100.00 per share representing 99.99% of the total outstanding capital stock of Firphil; that on June 5, 2002, the Board of Directors of Firphil declared and authorized the payment of cash dividends in favor of its stockholders of the total amount of Twenty Nine Million Forty Eight Thousand Ninety Four Pesos (29,048,094.00) out of Firphil's accumulated unrestricted retained earnings as of June 30, 2001. In reply, please be informed that Article 10 of the RP-Switzerland 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 also be taxed in the Contracting 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 beneficial owner is a company (excluding partnerships) which holds directly at least 10 per cent of the capital of the paying company; DSEaHT b) 15 per cent of the gross amount of the dividends in all other cases; xxx xxx xxx 3. The term "dividends" as used in this Article means income from shares or other rights not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the taxation law of that State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions, dividends paid by a Philippine corporation to a resident of Switzerland may be taxed at a rate not exceeding 10 per cent of the gross amount of 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 Sept. 1, 2000 ) In view thereof, since Firtrac directly owns more than 10% of the capital stock of Firphil, this Office is of the opinion and so holds that the dividends to be received by Firtrac from Firphil are subject to 10% preferential tax rate pursuant to Article 10(2)(a) of the RP-Switzerland 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 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