ITAD Ruling No. 146-04

December 17, 2004 ITAD RULING NO. 146-04 Article 10, Philippines-Netherlands tax treaty BIR Ruling No. DA-ITAD-123-03 Asian Insights, Inc . Unit 408, Ferros Bel-Air Tower 30 Polaris corner Durban Streets Bel-Air, Makati City Attention: Teresa R . Tam-Yap Gentlemen : This refers to your letter dated May 26, 2004 requesting confirmation of your opinion that the dividend payments of your client, Kalayaan Power Management Corporation (KPMC), to Edison Mission Operation & Maintenance Services B.V. (EDISON) and IMPSA Construction Services B.V. (IMPSA), are subject to the preferential tax rate of ten percent (10%) of the gross amount of dividends pursuant to Article 10(2)(a) of the Philippines-Netherlands tax treaty. It is represented that EDISON and IMPSA are nonresident foreign corporations duly organized and existing under and by virtue of the laws of The Netherlands with office addresses at 3521 CB Utretcht, Netherlands, Croeselaan 18 and Blaak 16, 3011 TA, Rotterdam, Netherlands, respectively; that EDISON and IMPSA are not registered either as corporations or as partnerships licensed to do business in the Philippines per certifications issued by the Securities and Exchange Commission both dated June 7, 2004; that KPMC is a domestic corporation organized and existing under Philippine laws; that Edison and IMPSA are stockholders of record of KPMC as of May 27, 2004, as follows: Name of No. of Shares Amount Percentage Corporation Subscribed Ownership Edison 49,247 P4,924,700.00 49.996% KPMC 49,247 P4,924,700.00 49.996% It is further represented that on March 23, 2004, the Board of Directors of KPMC unanimously approved the declaration of cash dividends in the amount of Twenty Six Million Nine Hundred Thirty One Thousand and Twenty Nine Pesos (P26,931,029.00) in favor of all of its stockholders of record as of December 31, 2003 payable on or before April 30, 2004. cHESAD 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: 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 : (emphasis supplied) b). 15 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx" Based on the aforequoted provision, the Philippines may tax the dividends paid by a Philippine company to a Netherlands company at a rate not exceeding 10% of the gross amount of dividends if the last-mentioned company, who is the beneficial owner of the dividends, holds directly at least 10% of the capital of the Philippine corporation, and at the rate of 15% in all other cases. Accordingly, considering that EDISON and IMPSA each holds 49.996% of the outstanding capital stock of KPMC, this Office is of the opinion and so holds that the dividend remittances of KPMC to EDISON and IMPSA are subject to the preferential tax rate of 10% of the gross amount of dividends pursuant to Article 10(2)(a) of the Philippines-Netherlands tax treaty. (BIR Ruling No. DA-ITAD-123-03 dated August 11, 2003) cTECIA 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