ITAD Ruling No. 147-03

October 2, 2003 ITAD RULING NO. 147-03 Article 10, RP-Switzerland BIR Ruling No. DA-ITAD 146-02 Castillo Laman Tan Pantaleon & San Jose Law Offices The Valero Tower, 122 Valero Street Salcedo Village, 1227 Makati City Attention: Atty. J. Gregson A. Castillo Atty. Rochelle A. Dayaon Gentlemen : This refers to your application for relief from double taxation dated June 19, 2003 requesting confirmation on behalf of your client, Firmenich Trading Corporation (Firtac) that the dividend payment to be made by Firmenich Philippines, Inc. (Firphil) to Firtac is subject to ten percent (10%) preferential tax rate pursuant to Article 10(2)(a) of the RP-Switzerland tax treaty. It is represented that Firtac is a nonresident foreign corporation duly organized and existing under the laws of Switzerland with office address at 1 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 certification dated June 18, 2003 issued by the Securities and Exchange Commission; that Firphil is a corporation duly organized and existing under the laws of the Philippines 2/F UPRC III Building, Don Chino Roces Avenue Extensions 2381, Makati City; that Firtac holds One Hundred Thirty Thousand Seven Hundred Forty Five (130,745) shares equivalent to Thirteen Million Seventy Four Thousand Five Hundred Pesos (P13,074,500.00) representing 99.99% of the capital stock of Firphil as of April 30, 2003; that on May 16, 2003, the Board of Directors of Firphil passed and approved the declaration of cash dividend in the amount of Fifteen Million Six Hundred Fifty Four Thousand Three Hundred Thirty One Pesos and 74/100 (P15,654,331.74) in favor of their stockholders on record as of April 30, 2003. In reply, please be informed that Article 10 of the RP-Switzerland tax treaty provides as follows: "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 partnership) which holds directly at least 10 per cent of the capital of the paying company; "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 aforementioned 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 146-02 dated August 22, 2002) . In view thereof, since Firtac 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 Firtac from Firphil are subject to 10% preferential tax rate pursuant to Article 10(2)(a) of the RP-Switzerland tax treaty, which shall apply to future declaration of dividends under similar conditions. 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