ITAD Ruling No. 150-03

October 8, 2003 ITAD RULING NO. 150-03 Art. 10, RP-Netherlands Tax Treaty BIR Ruling No. DA-ITAD-50-03 Siguion Reyna Montecillo & Ongsiako 4th & 6th Floor, Citibank Center 8741 Paseo de Roxas Makati City Attention: Atty. Jose Lis C. Leagogo Gentlemen : This refers to your letter dated May 19, 2003, on behalf of you client, Swedish Match Philippines, Inc. (Swedish Phil), requesting for approval that its dividend payments to Swedish Match Group B.V. (Swedish Netherlands) are subject to the 10% preferential tax rate pursuant to the RP-Netherlands tax treaty. It is represented that Swedish Netherlands is a corporation organized and existing under the laws of the Netherlands with principal office address at J. F. Kennelylaan 3 5555XC Valkenswaard, The Netherlands; 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 July 28, 2003 issued by the Securities and Exchange Commission; that Swedish Phil is a corporation organized and existing under the laws of the Philippines with principal office address at Phimco Compound, Punta Sta. Ana, Manila; that Swedish Netherlands owns 4,512,203 common shares of Swedish Phil with a par value of One Hundred Pesos (P100.00) per share amounting to Four Hundred Fifty One Million Two Hundred Twenty Thousand Three Hundred Pesos (P451,220,300.00), representing 99.99% of the total issued and outstanding shares of stock of Swedish Phil; that on May 20, 2003, the Board of Directors of Swedish Phil declared the distribution of cash dividends to stockholders of record as of December 31, 2002 in the amount of P0.55405 per share; and that the said dividend shall be paid out within ten (10) days from the date of record. In reply, please be informed that Article 10 of the RP-Netherlands tax treaty provides: "Article 10 "Dividends "1. Dividends paid by a company which is 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; "(b) 15 per cent of the gross amount of the dividends in all other cases. "3. . . . "4. . . . "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 aforequoted provisions, the dividends paid by a Philippine company to a resident of the Netherlands may be taxed at a rate not exceeding ten percent (10%) of the gross amount of the dividends if the recipient is the beneficial owner of such dividends and a company which holds directly at least ten percent (10%) of the capital of the Philippine corporation. Accordingly, inasmuch as Swedish Netherlands which is the beneficial owner of the dividends, holds directly 99.99% of the outstanding capital stock of Swedish Phil, this Office is of the opinion and so holds that the dividends remitted by Swedish Phil to Swedish Netherlands are subject to the preferential rate of ten percent (10%) pursuant to the Article 10(2)(a) of the RP-Netherlands tax treaty. (BIR Ruling No. DA-ITAD-50-03 dated April 8, 2003) This ruling is issued based on 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. TDaAHS Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service