ITAD Ruling No. 159-05

December 16, 2005 ITAD RULING NO. 159-05 Article 10 (2) (a), Philippines-Netherlands tax treaty BIR Ruling No. DA-ITAD 126-04 Hoya Lens Philippines, Inc. 10/F Sterling Centre cor. Ormaza and dela Rosa Sts. Legaspi Village, Makati City Philippines Attention: Ms. Annalisa Y. Navarez Accounting Supervisor Gentlemen : This refers to your application for relief from double taxation dated September 2, 2005, requesting confirmation of your opinion that the dividend payments of Hoya Lens Philippines, Inc. (Hoya Philippines) to Hoya Holding N.V. (Hoya Netherlands) are subject to a 10% preferential withholding tax rate, pursuant to Article 10(2)(a) of the Philippines-Netherlands tax treaty. It is represented that Hoya Netherlands is a nonresident foreign corporation organized and existing under the laws of The Netherlands with office address at Amsterdamseweg 29, 1422 AC Uithoorn, The Netherlands as certified by the Trade Register of the Chamber of Commerce and Industry for Amsterdam; that it is not registered either as a corporation or a partnership in the Philippines per Certification dated July 26, 2005 issued by the Securities and Exchange Commission; that Hoya Philippines is a domestic corporation organized and existing under laws of the Philippines, with office address at 10/F Sterling Centre corner Ornaza and dela Rosa Sts., Legaspi Village, Makati City, Philippines; that Hoya Netherlands is the registered owner of 29,995 shares of stock of Hoya Philippines valued at Twenty Nine Million Nine Hundred Ninety Five Thousand Pesos (Php29,995,000.00); that other than those of the other nominee shareholders, said shares of stock constitute almost one hundred percent (100%) of the total outstanding capital stock of Hoya Philippines; and that on July 4, 2005, the Board of Directors of Hoya Philippines unanimously approved and declared cash dividends in the amount of Four Million Five Hundred Thousand Pesos (Php4,500,000.00) to all stockholders on record as of the year ended March 31, 2005. In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as follows, viz: "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. EATcHD 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. xxx xxx xxx 4. 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 that distribution is a resident. xxx xxx xxx" Based on the above-cited provisions, the 10 percent preferential tax rate on dividends apply whenever the beneficial owner/recipient of the dividend owns directly at least 10 percent of the capital of the paying company. In all other cases, the 15 percent preferential tax rate applies. Such being the case and considering that Hoya Netherlands holds almost 100% of the capital of Hoya Philippines, this Office is of the opinion and so holds that the dividend payments by Hoya Philippines, to Hoya Netherlands, shall be subject to the preferential tax rate of 10 percent, based on the gross amount thereof, pursuant to Article 10(2)(a) of the Philippines-Netherlands tax treaty. ( BIR Ruling No. ITAD 28-99; see also BIR Ruling No. 559-88 ) 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 effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service