ITAD Ruling No. 181-03

November 25, 2003 ITAD RULING NO. 181-03 Article 10, RP-Germany BIR Ruling No. DA-ITAD-52-02 Cochingyan & Partners Law Offices Suite 604 Richmonde Plaza No. 21 San Miguel Avenue, cor. Lourdes St. Ortigas Central Business District Pasig City, Metro Manila Attention: Jose Cochingyan, III Maria Pilar S. Henson Gentlemen : This refers to your letter dated September 9, 2003 on behalf of CPL Unternehmensberatung fr Organisation und Datenverarbeitung GmbH (CPL GmbH) requesting for the application of the preferential tax rate of ten percent (10%) on the dividends which CPL GmbH will receive from CPL Philippines Inc., (CPL Philippines), pursuant to the RP-Germany tax treaty. It is represented that CPL GmbH is a corporation duly organized and existing under the laws of the Federal Republic of Germany with office address at Friedrich-Ebert-Damm 145 D-22047 Hamburg, Germany; that it is not licensed to engage in business in the Philippines either as a corporation or as a partnership per Securities and Exchange Commission Certification dated July 15, 2003; that CPL Philippines, on the other hand, is a corporation duly organized and existing under the laws of the Philippines with office address at Unit 1607, 88 Corporate Centre, 141 Valero corner Sedeo Streets, Salcedo Village, Makati City; that CPL GmbH owns 749,995 shares of CPL Philippines with a par value of P 1.00 per share representing 49.99% of the capital stock of CPL Philippines; that at the Special Joint Meeting of the Stockholders and Board of Directors of CPL Philippines held on November 25, 2002, a resolution was approved and resolved declaring cash dividends equivalent to Four Million and Five Thousand Pesos (Php 4,005,000.00), to the stockholders of record as of December 29, 2002, and be payable on any date after March 2003 as soon as funds are available and at the convenience of the management of CPL Philippines; and that at the Joint Annual Meeting of the Stockholders and Board of Directors of CPL Philippines held on June 16, 2003, a resolution was approved and resolved declaring cash dividends equivalent to Eight Million Ten Thousand Pesos (Php 8,010,000.00) to the stockholders of record as of June 16, 2003, and be payable as soon as funds are available and at the convenience of the management of CPL Philippines. In reply, please be informed that Article 10 of the RP-Germany tax treaty provides, viz : "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 be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but the tax so charged shall not exceed: "(a) 10 per cent of the gross amount of the dividends if the recipient is a company (excluding partnerships) which owns directly at least 25 per cent of the capital of the company paying the dividends; IDCScA "(b) in all other cases, 15 per cent of the gross amount of dividends. "xxx xxx xxx" "4. The term 'dividends' as used in this Article means income from shares, mining shares, founders' shares or other right, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident, and income derived by a sleeping partner from his participation as such and distributions on certificates of an investment-trust." "xxx xxx xxx" Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Germany at a rate not exceeding 10 per cent if the German company holds directly at least 25 per cent of the capital of the Philippine company paying the dividend. Accordingly, inasmuch as CPL GmbH holds 49.99% of the capital stock of CPL Philippines, this Office is of the opinion and so holds that the dividends to be received by CPL GmbH to the ten percent (10%) preferential tax rate pursuant to Article 10(2)(a) of the RP-Germany tax treaty. ( BIR Ruling No. DA-ITAD-52-02 dated April 16, 2002 ) 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. IcaHCS Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service