ITAD Ruling No. 187-00

December 7, 2000 ITAD RULING NO. 187-00 RP-UK Article 9 239-82 Bush Boake Allen Philippines, Inc. 10-B Reliance cor Brixton Streets 1600 Pasig City Attention: Nelia G . Corpuz Accounting/Finance Manager Gentlemen : This refers to your application for relief from double taxation dated July 12, 2000, on behalf of A Boake Roberts and Co (Holding) Ltd, to avail of the preferential tax rate of 15 per cent final withholding tax on your dividend remittances pursuant to the RP-UK Tax Treaty. It is represented that A Boake Roberts and (Holding) Ltd. (Boake UK) is a non-resident foreign corporation duly organized and existing under the laws of the United Kingdom (UK) with principal address at Blackhorse Lane London E175QP England; that it is not registered as a corporation/partnership in the Philippines as per certification dated May 12, 1999 issued by the Securities and Exchange Commission; that it has no permanent establishment in the Phils; that it is a stockholder of Bush Boake Allen Philippines (Boake Phil), a corporation duly organized and existing under Philippine Laws and engaged in the manufacture of flavors, seasonings and fragrances; that on December 14, 1999, the Board of Directors of Boake Phil declared cash dividends out of its retained earnings in the amount of Fifty Million Pesos (PHP 50,000,000) to its stockholders of record as of December 20, 1999; that the said dividends are payable on or before January 25, 2000; that at the time of the declaration of said dividends, Boake UK owns 8,417,603 shares with a total par value of PHP8,417,603.00 representing more than 99 per cent of Boake Phil's outstanding capital stock; and that on January 25, 2000, Boake Phil paid dividends to Boake UK. DCcAIS In reply, please be informed that Article 9 paragraph 1 of the RP-UK Tax Treaty which reads, viz: "Article 9 Dividends "1. Dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed: (a) 15 per cent of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividends; (b) in all other cases, 25 per cent of the gross amount of the dividends. "xxx xxx xxx" "4. 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 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 also includes any other item (other than interest relieved from tax under the provisions of Article 10 of this Convention) which, under the law of the Contracting State of which the company paying the dividend is a resident, is treated as a dividend or distribution of a company. "5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply, if the beneficial owner of the dividends, being a resident of a Contracting State, carries on a trade or business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 7 or 13, as the case may be, shall apply. TEaADS "xxx xxx xxx" Based on the foregoing, dividend payments to a company which is a resident of UK and which does not have a permanent establishment in the Philippines will be taxed at a preferential tax rate not exceeding fifteen per cent (15%) of the gross amount of dividends if the said recipient is a company which owns at least 10 per cent of the voting power in the company paying the dividends, and a tax rate not exceeding twenty five per cent (25 %) of the gross amount of the dividends in all other cases. Such being the case, since Boake UK owns more than 10 per cent of the issued capital stock of Boake Phil and is not registered to engage in business in the Philippines through a permanent establishment situated therein, the cash dividends remitted by Bush Boake Allen Philippines (Boake Phil) to A. Boake Roberts and Co. (Holding) Ltd. (Boake UK) are subject to the preferential tax rate of 15 per cent based on the gross amount of dividends, pursuant to the RP-UK Tax Treaty. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group