ITAD Ruling No. 196-03

December 30, 2003 ITAD RULING NO. 196-03 Art. 10, RP-France tax treaty BIR Ruling No. DA-ITAD-64-03 Law Office of A.M. Sison, Jr. & Associates Suite 2002-A Security Bank Centre 6776 Ayala Avenue, 1226 Makati City Attention: Atty. Antonio L. Cardio Gentlemen : This refers to your letter dated October 7, 2003, on behalf of your clients Sara Lee France S.N.C. (Sara Lee-France) and Sara Lee Philippines, Inc. (Sara Lee-Phil), requesting for a tax treaty relief ruling and refund of overpaid withholding tax pursuant to the RP-France tax treaty. It is represented that Sara Lee-France is a corporation organized and existing under the laws of France with principal address at 2, rue Nicephore Niepce, 71400 Autun, France; 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 issued by the Securities and Exchange Commission dated August 26, 2003; that Sara Lee-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 24th Flr., Insular Life Corporate Center, Corporate Avenue, Filinvest Corporate City, Alabang, Muntinlupa City; that since December 30, 2002, Sara Lee-France holds 2,097,902 shares representing 54.11% of the outstanding capital stock of Sara Lee-Phil; that on the meeting of the Board of Directors of Sara Lee-Phil held on April 29, 2003, it was resolved that a cash dividends of P300,000,000 or P77.38 per share be declared out of company's retained earnings in the amount of P720,136,440 as of June 30, 2002 payable on May 15, 2003 to stockholders of record as of December 30, 2002. In reply please be informed that Article 10 of the RP-France 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 Contracting State. TIcEDC "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 if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: "(a) 15 percent of the gross amount of the dividends if the recipient is a company (excluding partnership) which holds directly at least 10 per cent of the voting shares of the company paying the dividends, "(b) in all other cases, 25 percent of the gross amount of the dividends." "xxx xxx xxx" Pursuant to Article 5 of the Protocol to the Tax Convention between the Government of the Republic of the Philippines and the Government of the French Republic signed on January 9, 1976 and which became effective on January 1, 1998, the above-mentioned rates were reduced to 10% and 15%, respectively, which reads, viz : "Article 5 "In Article 10 of the Convention: -in paragraph 2, the rates of `15 percent' and `25 percent' are replaced respectively by `10 percent' and `15 percent'; Based on the aforequoted provisions, dividends paid by a Philippine corporation to a resident of France may be taxed at a rate not exceeding 10 percent of the gross amount of the dividends if the recipient is a company which holds directly at least 10 percent of the capital of the Philippine corporation. Such being the case, this Office is of the opinion and so holds that since Sara Lee-France owns 54.11% of the outstanding capital stock of Sara Lee-Phil, the cash dividends to be paid by Sara Lee-Phil to Sara Lee-France are subject to 10 percent final withholding tax pursuant to Article 10 of the RP-France tax treaty. (BIR Ruling No. DA-ITAD-64-03 dated April 25, 2003) This ruling is issued on the basis of the facts as represented and is rendered only for the purpose of determining whether Sara Lee-France is entitled to the benefits of the RP-France tax treaty. The determination on whether your request for tax refund should be given due course is upon the Office which will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including a copy of this ruling) shall be endorsed to the proper office for processing and investigation. HTASIa Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service