February 7, 2020

ITAD BIR RULING NO. 017-20

Article 10 (7),
Philippines-Netherlands tax treaty
Isla Lipana & Co.
29th Floor, Philamlife Tower
8767 Paseo de Roxas
1226 Makati City

Attention: AAA
________________

Gentlemen :
This refers to your tax treaty relief application filed on May 4, 2017
requesting confirmation that profits remitted to Quezon Power, Inc.
("Quezon Power-Netherlands") by Quezon Power, Inc.-Philippine
Branch ("Quezon Power-Philippines") are subject to income tax at the
preferential rate of 10 percent pursuant to the Convention between the
Republic of the Philippines and the Kingdom of the Netherlands for
the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income ("Philippines-Netherlands
tax treaty"). HTcADC

It is represented that Quezon Power-Netherlands is foreign

corporation organized and existing under the laws of the Netherlands and a
resident thereof based on its Certificate of Residence issued by the Tax
Administration Office of Rotterdam in the Netherlands; that Quezon Power-
Netherlands is licensed by the Securities and Exchange Commission to
establish a branch office in the Philippines; that the primary purpose of the
branch office is to develop, implement, design, engineer, and arrange for
financing, a 440 megawatt coal-fired power plant to be located in Quezon
Province, Philippines; and that the branch office referred herein is Quezon
Power-Philippines, with registered office at Octagon Centre, Pasig City,
Philippines.
It is further represented that, on separate occasions, the Board of
Directors of Quezon Power-Netherlands formally approved the remittance
of branch profits by Quezon Power-Philippines to Quezon Power-
Netherlands, to wit:
Â

Date of Gross amount of Date of

Declaration branch profits outward
remittance
 December 23, US$___________ December 23,
2016 2016

June 13, 2017 US$_________ June 10, 2017

July 10, 2018 US$_________ July 13, 2018

October 4, US$_________ October 8,

2018 2018

Â
It is finally represented that the income subject of this ruling is not
under investigation, on-going audit, administrative protest, claim for refund
or issuance of tax credit certificate, collection proceedings, or judicial
appeal, based on a sworn statement issued by Quezon Power-
Netherlands.
In reply, please be informed that Section 28 (A) (5) of the National
Internal Revenue Code (Tax Code) of 1997, as amended, provides that
profits remitted by a branch office to its head office abroad are subject to
branch profits remittance tax at the rate of 15 percent, thus: CAIHTE

"SEC 28. Â Rates of Income Tax on Foreign Corporations. —

(A) Â Tax on Resident Foreign Corporations. —
xxx xxx xxx
(5) Â Tax on Branch Profits Remittances. — Any profit
remitted by a branch to its head office shall be subject to a tax of
fifteen percent (15%) which shall be based on the total profits applied
or earmarked for remittance without any deduction for the tax
component thereof (except those activities which are registered with
the Philippine Economic Zone Authority). The tax shall be collected
and paid in the same manner as provided in Sections 57 and 58 of
this Code: Provided, That interests, dividends, rents, royalties,
including remuneration for technical services, salaries, wages,
premiums, annuities, emoluments or other fixed or determinable
annual, periodic or casual gains, profits, income and capital gains
received by a foreign corporation during each taxable year from all
sources within the Philippines shall not be treated as branch profits
unless the same are effectively connected with the conduct of its
trade or business in the Philippines.
xxx xxx xxx
However, paragraph 7, Article 10 of the Philippines-Netherlands tax
treaty provides that branch profits remitted by a permanent establishment in
the Philippines to its head office in the Netherlands are subject to tax at the
lower rate of 10 percent, to wit:
"Article 10
DIVIDENDS
xxx xxx xxx
7 . Â If a resident of one of the States has a permanent
establishment in the other State, this permanent establishment
 may be subject to an additional tax on the profits remitted by
that permanent establishment to its head office in accordance
with the law of the last-mentioned State, but the additional tax so
charged shall not exceed 10 per cent of the amount of the
remitted profits. This provision shall not apply to profits
mentioned in Article 8." (Underscoring supplied)
Under paragraph 2 (b), Article 5 of the same tax treaty, the term
"permanent establishment" includes a branch office, to wit:
"Article 5
PERMANENT ESTABLISHMENT
xxx xxx xxx
2. Â The term 'permanent establishment' includes especially:
a) Â a place of management;
b) Â a branch;
xxx xxx xxx"
In view of the above provisions, since Quezon Power-Philippines is a
permanent establishment of Quezon Power-Netherlands, branch profits
remitted by the former to the latter are subject to income tax at the rate of
10 percent pursuant to paragraph 7, Article 10 of Philippines-Netherlands
tax treaty.aScITE

This ruling is issued on the basis of the foregoing facts as represented.

If upon investigation it shall be disclosed that the actual facts are different,
this ruling shall be without force and effect insofar as the herein parties are
concerned.

Very truly yours,

(SGD.) CAESAR R. DULAY

Commissioner of Internal Revenue