THE SUPREME COURT has upheld a tax court ruling that said Egis Road France was entitled to a reduced 10% tax rate in the country based on a treaty between France and the Philippines that provided the incentive.
In a resolution dated Jan. 30 and made public on Aug. 2, the tribunal said the French firm held a 99% stake in Egis Road Operations Philippines, S.A. or Egis Road Philippines.
“As the beneficial owner of the shares, Egis Road France may avail itself of the 10% reduced tax rate under Article 10 of the Tax Treaty, as amended,” according to the High Court’s ruling.
“Above all, it is clear that the dividend payments to Egis Road France met the requisites under the Tax Treaty, as amended.”
In 1978, the Philippines and France signed a tax treaty granting a reduced tax rate to French firms to avoid double taxation and fiscal evasion on income tax.
The deal granted a 10% reduction to the tax rate in connection with dividends paid by either a Philippine or French corporation to a resident of the other country.
The case stemmed from Egis Road Philippines’ two dividend payments to Egis Road France on May 6, 2010 and Aug. 31, 2010.
The Bureau of Internal Revenue (BIR) had ruled that Egis Road France was disqualified from seeking the reduced tax rate since it filed its tax treaty relief application (TTRA) late.
The High Court disagreed saying the treaty between the Philippines and France did not require the French firm to file its tax treaty application before its transactions to a specific period to avail of the reduced tax rate for dividends.
Citing the Vienna Convention on the Law of Treaties, the tribunal said the Philippines is obliged to comply with treaty conditions in good faith, otherwise, there would be negative effects on trade relations between the two countries.
The BIR’s denial of Egis Road France’s reduced tax rate stemmed from its revenue memorandum orders that were meant to streamline the processing of tax treaty relief applications.
The High Court said BIR orders cannot set aside benefits provided under an international treaty.
“While the Court lauds the BIR in its effort to streamline the process for TTRAs, the Philippines’ compliance with its treaty obligations cannot be sacrificed in the process.” — John Victor D. Ordoñez
