BIR Ruling No. 013-13

January 3, 2013 BIR RULING NO. 013-13 Section 28 (B) (5) (b) 1997 Tax Code, as amended; BIR Ruling No. 323-11 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Veronica A. Santos Principal, Tax Division Gentlemen : This refers to your letter dated June 13, 2011, requesting confirmation that dividends to be paid by Bank of the Philippine Islands ("BPI") to your client DBS Bank Ltd. ("DBS") beginning June 1, 2003 and onwards are subject to the fifteen percent (15%) final withholding tax pursuant to Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997 ("Tax Code"), as amended. It is represented that DBS is a non-resident foreign corporation incorporated and existing under the laws of Singapore with address at 6 Shenton Way, DBS Building Tower 1#, Singapore 068809, as confirmed by its Certificate of Residence issued by the Inland Revenue Authority of Singapore; that DBS is not registered as a corporation or partnership licensed to do business in the Philippines per Certification of Non-Registration issued by the Securities and Exchange Commission ("SEC") dated April 8, 2011; that, on the other hand, BPI is a corporation organized and existing under the laws of the Philippines with office address at 6768 BPI Building, Ayala Avenue corner Paseo de Roxas, Makati City, as confirmed by its Amended Articles of Incorporation dated June 24, 2008; that, as of December 4, 2010, DBS is the beneficial owner of 309,278,747 BPI common shares with a par value of Php10.00 per share or 8.6967% of the issued and outstanding common shares of BPI as confirmed by the Certificate issued by the Corporate Secretary of BPI dated December 7, 2010; and that the market value of the aforementioned shares is Php17,953,631,263.35 at Php58.05 per share, as confirmed by the Certificate issued by the Corporate Secretary of BPI dated December 7, 2010. HAISEa It is further represented that under Singapore law, it is provided that dividends derived by a resident of Singapore on and after June 1, 2003, from sources outside Singapore, are exempt from Singapore income tax if the income tax imposed by the source country on such dividends is at least 15%, as confirmed by the provisions of Section 13 Subsections (6) to (9) of the Singapore Income Tax Act (SITA) and the letter issued by the Inland Revenue Authority of Singapore dated May 23, 2011, which states that the foreign dividend receivable from BPI shall be exempt from tax under Section 13 (8) of the SITA. It is further represented that on March 21, 2012, the Board of Directors of the Company, in a regular meeting wherein a quorum was present and acted throughout, passed and approved a resolution resolving to declare and pay a regular cash dividend in the amount of ninety centavos (Php0.90) per share for the first semester of the year 2012 and a special cash dividend of fifty centavos (Php0.50) per share. In reply, please be informed that Section 28 (B) (5) (b) provides as follows: "SEC. 28. Rates of Income Tax on Foreign Corporations. "(B) Tax on Nonresident Foreign Corporation. "(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. "(b) Intercorporate Dividends. A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in this subparagraph: Provided, That effective January 1, 2009, the credit against the tax due shall be equivalent to fifteen percent (15%), which represents the difference between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends ;" (Emphasis provided) aCcADT Under the aforequoted provision, the dividends to be paid by BPI to DBS are subject to fifteen percent (15%) Philippine income tax if DBS's country of domicile, Singapore, shall allow DBS a 15% deemed paid tax credit against its income tax due on such dividends in Singapore. It is noted that Section 13 (8) of SITA provides as follows: "(8) Where the conditions specified in subsection (9) are satisfied, there shall be exempt from tax (a) Any dividend derived from any territory outside Singapore ; (b) Any profit derived from any trade or business carried on by a branch in any territory outside Singapore of a company resident in Singapore; and (c) Any income derived from any professional, consultancy and other services rendered in any territory outside Singapore only if the Comptroller is satisfied that the income is derived, for the purposes of this Act, from outside Singapore. and received in Singapore (a) On or after 1st of June 2003 by any person, not being an individual resident in Singapore; xxx xxx xxx" (9) The conditions referred to in subsection (8) are (a) the income is subject to tax of a similar character to income tax (by whatever name called) under the law of the territory from which the income is received; (b) at the time the income is received in Singapore by the person resident in Singapore, the highest rate of tax of a similar character to income tax (by whatever name called) levied under the law of the territory from which the income is received on any gains or profits from any trade or business carried on by any company in that territory at that time is not less than 15%; and (c) the Comptroller is satisfied that the tax exemption would be beneficial to the person resident in Singapore" (underscoring supplied) ATSIED Applying the above-cited provisions, in relation to Section 28 (B) (5) (b) of the Tax Code, and pursuant to the letter issued by Inland Revenue Authority of Singapore dated May 23, 2011, it is clear that the dividends declared by BPI's Board of Directors on March 21, 2012 will not be taxable in Singapore on the part of DBS. It is worthy to mention that the Supreme Court, in the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc ., 160 SCRA 573 [1988] has ruled that exemption from taxes by the country of domicile of the non-resident corporate stockholder on dividends received, is sufficient basis for the applicability of the 15% tax rate. Thus: "While it may be true that claims for refund are construed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax on the dividends received by Glaxo from the Philippines should be considered as a full satisfaction of the given condition. For, as aptly stated by respondent court, to deny private respondent the privilege to withhold only 15% tax provided for under Presidential Decree No. 369 amending Section 24 (b)(1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporation's interest here and discourage them from investing capital in our country." The above ruling was reiterated in the case of Caltex (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA Case No. 4986 dated October 6, 1995 , wherein it was held that the dividends remitted by a domestic corporation to a resident of Bermuda is subject to 15% withholding tax inasmuch as Bermuda does not impose any tax on dividends received by corporations domiciled therein, pursuant to the Exempted Undertaking Tax Protection Act of 1966. In view of the foregoing, this Office hereby confirms your opinion that dividends declared by BPI on March 21, 2012 shall be subject to the preferential withholding tax rate of 15% on the part of DBS pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997, as amended, considering that under the SITA, dividends derived by DBS from sources outside Singapore, are exempt from Singapore income tax. (BIR Ruling No. 323-11 dated August 23, 2011) 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. aITECD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue