Isla Lipana & Co.

January 24, 2020 BIR RULING NO. OT-021-2020 Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended; BIR Ruling No. 069-2013 Isla Lipana & Co. 29th Floor, Philamlife Tower, 8767 Paseo de Roxas, 1226 Makati City Attention: AAA _______________ Gentlemen : This refers to your letter dated March 21, 2014, requesting on behalf of your client, Arisaig Global Emerging Markets Consumer Fund (Singapore) Pte. Ltd. ("Arisaig" for brevity) , for confirmation that the dividends received by Arisaig from its investments in Universal Robina Corporation ("Robina" for brevity) are subject to the 15% tax rate pursuant to Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended. Background: Robina is a domestic corporation duly organized and existing under Philippine laws and with office address at 43/F Robinsons-Equitable Tower, ADB Ave. cor. P. Poveda Street, Ortigas Center, Pasig City. It is registered with the Securities and Exchange Commission (SEC) under Registration No. _____ to engage in and carry the trade or business of food manufacturing. On the other hand, Arisaig is a private company limited duly organized and existing under the laws of Singapore with address at 7A Lorong Telok, Singapore 049020. It has no fixed place of business in the Philippines and is not registered as a corporation or as a partnership in the Philippines, as confirmed by the SEC in its Certification dated March 6, 2018. Arisaig has shareholdings in the Philippines from which it receives dividends from its investments. It holds 4,082,580 shares of Robina as of the ex-date. On July 31, 2012, Arisaig applied for a tax exemption scheme for Resident Funds pursuant to Section 13 (R) of the Singapore Income Tax Act ("SITA"). On August 27, 2012, Arisaig was issued a Letter of Approval by the Monetary Authority of Singapore approving the tax exemption scheme for the period commencing from July 31, 2012. On February 06, 2014, the Board of Directors of Robina approved the declaration of a regular cash dividend in the amount of _____________________ per share and a special cash dividend in the amount of _______________________ per share from the unrestricted retained earnings of Robina, to all stockholders of record as of February 26, 2014 and payable on March 24, 2014. In view thereof, Arisaig would like to confirm whether or not the dividends to be received from Robina are subject to the fifteen percent (15%) tax rate pursuant to Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended. In reply, please be informed that Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended, provides as follows: "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. xxx xxx xxx (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. xxx xxx xxx (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) Under the afore-quoted provision, the dividends to be paid by Robina to Arisaig are subject to fifteen percent (15%) Philippine income tax if Arisaig's country of domicile, Singapore, shall allow Arisaig a fifteen percent (15%) deemed paid tax credit against its income tax due on such dividends in Singapore. It is noted that Section 13R of SITA states that: " Exception of income of company incorporated and resident in Singapore arising from funds managed by fund manager in Singapore 13R. (1) Subject to such conditions as may be prescribed by regulations or specified in the letter of approval of the company, shall be exempt from tax income as the Minister may by regulations prescribe of a company incorporated and resident in Singapore and approved by the Minister or such person as he may appoint (referred to in this section as an approved company) arising from funds managed (a) in Singapore by a fund manager; or (b) by a person approved by the Minister or the person appointed by the Minister." Moreover Section 13 (8) of SITA provides that: "(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 purpose 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" (Emphasis and underscoring supplied) Applying the above-cited provisions, in relation to Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended, it is clear that the cash dividends declared by Robina's Board of Directors on February 06, 2014 will not be taxable in Singapore on the part of Arisaig. It is worthy to mention that the Supreme Court, in the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc. , 1 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." In view of the foregoing, this Office hereby confirms your opinion that dividends declared by Robina on February 06, 2014 shall be subject to the preferential withholding tax rate of fifteen percent (15%) on the part of Arisaig pursuant to Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended, considering that under SITA, dividends derived by Arisaig from sources outside Singapore, are exempt from Singapore income tax. (BIR Ruling No. 069-2013 dated February 18, 2013) 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, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. 160 SCRA 573 [1988].