ITAD BIR Ruling No. 004-11

January 19, 2011 ITAD BIR RULING NO. 004-11 Article 10, Philippines-Singapore tax treaty; BIR Ruling No. 010-84; BIR Ruling No. DA-ITAD-024-08; BIR Ruling No. DA-ITAD-058-08; BIR Ruling No. DA-ITAD-079-08; BIR Ruling No. ITAD-082-02 Deutsche Regis Partners, Inc. 23/F Tower One, Ayala Triangle 1226 Makati City Attention: Ma. Judith D. Tanedo Daniel I. Orajay Gentlemen : This refers to your Tax Treaty Relief Application (TTRA) filed on December 17, 2010, requesting confirmation of your opinion that the dividends paid by Deutsche Regis Partners, Inc. ("DRPI") to Deutsche Asia Pacific Holdings Pte Ltd. ("DAPH") are subject to final withholding tax at the preferential rate of 15 percent of the gross amount of dividends, pursuant to Article 10 (2) (a) of the Convention between the Republic of the Philippines and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Singapore tax treaty"). cACDaH It is represented that DAPH is a corporation organized and existing under the laws of Singapore and is a resident of Singapore with principal address at 1 Raffles Quay #17-10 Singapore 048583 based on the Certificate of Residence issued by Ms. Chiam Yah Fang, Assistant Commissioner of the Corporate Tax Division for Comptroller of Income Tax of the Inland Revenue Authority of Singapore dated November 6, 2010; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated November 19, 2010; and that, on the other hand, DRPI is a corporation organized and existing under the laws of the Philippines with principal address at 23/F Tower One, Ayala Triangle, Makati City 1226. It is further represented, based on the Secretary's Certificate issued by DRPI dated November 11, 2010, that since December 31, 2009, DAPH is the legal and beneficial owner of 489,998 common shares with a par value of PhP100.00 per share or an aggregate of PhP489,998,000 which constitute 48.9998% of the issued and outstanding capital stock of DRPI; that at the meeting held on November 5, 2010, the Board of Directors of DRPI passed a resolution declaring a cash dividend payable to all stockholders of record as of December 31, 2009 equivalent to PhP42,000,000.00 to come from the unrestricted retained earnings of DRPI as of December 31, 2009 and payable on December 28, 2010. It is finally represented that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal per Sworn Statement issued by DRPI dated November 18, 2010. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, applies, in general, to dividends received by a nonresident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporations. (B) Tax on Nonresident Foreign Corporation. (1) In General. Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interest, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments, or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph 5(c): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." EcHaAC However, Section 32 (B) (5) of the Tax Code of 1997, as amended provides: "Section 32. Gross Income. (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." In this particular case, you invoked Article 10 of the Philippines-Singapore tax treaty. It provides: "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 State. 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 per cent of the gross amount of the dividends if the recipient is a company (including partnership) and during the part of the paying company's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 15 per cent of the outstanding shares of the voting stock of the paying company was owned by the recipient company; and b) in all other cases, 25 per cent of the gross amount of the dividends. 3. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founder's shares or other rights, not being debt-claims, participating in profits, as well as income assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident." Based on the aforequoted provisions, the 15 percent preferential tax rate on dividends applies whenever the recipient of the dividends owns at least 15 percent of the outstanding voting shares of the paying company, which 15 percent shareholdings should have existed during the part of the paying company's taxable year immediately preceding the date of payment of the dividends and during the whole of its prior taxable year, if any. aIEDAC Since DAPH holds 48.9998% of the total outstanding and voting shares of DRPI during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year which is more than 15 percent of the outstanding and voting shares of DRPI, dividends received by DAPH shall be subject to the preferential tax rate of 15 percent, pursuant to the Article 10 (2) (a) of the Philippines-Singapore tax treaty. (BIR Ruling No. 010-84 dated January 19, 1984; BIR Ruling No. DA-ITAD-024-08 dated April 9, 2008; BIR Ruling No. DA-ITAD-058-08 dated August 11, 2008; BIR Ruling No. DA-ITAD-079-08 dated October 29, 2009; BIR Ruling No. ITAD-082-02 dated May 2, 2002) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue