ITAD BIR Ruling No. 005-14

January 16, 2014 ITAD BIR RULING NO. 005-14 Article 10 (Dividends); Philippines-Singapore tax treaty Petrolift Inc. 6F MAPFRE Insular Corp. Center MBP 1220 Acacia Avenue Ayala Alabang Muntinlupa City Attention: Ms. Regina F. Magbitang Chief Financial Officer Gentlemen : This refers to your tax treaty application ("TTRA") filed on April 2, 2013, requesting confirmation that dividends paid by Petrolift Inc. (Petrolift) to Soleado Holdings PTE., LTD. (Soleado), are subject to income tax at the rate of 15% pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the Republic of Singapore with respect to Taxes on Income. Soleado is a foreign corporation duly organized and existing under the laws of Singapore. It is a registered taxpayer in Singapore with business address at No. 78 Shenton Way #04-02, Singapore. It is not registered as a corporation or a partnership in the Philippines per certification of non-registration issued by the Securities and Exchange Commission (SEC) on April 17, 2013. On the other hand, Petrolift is a domestic corporation duly organized and existing under the laws of the Philippines with principal address at 6F Mapfre Insular Corp., Center MBP 1220 Acacia Avenue, Ayala Alabang, Muntinlupa City. It is represented that Soleado is the registered owner of Five Hundred Three Million Seven Hundred Forty Thousand One Hundred Eighty (503,740,180) common shares constituting 39.72% of the issued and outstanding capital stock of Petrolift with a total of 1,268,350,452 shares as of record date of March 31, 2013; that 489,056,155 of these shares were acquired on April 15, 2010 and 14,684,025 were acquired on December 22, 2010; that on March 22, 2013, the board of directors of Petrolift has declared cash dividends in the amount of P0.19711 per share to all stockholders of record as of March 31, 2013; and that on April 29, 2013, the amount of Two Million Thirty-Six Thousand One Hundred Forty-Nine & 41/100 US Dollars (USD2,036,149.41) was remitted via telegraphic transfer through Security Bank Corporation to Soleado. HcDATC It is further represented, per sworn certification issued by the Chief Financial Officer of Petrolift dated May 9, 2013, that the issue subject of the above request is not under any investigation or on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal. In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code"), as amended, dividend paid to Soleado is subject to income tax at the rate of 30 percent, thus: "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Non-resident 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 interests, 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) and (d) above: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." For this purpose, you invoke the Philippines-Singapore tax treaty. Paragraphs 1 & 2 of Article 10 thereof provide: "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. ADaSEH 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. xxx xxx xxx" Under paragraphs 1 and 2 of Article 10, dividends arising in the Philippines and paid to a resident of Singapore may be taxed in the Philippines at a rate not to exceed (a) 15 percent if the company recipient of the dividends holds at least 15 percent of the outstanding share of the voting stocks of the company paying the dividends during the part of the paying company's taxable year which preceded the date of payment of the dividend and during the whole of its prior taxable year; and (b) 25 percent in all other cases. Accordingly, considering that Soleado owns Five Hundred Three Million Seven Hundred Forty Thousand One Hundred Eighty (503,740,180) common shares, constituting 39.72% of the total shares of Petrolift, which is more than 15 percent of its capital, since December 22, 2010 and has maintained its ownership of the 39.72% shareholdings in Petrolift during the part of taxable year which precedes the payment of the dividends and the whole of its prior taxable year, this office is of the opinion and so holds that the dividend paid by Petrolift to Soleado is subject to income tax at the rate of 15 percent of the gross amount thereof, pursuant to Article 10 (2) (a) of the Philippines-Singapore tax treaty. 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 Footnotes n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.