ITAD BIR Ruling No. 005-15

January 13, 2015 ITAD BIR RULING NO. 005-15 Article 10, Philippines-Singapore tax treaty Keppel Philippines Marine, Inc. Unit 3-B Country Space 1 Bldg. Sen. Gil Puyat Avenue Salcedo Village 1200 Makati City Attention: Ms. Agnes Barbara L. Lorenzo Senior Vice President Gentlemen : This refers to your tax treaty relief application filed on July 17, 2013, on behalf of KS INVESTMENT PTE. LTD. ("KS Investment") , requesting confirmation that dividend paid by KEPPEL PHILIPPINES MARINE, INC. ("Keppel") to KS Investment is subject to 15 percent preferential tax rate pursuant to 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") . It is represented that KS Investment, with address at 50 Gul Road, Singapore 629351, is a resident of Singapore under the provisions of the Philippines-Singapore tax treaty per Certificate of Residence issued by the Inland Revenue Authority of Singapore dated July 8, 2013; that KS Investment is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on July 16, 2013; and that, on the other hand, Keppel is a domestic corporation duly organized and existing under Philippine laws, located at Unit 3-B, Country Space 1 Bldg., Sen. Gil Puyat Avenue, Salcedo Village, Makati City. It is also represented that on June 19, 2013, the Board of Directors of Keppel declared payment of Php0.10 or 10% per share cash dividend in the total amount of Php200,702,524.00 out of the unrestricted retained earnings of Keppel as of December 31, 2012 to its shareholders of record as of July 9, 2013; that per Certification dated July 11, 2013, KS Investment, as of July 9, 2013, is the owner of 1,972,379,671 common shares, with a par value of Php1,992,379,671.00 which constitutes 98.27% ownership in Keppel ; that these shares were acquired by KS Investment on various dates through original subscription; and that the subject dividend was paid to KS Investment on July 31, 2013 as evidenced by a Certification of Deposit issued by Kephinance Investment Plt. Ltd. It is finally represented, based on the Sworn Statement of KS Investment on June 20, 2013, that the transaction subject of the 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 of the taxpayer/s involved. SDATEc In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (Tax Code of 1997), as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (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 . . ., dividends, . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides that any income may be exempt to the extent required by any treaty obligation binding upon the Philippine Government, thus: "Section 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. xxx xxx xxx" Accordingly, there is Article 10 the Philippines-Singapore tax treaty which is invoked in this application. 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. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 4. 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. 5. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on in the other Contracting State of which the company paying the dividends is a resident, trade or business through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 6. Where a company which is a resident of a Contracting State derived profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to persons who are resident of that State, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits even if the dividends paid or undistributed profits consist wholly or partly of profits or income arising in such other State." Based on the aforequoted provisions, the Philippines may tax the dividends paid by its resident to a resident of Singapore at a rate not exceeding 15 percent if the recipient is a company, and during the part of the payor's taxable year which precedes the date of payment of the dividend, and, during the whole of the payor's prior taxable year, at least 15 percent of the outstanding shares of the voting stock of the paying company were owned by the recipient, and 25 percent in all other cases. Since KS Investment is a resident of Singapore with no fixed base of business in the Philippines which holds 98.2673% of the total outstanding shares of stock of Keppel since November 11, 2011 up to the present, the dividend paid to it by Keppel is subject to Philippines income tax at the rate of 15 percent based on 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 Bureau of Internal Revenue