Volenday, Inc.

March 21, 2023 ITAD BIR RULING NO. 006-23 Article 10 (2) (a) Philippines-Singapore Tax Treaty Volenday, Inc. Unit 3B, 2nd Floor Multinational Bancorporation Centre 6805 Ayala Avenue 1226 Makati City Attention: AAA Authorized Representative Gentlemen : This refers to your tax treaty relief application, which was filed on March 18, 2022, requesting confirmation that the dividend payments made by Volenday, Inc. (VI) to BBB (BBB), a resident of Singapore, are subject to the preferential income tax rate of 15% 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 (PH-Singapore Tax Treaty). cSEDTC FACTS BBB is a Spanish individual and a resident of Singapore for Income Tax purposes for calendar year 2021 based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore. On the other hand, VI is a corporation organized and existing under the laws of the Philippines. It is primarily engaged in providing consultation, and technical and advisory services. On December 20, 2021, the Board of Directors of VI resolved to declare cash dividends in the amount of _________________ Pesos (PHP__________) out of its retained earnings as of June 30, 2021 to its shareholders of record as of December 22, 2021, payable on December 28, 2021. Based on the Secretary's Certificate dated March 17, 2022, BBB holds 99,168 common shares as of record date, which represent 99.17% of the outstanding shares of VI. Therefore, he is entitled to receive dividends amounting to P __________. RULING In reply, please be informed that under Section 25 (B) of the National Internal Revenue Code of 1997 (Tax Code), as amended, income derived by a nonresident alien not engaged in trade or business within the Philippines is subject to income tax at the rate of 25%, to wit: AIDSTE SEC. 25. Tax on Nonresident Alien Individual. xxx xxx xxx (B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every non-resident alien individual not engaged in trade or business within the Philippines as interest, cash and/or property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income, and capital gains, a tax equal to twenty-five percent (25%) of such income. However, under Section 32 (B) (5) of the Tax Code, as amended, such income is exempt to the extent required by any treaty obligation binding upon the Philippine government: 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. xxx xxx xxx Relative thereto, Article 10 of the PH-Singapore Tax Treaty provides as follows: 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 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 percent of the gross amount of the dividends. SDAaTC xxx xxx xxx Based on the foregoing treaty provision, the lower rate of 15% shall be applied only when the recipient is: 1. the beneficial owner of the dividends; and 2. a company that holds at least 15% of the outstanding shares of the voting stock of the paying company during the part of latter's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year, if any. In this case, the second requisite is absent since the beneficial owner of the dividends is an individual resident of Singapore and not a company. Therefore, the higher rate of 25% shall be imposed on the dividends paid by VI to BBB. This ruling is issued based on the facts as represented. However, if it will be disclosed upon investigation 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.) ROMEO D. LUMAGUI, JR. Commissioner of Internal Revenue