ITAD BIR Ruling No. 016-15

March 20, 2015 ITAD BIR RULING NO. 016-15 Article 10 (Dividends), Philippines-Singapore tax treaty Cesar C. Cruz & Partners Law Offices 3001 Ayala-Life-FGU Center 6811 Ayala Avenue Makati City 1227 Attention: Cesar C. Cruz Corporate Secretary Gentlemen : This refers to your tax treaty application ("TTRA") filed on June 26, 2013, requesting confirmation that dividends paid by Sojitz Philippines Corporation (Sojitz Phil) to Sojitz Asia PTE. LTD. (Sojitz-SG) , 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. Sojitz-SG 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. 77 Robinson Road, 31-00 Robinson Road, 77 Singapore 068896. 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 on June 25, 2013. On the other hand, Sojitz-PH is a domestic corporation duly organized and existing under the laws of the Philippines with principal address at 24F Pacific Star Bldg., Sen. Gil J. Puyat cor. Makati Avenue, Makati 1209. It is represented that Sojitz-SG is the registered owner of Forty Seven Thousand Nine Hundred Ninety-Eight (47,998) common shares constituting 60% of the issued and outstanding capital stock of Sojitz Phil as of record date of March 31, 2013 and as of payment of the subject dividends; that these shares were acquired on January 7, 2005 by original subscription; that on March 15, 2013, the board of directors of Sojitz Phil has declared cash dividends in the amount of P15,000,000.00 or at P187.50 per share to all stockholders of record as of March 31, 2013; and that on July 23, 2013, the amount of One Hundred Twenty-Five Thousand Four Hundred Thirty-Five and 54/100 US Dollars (USD125,435.54) was paid by Sojitz Phil to Sojitz-SG. It is further represented, per sworn certification issued by the Corporate Secretary of Sojitz-SG dated June 26, 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 Sojitz-SG 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: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)". aICHEc However, under Section 32 (B) (5) of the Tax Code, these dividends may be 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. 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 Sojitz-SG owns 60% of the total shares of Sojitz Phil , which is more than 15 percent of its capital, since January 7, 2005, this office is of the opinion and so holds that the dividend paid by Sojitz Phil to Sojitz-SG 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