ITAD BIR Ruling No. 017-12

January 10, 2012 ITAD BIR RULING NO. 017-12 Articles 10, Philippines-Singapore tax treaty; BIR Ruling No. 043-10 Ben Line Agencies Ground Floor, Unit 151 Velco Center R.S. Oca Street corner A.C. Delgado Street Port Area, Manila Attention: Ms. Susan Biron Jacinto Gentlemen : This refers to your tax treaty relief application filed on September 7, 2011, requesting confirmation that dividends payable by BEN LINE AGENCIES PHILIPPINES, INC. ("Ben Line-Philippines") to BEN LINE AGENCIES LIMITED. ("Ben Line") are subject to income tax of at preferential tax rate of 15 percent 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 Ben Line is a foreign corporation organized and existing under the laws of Singapore and a resident of Singapore based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore on August 12, 2011; that Ben Line is situated at #13-05 Southpoint, 200 Cantonment Road, Singapore; that Ben Line is not registered as a corporation or partnership in the Philippines based on Certification of Non-Registration of Company issued by the Securities and Exchange Commission ("SEC") on August 31, 2011; that Ben Line-Philippines is a domestic corporation situated at Ground Floor, Unit 151 Velco Center, R.S. Oca Street corner A.C. Delgado Center, Port Area, Manila, Philippines. It is further represented based on the Certificate issued by the Corporate Secretary of Ben Line-Philippines on June 6, 2011, that the Board of Directors of Ben Line-Philippines ,at its special meeting on June 2, 2011, declared cash dividends in the amount of P8,000,000.00 in favor of the stockholders of record of Ben Line-Philippines as of March 31, 2011, payable on November 3, 2011; and that Ben Line holds 19,998 shares equivalent to P1,999,800.00 at P1.00 per share which constitute 40 percent of the paid-up capital of Ben Line-Philippines . In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") ,as amended, provides that dividends payable to Ben Line ,a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "Section 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation . aDcETC (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): 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 provides that such dividends may be exempt from income tax or subject to reduced rate to the extent required by any treaty obligation on the Philippines, viz. : "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" With respect to a treaty, you invoke the Philippines-Singapore tax treaty. Paragraphs 1 and 2, 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. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Singapore may be taxed in the Philippines at a rate not to exceed: (a) 15 percent of the gross amount of dividends if the recipient of the dividends 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 percent of the outstanding shares of the voting stock of the paying company; and (b) 25 percent of the gross amount of the dividends in all other cases. TEAICc Accordingly, inasmuch as Ben Line, the recipient of the dividends from Ben Line-Philippines, holds directly at least 15 percent (in fact, almost 40 percent) of the capital of Ben Line-Philippines, such dividends paid by Ben Line-Philippines to Ben Line are subject to income tax at the rate of 15 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Singapore tax treaty. (BIR Ruling No. 043-10 dated September 17, 2010) 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