ITAD BIR Ruling No. 017-13

February 1, 2013 ITAD BIR RULING NO. 017-13 Article 11 (Interest) Philippines-Singapore tax treaty Pan Century Surfactants, Inc. Barangay Osmea, Jose Panganiban Camarines Norte Attention: Mr. Sadiri D. Damo Finance and Commercial Officer Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on April 16, 2012 requesting confirmation that interest paid by Pan Century Surfactants, Inc. ("Pan Century Surfactants") to Swiss Singapore Overseas Enterprises Pte. Ltd. ("Swiss Singapore Enterprises") is subject to income tax at the 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") . cICHTD Facts Swiss Singapore Enterprises is a foreign corporation and a resident of Singapore based on its Memorandum of Articles of Association and its Certificate of Residence issued by the Inland Revenue Authority of Singapore on January 13, 2012. Swiss Singapore Enterprises is located at 3 Shenton Way, 14-01 Shenton House, Singapore. Swiss Singapore Enterprises is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Philippine Securities and Exchange Commission on dated April 4, 2012. On the other hand, Pan Century Surfactants is a domestic corporation located at Barangay Osmea, Jose Panganiban, Camarines Norte, Philippines. On June 30, 2011, Pan Century Surfactants and Swiss Singapore Enterprises entered into a Loan Agreement where Swiss Singapore Enterprises granted Pan Century Surfactants a credit facility not exceeding 3.2 million US dollars. The loan will be used as Pan Century Surfactants ' additional capital for its manufacture of fatty acids, fatty alcohol, glycerine and other raw materials for detergents and cosmetics for export abroad. The loan is subject to interest at the rate of 5 percent per annum. The loan has no fixed repayment schedule and payable on demand by Swiss Singapore Enterprises at any given time. Based on the Summary of Inward Remittance issued by Unionbank on March 28, 2012, Swiss Singapore Enterprises has remitted the following amounts to Pan Century Surfactants which were drawn from the credit facility, to wit: Date of Remittance Amount (in US Dollars) July 19, 2011 599,950.00 August 9, 2011 299,955.00 September 16, 2011 199,955.00 October 5, 2011 299,955.00 November 9, 2011 374,955.00 November 29, 2011 349,955.00 December 6, 2011 349,955.00 December 28, 2011 149,955.00 January 10, 2012 174,952.00 January 18, 2012 149,952.00 Total 2,949,539.00 ========= Based on the Certification issued by Pan Century Surfactants on May 17, 2012, it has not paid any interest to Swiss Singapore Enterprises to date with respect to the said drawdowns. 1 Ruling In reply, please be informed that interest paid by Pan Century Surfactants to Swiss Singapore Enterprises is subject to a reduced rate of income tax under paragraph 2, Article 11 of the Philippines-Singapore tax treaty, to wit: "Article 11 INTEREST 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation." Under paragraph 2, interest arising in the Philippines and paid to a resident of Singapore is subject to income tax at a rate not to exceed 15 percent. Accordingly, since Swiss Singapore Enterprises is a resident of Singapore, such interest paid to it by Pan Century Surfactants with respect to drawdowns made and to be made by Pan Century Surfactants under the credit facility shall be subject to income tax at the rate of 15 percent pursuant to paragraph 2, Article 11 of the Philippines-Singapore tax treaty. Furthermore, under Section 179 of the Tax Code, the Loan Agreement, being a debt-instrument, is subject to a documentary stamp tax of P1.00 for every P200.00 (or a fraction thereof) of the amount of each drawdown, to wit: "SEC. 179. Stamp Tax on All Debt Instruments . On every original issue of debt instruments, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos (P200),or fractional part thereof, of the issue price of any such debt instrument: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its terms in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan." SEcITC 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 1. Since the interest subject of the TTRA will be paid after the filing of the TTRA on April 16, 2012, such interest shall be subject to relief (exemption from income tax or reduction of tax) pursuant to Section 14 of Revenue Memorandum Order No. 72-2010 (Guidelines on the Processing of Tax Treaty Relief Applications (TTRA) Pursuant to Existing Philippine Tax Treaties) ("RMO 72-2010") ,to wit: " SEC. 14. WHEN AND WHERE TO FILE THE TTRA . All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms or any necessary documents are submitted to any other BIR Office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. " (Emphasis ours)