ITAD BIR Ruling No. 025-15

March 23, 2015 ITAD BIR RULING NO. 025-15 Article 10, Philippines-Singapore tax treaty Chavez Hechanova & Lim Law Offices Unit 7D, 7th Floor, Corinthians Plaza Condominium 121 Paseo de Roxas cor. Gamboa Sts. Makati City Attention: Atty. Maria Regina A. Ruiz Representative Gentlemen : This refers to your tax treaty relief application filed on May 23, 2012, on behalf of Unibros Investment Pte. Ltd. (" UIPL "), requesting that dividend paid by Philippine Prosperity Chemicals, Inc. ( "PPCI" ) to UIPL 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 UIPL, with office address at 12 Soon Lee Rd., Singapore 628076, 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 March 14, 2012; that UIPL 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 May 16, 2012; and that, on the other hand, PPCI is a domestic corporation duly organized and existing under Philippine laws, located at the Unit 1201 Picadilly Star Bldg., 4th Avenue corner 27th St., Fort Bonifacio, Global City. It is also represented, per Secretary Certificate dated May 17, 2012, that at its special meeting on March 9, 2012, the Board of Directors of PPCI declared cash dividend in the amount of Php20,000,000.00 in favor of all stockholders of record as of December 31, 201; * that as of December 31, 2011, UIPL is the legal and beneficial owner of 5,877,837 common shares, with a par value of Php10.00 per share, with an aggregate amount of Php58,778,370.00, consisting of 39.99% ownership in PPCI; that these shares were acquired by UIPL on various dates from May 4, 2002 to December 31, 2007 through purchase and stock dividends per Secretary's Certificate dated May 22, 2012; and that dividend was paid by PPCI to UIPL on June 6, 2012 as evidenced by an Application for Telegraphic Transfer of PPCI in Metro Bank dated June 6, 2012. EHTISC It is finally represented, based on the Sworn Statement by the Corporate Secretary of PPCI on May 22, 2012, 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. 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" Thus, Article 10 of the Philippines-Singapore tax treaty which is invoked may apply to this instance case. It provides: aHcDEC "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 percent 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. TIEHDC 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 the beneficial owner of the subject royalty, UIPL, is a company resident of Singapore with no fixed place of business in the Philippines, and holds 39.99% of the total outstanding shares of stock of PPCI (which in fact exceeds the minimum required percentage of holding of 15 percent) since May 2002 up to the present, the dividend paid to it by PPCI shall be subject to income tax in the Philippines at the rate of 15 percent based on the gross amount thereof, pursuant to Article 10 (2) (a) of the Philippines-Singapore tax treaty. ADScCE 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