ITAD BIR Ruling No. 028-16

March 17, 2016 ITAD BIR RULING NO. 028-16 Article 10, Philippines-Singapore tax treaty Mass Corporation of the Philippines Unit 1004-1005 South Center Tower Madrigal Business Park 1770 Alabang, Muntinlupa City Attention: Atty. Salvador B. Belaro Jr. Corporate Secretary Gentlemen : This refers to your tax treaty relief application filed on November 11, 2015, requesting confirmation that dividend paid by MASS CORPORATION OF THE PHILIPPINES ("MCP") to MASS TRADING SINGAPORE PTE. LTD. ("MTS") is subject to income tax at 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 MTS 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 June 30, 2015; that MTS 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 October 6, 2015; and that MCP is a corporation organized and existing under the laws of the Philippines. It is further represented that the Board of Directors of MCP, at its special meeting on May 20, 2015, declared cash dividends in the amount of P5,800,000.00 out of the Corporation's unrestricted retained earnings in favor of its stockholders as of record date, which will be payable on December 1, 2015; and that MTS holds 8,494 common shares equivalent to P5,800,000.00 which constitute 99.9 percent of the shares of MCP since April 1, 2014, based on the Secretary's Certificate dated October 5, 2015. It is finally represented that the dividends subject of this ruling are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Sworn Statement issued by the Corporate Secretary of MCP on September 11, 2015. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, provides that dividend paid to MTS, 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 . (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 dividend 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. CAIHTE Accordingly, inasmuch as MTS, the recipient of the dividend from MCP, holds directly 99.9 percent of the capital of MCP since April 1, 2014, such dividend paid by MCP to MTS is 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. 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