ITAD BIR Ruling No. 033-15

March 23, 2015 ITAD BIR RULING NO. 033-15 Article 10, Philippines-Singapore Tax Treaty Star Cruises Hong Kong Management Services Philippines, Inc. Star Cruises Center 100 Andrews Avenue Brgy. 183, Pasay City Attention: Mr. Armando De Asa Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on June 7, 2013, on behalf of STARLET INVESTMENTS PTE. LTD. ("SIPL"), requesting confirmation that dividend paid by STAR CRUISES HONG KONG MANAGEMENT SERVICES PHILIPPINES, INC. ("Star Cruises") to SIPL are 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 SIPL, with address at 80 Robinson Road, #02-00, Singapore 068898, 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 May 15, 2013; that SIPL 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 April 2, 2013; and that, on the other hand, Star Cruises is a domestic corporation duly organized and existing under Philippine laws, located at Star Cruises Center, 100 Andrews Avenue, Brgy. 183, Pasay City. It is also represented, per Secretary's Certificate dated May 31, 2013, SIPL is the legal and beneficial owner of 1,998 common shares, with a par value of Php1,998.00, consisting 40% ownership in Star Cruises; that these shares were acquired by SIPL upon incorporation of Star Cruises on March 14, 2011 through original subscription; that on March 13, 2013, the Board of Directors of Star Cruises declared cash dividends in the amount of Five Hundred Nine Million Ninety-Nine Thousand One Hundred Ninety-Six Pesos (Php509,399,196.00) out of the unrestricted retained earnings of Star Cruises as of December 31, 2012 to its stockholders of record as of June 15, 2013; and that the subject dividends were paid to SIPL on June 28, 2013 as evidenced by a Certification dated July 11, 2013 issued by Banco de Oro. It is finally represented, based on the Affidavit of SIPL on June 5, 2013, 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: IcaEDC "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" Accordingly, you invoke Article 10 of the Philippines-Singapore tax treaty. It provides: "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. 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. xxx xxx xxx" 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 SIPL is a company resident of Singapore with no fixed place of business in the Philippines, and holds 40% of the total outstanding shares of stock of Star Cruises since March 14, 2011 up to the present (which in fact exceeds the minimum required percentage of holding of 15 percent) the dividends paid to SIPL by Star Cruises are subject to Philippines income tax at the rate of 15 percent based on the gross amount thereof, pursuant to Article 10 (2) (a) of the Philippines-Singapore tax treaty. aSITDC 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