ITAD BIR Ruling No. 044-13

March 5, 2013 ITAD BIR RULING NO. 044-13 Articles 10 (Dividends), Philippines-Singapore tax treaty Isla Lipana and Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Carlos R. Mateo Representative Gentlemen : This refers to your application for tax treaty relief (TTRA) dated 03 July 2012 requesting confirmation that dividends paid by the Western Union Services (Philippines), Inc. ("Western-Phils.") to Western Union Services Singapore Pte. Ltd. ("Western-Singapore") are 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") . It is represented that Western-Singapore is corporation duly organized and existing under the laws of Singapore with principal office at 4 Battery Road, #26-01 Bank of China Building, Singapore 049908. Western-Singapore is a resident of Singapore based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore on 05 July 2012. The company Western-Singapore is not registered as a corporation or partnership in the Philippines based on the Certification issued by the Securities and Exchange Commission (SEC) on 04 June 2012. On the other hand, Western-Singapore is a wholly-owned subsidiary of WUSSPL and primarily engaged in the business of providing outsourced services situated at 1024 Global Trade Center, EDSA, Quezon City. Western-Singapore owns 99.9945 percent of the shares of stock of Western-Phils. based on a Secretary's Certificate issued on 31 May 2012. Isla Lipana and Co. is the authorized representative of Western-Singapore for the purpose of securing a tax treaty relief relative to the dividend payments received from Western-Phils. based on a Special Power of Attorney executed on 14 October 2011. It is represented that in a special meeting of the Western-Phils. Board of Directors on 21 May 2012, Western-Phils. was authorized to declare and pay cash dividends in the amount of Sixty Seven Million Philippine Pesos (Php67,000,000.00) out of unrestricted retained earnings as of 31 December 2011 in favour of all stockholders of record as of 31 March 2012 in proportion to, and on the basis of, the outstanding shares of stock of Western-Phils. held by them, to be paid on 05 July 2012 based on the Secretary's Certificate issued on 31 May 2012. As per notarized certification issued by Citibank N.A. Manila dated 12 November 2012, an outward remittance amounting to USD1,355,114.00 representing dividend payments was made on 26 July 2012 in favor of Western-Singapore. DTEAHI 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 Assistant Corporate Secretary of Western-Phils. executed on 31 May 2012. In reply, please be informed that under Section 28 (B) (5) (a) of the National Internal Revenue Code of 1997 (" NIRC of 1997 "), as amended, dividends paid to Western-Singapore is subject to income tax at the rate of 30 percent, thus: "SEC. 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) and (d) above: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 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." For this purpose, 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: IESDCH 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." Under paragraph 2 above, dividends arising in the Philippines and paid to a resident of Singapore may be taxed in the Philippines at a rate not to exceed (a) 15 percent if the recipient of the dividends is a company which owns directly at least 25 percent of the capital of the company paying the dividends; and (b) 25 percent in all other cases. Accordingly, considering that Western-Singapore directly holds 91,205 shares of Western-Phils. Representing 99.9945% of the outstanding capital stock of Western-Phils. or more than 25 percent, this Office is of the opinion, and so holds, that dividends paid by Western-Phils. to Western-Singapore 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. (BIR Ruling No. ITAD 047-12 dated 10 February 2012) 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