ITAD BIR Ruling No. 045-14

April 14, 2014 ITAD BIR RULING NO. 045-14 Article 10, Philippines-Singapore tax treaty Nisce Mamuric Guinto Rivera & Alcantara 8th Floor 139 Corporate Center, 139 Valero Street Salcedo Village, Makati City Attention: Atty. Jose Leonilo V. Didulo Gentlemen : This refers to your tax treaty relief application (TTRA) filed on November 19, 2013 requesting for confirmation that the dividends paid by Air Liquide Philippines, Inc. ("Air Liquide PH") to Air Liquide Industrial Services Pte. Ltd. ("Air Liquide SG") are subject to preferential income tax rate of 15 percent pursuant to 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 Air Liquide SG is a foreign corporation organized and existing under the laws of Singapore and is a resident thereof based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore on June 6, 2013; that Air Liquide SG is no longer registered as corporation or partnership in the Philippines, its license having been cancelled on November 21, 1996, based on the Certification of Corporate Filing/Information issued by the Securities and Exchange Commission on June 7, 2013; that, on the other hand, Air Liquide PH is a domestic corporation with principal business address at the 12th Floor Ecotower, 32nd Street corner 9th Avenue, Bonifacio Global City, Taguig City. It is further represented that on November 13, 2013, Air Liquide PH declared cash dividends amounting to PhP150,000,000.00, to be distributed to all stockholders of record as of October 31, 2013 based on the Certificate of the Corporate Secretary of Air Liquide PH issued on November 18, 2013; that Air Liquide SG holds 881,491,395 common shares in Air Liquide PH , constituting 74 percent ownership in Air Liquide PH based on the Certificate issued by the Corporate Secretary of Air Liquide PH ; and that, said dividends were paid to Air Liquide SG by Air Liquide PH on November 27, 2013 based on the Certification issued by Citibank on January 2, 2014. It is finally represented, based on a Certification issued by the Vice President for Finance, Procurement, and Information Technology of Air Liquide PH dated November 14, 2013, that the dividends subject of the application for tax treaty relief is not subject of an investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. TADaES In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended, provides that dividends derived by non-resident foreign corporations 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 same Code provides that such dividends may be exempt from income tax or partially exempt (if subject to a reduced rate only) to the extent required by any treaty obligation on the Philippines, 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" For this purpose, you invoke the Philippines-Singapore tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: HISAET " 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. xxx xxx xxx" (emphasis supplied) Based on the aforequoted provisions, 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 of the gross amount of the dividends if the company or recipient of the dividends owns at least 15 percent of the outstanding voting stock of the company paying the dividends during the part of the latter's taxable year immediately preceding the date of payment of the dividends and during the whole of its prior taxable year, if any, and (b) 25 percent of the gross amount of the dividends in all other cases. Accordingly, since Air Liquide SG is a company which owns 74 percent of the voting stocks of Air Liquide PH during the part of Air Liquide PH's taxable year immediately preceding the date of payment of the dividends, and during the whole prior taxable year of 2012, in fact since 2001, such dividends paid by Air Liquide PH to Air Liquide SG are subject to a preferential tax rate of 15 percent 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. cDACST Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue