ITAD BIR Ruling No. 052-10

October 18, 2010 ITAD BIR RULING NO. 052-10 Article 10 (2) (a), Philippines-Singapore tax treaty; BIR Ruling No. 010-84; BIR Ruling No. ITAD-082-02; BIR Ruling Nos. DA-ITAD-024-08; 058-08; 079-08 JGLaw Attorneys & Counsellors At Law SOL Building, 112 Amorsolo Street Legaspi Village, 1229 Makati City Philippines Attention: Benigno G. Par, Jr. James Benedict F. Panopio Gentlemen : This refers to your letter dated March 10, 2008, on behalf of your client, Trisilco Folec Philippines, Inc. (Trisilco Philippines) , requesting confirmation of your opinion that the dividend payments by Trisilco Philippines to Trisilco Folec Pte. Ltd. (Trisilco Singapore) are subject to the preferential tax rate of 15 percent pursuant to Article 10 of the Philippines-Singapore tax treaty. It is represented that Trisilco Singapore with address at 1 Harbourfront Avenue, #18-01, Singapore 098632 is regarded as a resident in Singapore for income tax purposes for Year of Assessment 2009, per Certification dated February 15, 2008 issued by the Inland Revenue Authority of Singapore; that it is not registered either as a corporation or as a partnership in the Philippines per certification dated February 7, 2008 issued by the Securities and Exchange Commission; that Trisilco Philippines is a corporation duly organized and existing under and by virtue of Philippine laws, with principal office address at Unit 9A, 9/F Equitable Bank Tower, Paseo de Roxas, Makati City, Philippines. It is further represented that, as evidenced by a Certification dated January 31, 2008, issued by the Corporate Secretary of Trisilco Philippines, Trisilco Singapore owns Eleven Million Two Hundred Nineteen Thousand Nine Hundred Ninety-Five (11,219,995) shares or 99.99% of Trisilco Philippines ; that based on the Certification dated March 26, 2008, it owns at least 15% of the outstanding shares of the voting stock of Trisilco Philippines , from the date of its incorporation on June 24, 2004 until the date of the payment of dividends to be made on or before April 30, 2008, and/or during part of the Trisilco Philippines' taxable year which precedes the date of payment of the dividends and during the whole of its prior taxable year, in accordance with Article 10 (2) (a) of the Philippines-Singapore tax treaty; that on January 15, 2008, the Board of Directors of Trisilco Philippines declared a 33.53759% cash dividend equivalent to Three Million Seven Hundred Sixty-Two Thousand Nine Hundred Eighteen Pesos (PhP3,762,918.00) to stockholders of record as of December 28, 2007; that the payment date shall not be later than April 30, 2008; and that the issue/s or transaction subject of the above 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 a judicial appeal of the taxpayer/s involved. aDSHIC In reply, please be informed that Section 28 (B) (5) (a) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies in general. It provides: "Section 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. (a) Interest on Foreign Loans. A final withholding tax at the rate of twenty percent (20%) is hereby imposed on the amount of interest on foreign loans contracted on or after August 1, 1986; xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended provides: "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" In relation thereto, the provisions of the Philippines-Singapore tax treaty may apply to the instant case, Article 10 of which 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. EScAID xxx xxx xxx" Based on the above-mentioned provisions, the 15 percent preferential tax rate on dividends received from a Philippine Company may apply whenever the recipient of such dividends is a company and that 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 was owned by the recipient (Singapore resident) company. In all other cases the 25 percent preferential tax rate applies. Such being the case and considering that Trisilco Singapore owns at least 15% of the outstanding shares of the voting stock of Trisilco Philippines , from the date of its incorporation on June 24, 2004 until the date of the payment of dividends to be made on or before April 30, 2008, and/or during part of the Trisilco Philippines' taxable year which precedes the date of payment of the dividends and during the whole of its prior taxable year, the dividends received by Trisilco Singapore shall be subject to the preferential tax rate of 15 percent, based on the gross amount of dividends, in accordance with Article 10 (2) (a) of the Philippines-Singapore tax treaty. (BIR Ruling No. 010-84 dated January 19, 1984; BIR Ruling No. ITAD-082-02 dated May 2, 2002; BIR Ruling No. DA-ITAD-024-08 dated April 9, 2008; BIR Ruling No. DA-ITAD-058-08 dated August 11, 2008; and BIR Ruling No. DA-ITAD-079-08 dated October 29, 2008.) 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