ITAD BIR Ruling No. 057-13

March 13, 2013 ITAD BIR RULING NO. 057-13 Article 10 (2) (a), Philippines-Singapore tax treaty, as amended; BIR Ruling No. ITAD-253-11 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Mark Anthony P. Tamayo Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application (TTRA) filed on 03 August 2012, on behalf of Isuzu Motors Asia Limited ("Isuzu Motors-Singapore") requesting confirmation that dividends to be paid by Isuzu Autoparts Manufacturing Corporation ("Isuzu Autoparts-Philippines") to Isuzu Motors-Singapore are subject to the preferential final withholding tax rate of 10 percent pursuant to Article 10 (2) (a) of 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 Isuzu Motors-Singapore , with principal address at 9 Temasek Boulevard #22-03, Singapore 038989, is a corporation organized and existing under the laws of Singapore, and is a resident thereof within the meaning of the Philippines-Singapore tax treaty, as evinced by a duly notarized and consularized Certificate of Residence and Articles of Association and it is not registered as a corporation or a partnership based on a Certification of Non-Registration of Company dated 02 August 2012 issued by the Securities and Exchange Commission. On the other hand, Isuzu Autoparts-Philippines is a corporation duly organized and existing under the laws of the Philippines with principal address at 114 North Main Avenue Phase III, Special Economic Zone, Laguna Technopark, Bian, Laguna. It is further represented that during a special meeting of the Board of Directors of Isuzu Autoparts-Philippines held on 01 August 2012, a resolution was approved declaring a cash dividend in the amount of Two Billion Five Hundred Twenty Five Million Yen (JP2,525,000,000.00), in favor of all of Isuzu Autoparts-Philippine's shareholders of record on even date and payable on 15 August 2012 based on the Minutes of Special Meeting of Isuzu Autoparts-Philippines ; that based on the Secretary's Certificate issued by Isuzu Autoparts-Philippines dated 02 August 2012, as of 01 August 2012, Isuzu Motors-Japan owns 4,419,995 common shares acquired since 26 September 2003, representing 99.9999% of the total shares of Isuzu Motors-Singapore in Isuzu Autoparts-Philippines . DHTCaI Further, on 15 August 2012, Isuzu Autoparts-Philippines remitted the amount of (JP2,146,250.00) or Two Billion One Hundred Forty Six Million Two Hundred Fifty Thousand Japanese Yen under Reference No. OTT 789-813012 based on a duly notarized Certification issued by Mizuho Corporate Bank, Ltd.-Manila Branch. It is finally represented, per the Sworn Statement issued by Isuzu Autoparts-Philippines dated 27 July 2012, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, or judicial appeal. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to dividends received 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 interest, 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%)." 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." In relation thereto, Article 10 of the Philippines-Singapore tax treaty, as amended, which you invoked, may apply to the instant case. It provides: SEHaTC "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." Based on the aforeqouted 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 15 percent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 15 percent of the voting shares of the company paying the dividends or of the total shares issued by that company during the taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year, if any. Considering that Isuzu Motors-Singapore holds 99.99% of the total outstanding shares of Isuzu Autoparts-Philippines during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year, the dividends to be received by Isuzu Autoparts-Philippines are entitled to the preferential rate of 15% pursuant to the Article 10 (2) (a) of the Philippines-Singapore tax treaty. ( BIR DA ITAD Ruling No. 009-10 dated 01 February 2010; BIR ITAD Ruling No. 253-11 dated 10 November 2011 ) 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. DCATHS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue