ITAD BIR Ruling No. 057-16

April 5, 2016 ITAD BIR RULING NO. 057-16 Article 10, Philippines-Singapore tax treaty Star Alliance VIP World, Inc. 5/F Star Cruises Centre 100 Andrews Ave. Newport City Pasay 1309 Attention: Mr. Armando De Asa Representative Gentlemen : This refers to your application for tax treaty relief dated November 15, 2013, requesting confirmation of your opinion that the dividends paid by Star Alliance VIP World, Inc. ("Star Alliance") to Star Resort Management Service Pte. Ltd. ("Star Resort") are subject to the preferential tax rate of 15 percent pursuant with 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 Star Resort is a foreign corporation organized and existing under the laws of Singapore; that it is a resident of Singapore for tax purposes based on the Certification issued by the tax authority of Singapore. It is not registered as a partnership or a corporation based on the Certification issued by the Securities and Exchange Commission on October 10, 2013. On the other hand, Star Alliance is a domestic corporation, organized and existing under Philippine laws. It is further represented that Star Resort is the registered owner of One Thousand Nine Hundred Ninety Eight (1,998) shares of stocks and a beneficial owner of two (2) common shares, representing 40% of the capital stocks of Star Alliance since 04 August 2008; and that during a meeting of the Board of Directors of Star Alliance held on March 14, 2013, it declared cash dividends in the amount of Thirty Nine Million Six Hundred Thousand Pesos (P39,600,000.00) in favor of its stockholders of record as of December 15, 2013 based on their respective shareholding to be paid on or before December 31, 2013. 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 Certificate of No Pending Case executed by its representative on October 22, 2013. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, provides that dividends paid to Star Resort are subject to income tax at the rate 30 percent, thus: DcHSEa "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 provides that such 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: "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 this particular case, you invoke the Philippines-Singapore tax treaty, as amended. Paragraphs 1, 2 and 3, Article 10 thereof provide: "Article 10 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. xxx xxx xxx" (underscoring 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 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 (b) and in all other cases, 25 percent. This being the case, and considering that Star Resort holds 40 percent of the total shares of Star Alliance during the part of its taxable year preceding the designated payment of dividends in the year 2013, and during the whole of Star Alliance 's prior taxable years or since August 04, 2008, this Office is of the opinion and so holds that such dividends paid by Star Alliance to Star Resort are subject to income tax at a preferential rate of 15 percent based on the gross amount thereof, 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue