ITAD BIR Ruling No. 069-15

March 25, 2015 ITAD BIR RULING NO. 069-15 Article 10, Philippines-Singapore tax treaty SC Alliance VIP World Philippines, Inc. Star Cruises Centre, 100 Andrews Avenue Newport City Cybertourism Zone Pasay City Attention: Armando De Asa Authorized Representative Gentlemen : This refers to your tax treaty relief application filed on November 15, 2013, requesting confirmation that the dividends paid by SC Alliance VIP World Philippines, Inc. ("SC Alliance") to Starlet Investments Pte. Ltd. ("Starlet") are subject to 15 percent preferential tax rate pursuant to Article 10 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 Starlet , with registered address at 80 Robinson Rd., #02-00 Singapore 068898, is a corporation organized and existing under the laws of Singapore, and is a resident thereof based on the Certificate of Residence issued by the Assistant Commissioner of the Corporate Tax Division for Comptroller of Income Tax of the Inland Revenue Authority of Singapore dated June 4, 2013; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated October 10, 2013; and that, on the other hand, SC Alliance is a corporation organized and existing under the laws of the Philippines with principal address at Star Cruises Centre, 100 Andrews Avenue, Newport City Cybertourism Zone, Pasay City. It is further represented that at the meeting of the Board of Directors of SC Alliance held on March 14, 2013, the Board of Directors of SC Alliance approved the declaration of cash dividends in the amount of Three Hundred Six Million Six Hundred Sixty-Eight Thousand Five Hundred Eighty-Nine Pesos (PhP306,668,589.00) out of its unrestricted retained earnings as of December 31, 2012 to be paid on or before December 31, 2013 to the stockholders as of December 15, 2013; that based on the October 21, 2013 Secretary's Certificate issued by SC Alliance , as of March 14, 2013 and as of the date on which the dividends will be paid which is on or before December 31, 2013, Starlet is the legal and beneficial owner of 1,998 common shares which represents 40% of the total issued and outstanding shares in Star Alliance ; that the said shares were acquired by Starlet beginning March 9, 2011; and that, such dividends were remitted by Star Alliance to Starlet on December 19, 2013. TCIDSa It is finally represented 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 proceedings, or judicial appeal per the Affidavit issued by Star Alliance dated October 22, 2013. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporations. (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 this particular case, you invoked Article 10 of the Philippines-Singapore tax treaty. It 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. TaCSAD 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 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 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. xxx xxx xxx 5. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on in the other Contracting State of which the company paying the dividends is a resident, trade or business through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. xxx xxx xxx" Based on the aforequoted provisions, the 15 percent preferential tax rate on dividends applies whenever the recipient of the dividends is a resident of Singapore who owns at least 15 percent of the outstanding voting shares of the paying company, which 15 percent shareholdings should have existed during the part of the paying company's taxable year immediately preceding the date of payment of the dividends and during the whole of its prior taxable year, if any. ISDHEa Considering that Starlet , a resident of Singapore with no fixed place of business in the Philippines, holds 40 percent of the outstanding shares of Star Alliance during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year or since March 9, 2011, the dividends paid by Star Alliance to Starlet are subject to the preferential tax rate of 15 percent, pursuant to Article 10 (2) (a) 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