ITAD BIR Ruling No. 070-15

March 25, 2015 ITAD BIR RULING NO. 070-15 Article 10 (Dividends), Philippines-Singapore tax treaty Agcaoili & Associates 7th Floor, Citibank Center, Paseo de Roxas, Makati City Attention: Ma. Carmen Agcaolili-Orea Authorized Representative Gentlemen : This refers to your application for tax treaty relief (TTRA) dated 18 July 2013 requesting confirmation that dividends paid by Essilor Philippines Optical Distribution, Inc. ("Essilor-Philippines") to Essilor Philippines Holdings Pte. Ltd. ("Essilor-Singapore") are subject to income tax at the rate of 15 percent pursuant to 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 Essilor-Singapore is corporation duly organized and existing under the laws of Singapore with principal office 215 Kallang Bahru, #06-00 Singapore 339346 based on the notarized and consularized Certificate of Residence issued by the Inland Revenue Authority of Singapore and is engaged in the business of carrying on the business of investment, among other things based on the Articles of Association of Essilor-Singapore . The company Essilor-Singapore is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission (SEC) on 16 July 2013. On the other hand, Essilor-Philippines is a domestic corporation with address at 4/F, Shoppers Gold Bldg., 464 Rizal Ave., Sta. Cruz, Manila. It is represented that Essilor-Singapore owns Six Hundred Fifty Thousand (650,000) shares of stock of Essilor-Philippines with a par value of One Hundred Pesos (P100.00) each, including five nominee shares held by the directors of Essilor-Philippines as of 05 June 2013 constituting One Hundred Percent (100%) of the ownership of Essilor-Philippines ; the said shares were acquired by Essilor-Singapore by way of subscription to the original issue of shares at the time of incorporation of Essilor-Philippines based on a notarized Secretary's Certificate from Essilor-Philippines . Further, that on 18 November 2013, it is represented that Essilor-Philippines declared cash dividends in the amount of One Hundred Million Pesos (P100,000,000.00) to stockholders of records as of 05 June 2013 to be payable beginning on 31 January 2014 based on a copy of the Minutes of Meeting from Essilor-Philippines . 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 notarized Certification Essilor-Philippines . In reply, please be informed that under Section 28 (B) (5) (a) n of the National Internal Revenue Code of 1997 ("NIRC of 1997") , as amended, dividends paid to Essilor-Singapore is subject to income tax at the rate of 30 percent, thus: "SEC. 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) and (d) above: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." aDIHTE However, under Section 32 (B) (5) of the Tax Code, these 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: "SEC. 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." For this purpose, you invoke the Philippines-Singapore tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: "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." Under paragraph 2 above, 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 if the recipient of the dividends is a company which owns directly at least 25 percent of the capital of the company paying the dividends; and (b) 25 percent in all other cases. Accordingly, considering that Essilor-Singapore directly holds 650,000 shares of Essilor-Philippines representing 100% of the outstanding capital stock of Essilor-Philippines or more than 25 percent since October 2007, this Office is of the opinion, and so holds, that dividend paid by Essilor-Philippines to Essilor-Singapore is subject to income tax at the rate of 15 percent of 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 Footnotes n Note from the Publisher: Copied verbatim from the official copy. n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.