ITAD BIR Ruling No. 077-14

June 10, 2014 ITAD BIR RULING NO. 077-14 Article 10, Philippines-Japan tax treaty 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 30 July 2013, 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") . IaAEHD Facts 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 15 July 2013 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 July 2013, a resolution was approved declaring cash dividend in the amount of One Billion Million n Yen (JP1,000,000,000.00), in favor of all of Isuzu Autoparts-Philippines' 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 31 July 2013, Isuzu Motors-Singapore owns 4,419,995 common shares acquired since 26 September 2003, representing 99.9999% of the total shares of Isuzu Autoparts-Philippines . It is finally represented, per the Sworn Statement issued by Isuzu Autoparts-Philippines dated 5 July 2013, 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. Ruling 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%)." HSDaTC 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: "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. cTDECH 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 or since September 26, 2003, the dividend to be received by Isuzu Autoparts-Philippines is entitled to the preferential rate of 15% of the gross amount of dividends pursuant to the 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 Footnotes n Note from the Publisher: Copied verbatim from the official copy.