ITAD BIR Ruling No. 090-16

April 27, 2016 ITAD BIR RULING NO. 090-16 Article 10, Philippines-Singapore Tax Treaty Petrolift, Inc. 6F Mapfre Insular Corporate Center Madrigal Business Park 1220 Acacia Avenue Ayala Alabang, Muntinlupa City Attention: Ms. Regina F. Magbitang Chief Financial Official Gentlemen : This refers to your Tax Treaty Relief Application filed on November 5, 2013, on behalf of Soleado Holdings Pte. Ltd. ("Soleado") , requesting confirmation that the dividends paid by Petrolift, Inc. ("Petrolift") to Soleado are subject to the preferential tax 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 Soleado is a resident of Singapore within the meaning of the Philippines-Singapore tax treaty based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore dated October 2, 2013; that Soleado is a Company Limited by Shares per Memorandum and Articles of Association lodged in the Office of the Registrar of Companies, Singapore; that Soleado is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission dated April 17, 2013; and that, on the other hand, Petrolift is a domestic corporation duly organized and existing under the laws of the Philippines. It is also represented that on September 16, 2013, the Board of Directors of Petrolift declared cash dividends in the amount of Php0.236528 per common share and Php0.002365 per preferred share, in favor of the stockholders of record as of September 30, 2013; that Soleado owns 503,740,180 common shares, inclusive of three (3) shares being held by its nominees, which constitute 23.3 percent of the total issued and outstanding shares of Petrolift; and that said shares were acquired by Soleado through subscription from the unissued authorized capital stock since December 22, 2010. It is finally represented that the transaction subject of the 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 of the taxpayer/s involved. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code of 1997"), as amended, applies, in general, to income of 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 . . ., 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 of 1997, as amended, provides that any income may be exempt to the extent required by any treaty obligation binding upon the Philippine Government, 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" With respect to a treaty, what you invoke for this purpose is 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. 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. SDAaTC 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. 4. 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. 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. 6. Where a company which is a resident of a Contracting State derived profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to persons who are resident of that State, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits even if the dividends paid or undistributed profits consist wholly or partly of profits or income arising in such other State." Based on the aforequoted provisions, the Philippines may tax the dividends paid by its resident to a resident of Singapore at a rate not exceeding 15 percent if the recipient is a company, and during the part of the payor's taxable year which precedes the date of payment of the dividend, and, during the whole of the payor's prior taxable year, at least 15 percent of the outstanding shares of the voting stock of the paying company were owned by the recipient, and, 25 percent in all other cases. Accordingly, since Soleado is a resident of Singapore with no fixed place of business in the Philippines and holds 23.3 percent of the total outstanding shares of stock of Petrolift from December 22, 2010 up to the present, the dividends paid to it by Petrolift are subject to preferential income tax rate of 15 percent based on the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Singapore tax treaty. This ruling is issued on the basis of the foregoing 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