ITAD BIR Ruling No. 104-13

April 11, 2013 ITAD BIR RULING NO. 104-13 Article 10, Philippines-Singapore tax treaty Alas Oplas & Co., CPAs 25th Floor Philippine AXA Life Centre 1286 Sen. Gil Puyat Avenue Makati City, Philippines Attention: Atty. Azalea Fayeugenia T. Chimmin Gentlemen : This refers to your tax treaty relief application (TTRA) filed on May 14, 2012 requesting for confirmation that the dividends paid by M. Tech Products Philippines, Inc. ("M.Tech PH") to Multi-Chem Limited ("Multi-Chem") are subject to preferential income tax rate of 15 percent pursuant to 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") . Basic Representations It is represented that Multi-Chem is a foreign corporation organized and existing under the laws of Singapore and is a resident thereof with principal address at 16th Enterprise Road, Singapore based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore on April 26, 2012; that Multi-Chem is not registered as corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on April 30, 2012; that, on the other hand, M.Tech PH is a domestic corporation with principal business address at Unit 2904 88 Corporate Center Valero corner Sedeno Streets, Salcedo Village, Makati City. It is further represented that during a special meeting of the Board of Directors of M.Tech PH on February 6, 2012, M.Tech PH declared cash dividends amounting to PhP3,700,000.00 to all stockholders of record as of May 15, 2012; that as of May 23, 2006, Multi-Chem holds 103,795 shares or 99.99 percent in M.Tech PH based on the Certification issued by the Corporate Secretary of M.Tech PH on April 2, 2012; and that the said dividends were paid by M.Tech PH to Multi-Chem on July 2, 2012 based on the Inward Telegraphic Transfer Certificate issued by DBS Bank Ltd. It is finally represented that the issue or transaction subject of the above application is 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 Certification issued by the Treasurer of M.Tech PH on April 19, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended, provides that dividends derived by non-resident foreign corporations not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "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 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): 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 same Code provides that such dividends may be exempt from income tax or partially exempt (if subject to a reduced rate only) to the extent required by any treaty obligation on the Philippines, thus: DHcESI "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" 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 HSaEAD 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. xxx xxx xxx" (emphasis 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 percent of the gross amount of the dividends if the company or recipient of the dividends owns at least 15 percent of the outstanding voting stock of the company paying the dividends during the part of the latter's taxable year immediately preceding the date of payment of the dividends and during the whole of its prior taxable year, if any, and (b) 25 percent of the gross amount of the dividends in all other cases. Accordingly, since Multi-Chem owns 103,795 shares or 99.99 percent in M.Tech PH during the part of M.Tech PH's taxable year immediately preceding the date of payment of the dividends and during the whole prior taxable year of 2011, in fact as of May 23, 2006 based on the Certification issued by the Corporate Secretary of M.Tech PH on April 2, 2012 such dividends paid by M.Tech PH to Multi-Chem are subject to a preferential tax rate of 15 percent 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