ITAD BIR Ruling No. 122-14

July 21, 2014 ITAD BIR RULING NO. 122-14 Article 10, Philippines-Singapore tax treaty Agcaoili & Associates Attorneys-At-Law 7th Floor, Citibank Center Paseo de Roxas, Makati City Attention: Atty. Ma. Carmen Agcaoili-Orea Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on February 5, 2013, on behalf of Essilor Philippines Holdings Pte. Ltd. ("Essilor-Singapore") , requesting confirmation that the dividends paid by Essilor Philippines Optical Distribution, Inc. ("Essilor-Phil") to Essilor-Singapore 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 Essilor-Singapore is a corporation organized and existing under the laws of Singapore and is a resident thereof, having its registered address at 215 Kallang Bahru, #06-00 Singapore 339346 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 January 10, 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 December 13, 2012; and that, on the other hand, Essilor-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 4/F Shoppers Gold Building, 464 Rizal Avenue, Sta. Cruz, Manila. DHECac It is further represented that on November 15, 2012, the Board of Directors of Essilor-Phil approved the declaration of cash dividends in the amount of Php100,000,000.00 to stockholders of record as of said date, payable beginning February 20, 2013; that as of November 15, 2012 up to February 20, 2013, Essilor-Singapore owns 650,000 shares of stock (including the five [5] nominee shares held by its directors in Essilor-Phil ) with a par value of Php100.00 per share, which represents 100% of the outstanding capital stock of Essilor-Phil ; that the said shares by Essilor-Singapore in Essilor-Phil were acquired from the time of incorporation of Essilor-Phil on October 2007; and that, based on the proof of telegraphic transfer application form issued by Banco De Oro, such dividends were remitted to Essilor-Singapore on March 6, 2013, April 2, 2013, and on April 3, 2013, respectively. It is finally represented based on a Certification dated February 4, 2013 issued by Essilor-Phil 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. 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%)." TAIDHa 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. 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 CSTDEH 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" Based on the aforequoted provisions, the 15 percent preferential tax rate on dividends applies whenever the recipient of the dividends 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. Considering that Essilor-Singapore holds 100% of the outstanding capital stock of Essilor-Phil during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year or since October 2007, the dividends received by Essilor-Singapore from Essilor-Phil 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