ITAD BIR Ruling No. 130-14

July 22, 2014 ITAD BIR RULING NO. 130-14 Article 10 (Dividends), Philippines-Singapore tax treaty; BIR Ruling No. ITAD 196-11 Nisce Mamuric Guinto Rivera & Alcantara Law Offices 8th Floor 139 Corporate Center 139 Valero Street, Salcedo Village Makati City Attention: Atty. Jose Leonilo V. Didulo Gentlemen : This refers to your tax treaty relief application filed on July 4, 2013 requesting confirmation that dividends paid by Air Liquide Philippines, Inc. ("ALPI") to Air Liquide Industrial Services Pte. Ltd. ("Air Liquide") are subject to a preferential 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 Air Liquide is a corporation organized and existing under the laws of Singapore based on its Memorandum and Articles of Association, and with registered office at 3 HarbourFront Place, #09-04 HarbourFront Tower 2, Singapore. Air Liquide is a resident of Singapore for income tax purposes for the Year of Assessment 2013 based on its Certificate of Residence issued by the Inland Revenue Authority of Singapore on June 6, 2013. Air Liquide's License to Transact Business in the Philippines was cancelled on November 21, 1996 as evidenced by its Certificate if Cancellation of License of Foreign Corporation under Securities and Exchange Commission ("SEC") Registration No. AF9400017, certified by the SEC on June 7, 2013. On the other hand, ALPI is a domestic corporation with principal office at 12th Floor Eco Tower, 32nd Street corner 9th Avenue, Bonifacio Global City, Taguig City, Philippines. CcADHI It is also represented based on the two Secretary's Certificate issued on July 3, 2013, that the Board of Directors of ALPI, at the special meeting on July 3, 2013, approved a resolution declaring cash dividends amounting to P150,000,000.00 in favor of the company's shareholders of record as of the close of business hours on June 30, 2013, and payable on July 5, 2013; that as of June 30, 2013, Air Liquide holds 74 percent of the total issued and outstanding shares of stock of ALPI as described below: Stockholder Number and Value Mode of Acquisition Date Percentage of Shares Acquisition of Ownership Air Liquide 15,000,000 March 17, 1995 74 percent 15,000,000 Original June 8, 1995 30,000,000 Subscription August 28, 1995 30,000,000 February 23, 1996 90,000,000 November 4, 1996 133,500,000 November 4, 1998 208,999,998 Subscription March 22, 2000 345,803,897 Original December 11, 2000 13,187,500 Subscription November 14, 2001 Total 881,491,395 - - (P881,491,395.00) ============= It is further represented based on the Certification issued by Citibank N.A. Manila 1 on January 2, 2014, ALPI remitted the dividends to Air Liquide on July 5, 2013 by way of telegraphic transfer and amounting to US$2,944,641.00. In reply, please be informed that under Section 42 (A) (2) of the National Internal Revenue Code of 1997 (" Tax Code "), as amended, dividends are considered derived within the Philippines if paid by a domestic corporation, to wit: "SEC. 42. Income from Sources within the Philippines. (A) Gross Income from Sources within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (2) Dividends. From a domestic corporation; and" Moreover, under Section 28 (B) (1) of the Tax Code, dividends paid to a foreign corporation not engaged in trade or business in the Philippines are subject to income tax at the rate of 30 percent, to wit: SDATEc "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: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, such dividends exempt or partially exempt to the extent required by any treaty obligation on the Philippines, to wit: "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." cHAIES In this regard, paragraphs 1 and 2, Article 10 of the Philippines-Singapore tax treaty 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 Contracting State. 2. However, such dividends may also 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 Article 10, 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 if the recipient is a company or a partnership which owns at least 15 percent of the outstanding shares of the voting stock of the company paying the dividends, and during the part of that company's taxable year which precedes the date of payment and during the whole of its prior taxable year (if any). Otherwise, the dividends are subject to 25 percent. aCcADT Accordingly, considering that Air Liquide owns at least 15 percent of the outstanding shares of the voting stock of ALPI during the part of the company's taxable year which precedes the date of payment and during the whole of its prior taxable year, where Air Liquide owns 74 percent of the outstanding shares of ALPI since November 14, 2001 up to present, such dividends paid by ALPI to Air Liquide is subject to income tax at the 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 Footnotes 1. Located at 8741 Paseo de Roxas, Makati City, Philippines.