ITAD BIR Ruling No. 135-14

July 22, 2014 ITAD BIR RULING NO. 135-14 Article 10, Philippines-Singapore tax treaty Permasteelisa Philippines, Inc. Unit B&C Suntree Tower No. 13 Meralco Avenue Ortigas Center Pasig City 1605 Attention: Mr. Rene R. Tolentino Managing Director Gentlemen : This refers to your tax Treaty Relief Application ("TTRA") filed on July 29, 2013, on behalf of Permasteelisa Pacific Holdings, Ltd. ("PPHL") , requesting confirmation that dividend payment made by Permasteel Philippines, Inc. ("PPI") to PPHL is subject to 15 percent preferential tax rate pursuant 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 PPHL, with address at 2 International Business Park, #11-11, Singapore, is a resident of Singapore under the provisions of the Philippines-Singapore tax treaty per Certificate of Residence issued by the Inland Revenue Authority of Singapore dated April 24, 2013; that PPHL is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on July 5, 2013; and that, on the other hand, PPI is a domestic corporation duly organized and existing under Philippine laws, located at the 3rd Floor B&C Suntree Tower, 13 Meralco Avenue, Pasig City. It is also represented, per Secretary's Certificate dated July 24, 2013, that as of December 31, 2012, PPHL holds 101,995 common shares in PPI, with total value of Php10,199,500.00, consisting of 99.995%; that these shares were acquired by PPHL on April 3, 2009 through transfer and purchase; that on July 9, 2013, the Board of Directors of PPI approved a resolution declaring cash dividends in favor of all shareholders of record as of December 31, 2012 in the total amount of Ten Million Nine Hundred Thousand Pesos (Php10,900,00.00); and that dividend was remitted by PPI to PPHL on December 20, 2013 as per Certificate of Outward Remittance issued by Deutchsche Bank AG Manila on January 4, 2014. aDTSHc It is finally represented, based on the Sworn Statement by the of PPI on July 24, 2013, 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 dividends derived in the Philippines 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 . . ., 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. aTcHIC xxx xxx xxx" Accordingly, you invoke Article 10 of the Philippines-Singapore tax treaty in this application. 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. 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. cIACaT 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. xxx xxx xxx" 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. Since PPHL holds 99.995% of the total outstanding shares of stock of PPI since April 3, 2009 up to the present, the dividend income of PPHL received from PPI shall be subject to income tax in the Philippines at the 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 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