ITAD BIR Ruling No. 141-15

May 4, 2015 ITAD BIR RULING NO. 141-15 Article 10 (Dividends), Philippines-Singapore tax treaty SC Alliance VIP World Philippines, Inc. Star Cruises Center, Andrews Avenue, Barangay 183, Pasay City 1309 Attention: Armando De Asa, Jr. Authorized Representative Gentlemen : This refers to your application for tax treaty relief (TTRA) dated 24 November 2014 requesting confirmation that dividends paid by SC Alliance VIP World Philippines, Inc . (" SC Alliance-Philippines ") to Starlet Investments Pte. Ltd . (" Starlet-Singapore ") are subject to income tax at the 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 Starlet-Singapore is corporation duly organized and existing under the laws of Singapore with principal office at 80 Robinson Road, #02-00 Singapore 068898 based on the notarized and consularized Certificate of Residence issued by the Inland Revenue Authority of Singapore and the Articles of Association of Starlet-Singapore . The company Starlet-Singapore is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission (SEC) on 29 May 2014. On the other hand, SC Alliance-Philippines is a domestic corporation with address at Star Cruises Center, Andrews Avenue, Barangay 183, Pasay City 1309. It is represented that as of 09 March 2011, Starlet-Singapore owns Two Thousand common shares (2,000) at One Peso (Php1.00) par value, constituting Forty Percent (40%) of the ownership of SC Alliance-Philippines ; the said shares were acquired by Starlet-Singapore through original issuance of shares of stock and that on 14 March 2014, the Board of Directors of SC Alliance-Philippines resolved to declare cash dividends in the amount of Two Hundred Seventy Four Million Two Hundred Ninety Five Thousand Eight Hundred Sixty Four Pesos (Php274,295,864.00) to stockholders of record as of 31 December 2013 based on a notarized Secretary's Certificate from SC Alliance-Philippines . It is finally represented that the dividends subject of this ruling are 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 notarized Affidavit from SC Alliance-Philippines . In reply, please be informed that under Section 28 (B) (5) (a) of the National Internal Revenue Code of 1997 (" NIRC of 1997 "), as amended, dividends paid to Starlet-Singapore is subject to income tax at the rate of 30 percent, thus: "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: n 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, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "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." 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 b) in all other cases, 25 per cent of the gross amount of the dividends." Under paragraph 2 above, 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 if the recipient of the dividends is a company which owns directly at least 25 percent of the capital of the company paying the dividends; and (b) 25 percent in all other cases. Accordingly, considering that Starlet-Singapore directly holds 2,000 shares of SC Alliance-Philippines representing 40% of the outstanding capital stock of SC Alliance-Philippines or more than 25 percent since 09 March 2011, this Office is of the opinion, and so holds, that dividends paid by SC Alliance-Philippines to Starlet-Singapore is subject to income tax at the rate of 15 percent of the gross amount thereof, 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 n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.