ITAD BIR Ruling No. 144-14

August 14, 2014 ITAD BIR RULING NO. 144-14 Article 10, Philippines-Singapore Tax Treaty BDB Law Du-Baladad and Associates 20th Floor, Chatham House Rufino cor Valero Streets Salcedo Village Makati City Attention: Atty. Benedicta Du-Baladad Managing Partner Gentlemen : This refers to your tax treaty relief application filed on November 26, 2012, on behalf of MSIG Holdings (Asia) Pte. Ltd. ("MSIG") , requesting confirmation that the dividend payment of BPI/MS Insurance Corporation ("BPI/MS") to MSIG is subject to the preferential tax rate of 15 percent 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 MSIG, with registered office address at 4 Shenton Way, #27-01, Singapore 068807, is a resident of Singapore within the meaning of the Philippines-Singapore tax treaty based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore dated September 20, 2012; that MSIG is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission dated June 11, 2012; and that, on the other hand, BPI/MS is a domestic corporation duly organized and existing under the laws of the Philippines with office address at 11th and 16th Floors, Ayala Life, FGU Center, 6811, Ayala Avenue, Makati City. It is also represented that as of December 31, 2011, MSIG owns of 1,697,219 common (voting) shares, which constitutes 48.49% of the subscribed and paid-up shares of BPI/MS from January 7, 2009 up to the present as a result of transfer of shares of Mitsui Sumitomo Insurance Co., Ltd.; that on May 31, 2012, the Board of Directors of BPI/MS declared a cash dividend of Php135.00 per share or Php472,500,000.00 on the total outstanding shares of the capital stock of BPI/MS, payable to all BPI/MS stockholders of record as of May 31, 2012 and distributable upon receipt by BPI/MS of the approval of the Insurance Commission of said dividend; and per Secretary's Certificate of MSIG, dividends was remitted to MSIG via telegraphic transfer through the Bank of the Philippine Islands on December 19, 2012. It is finally represented, based on the Sworn Statement by the same Corporate Secretary on November 28, 2012, 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 income of a nonresident foreign corporation. It provides: EcHIDT "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. xxx xxx xxx" With respect to a treaty, what you invoke for this purpose, 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 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. aESIDH 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. 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. 5. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on in the other Contracting State of which the company paying the dividends is a resident, trade or business through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. xxx xxx xxx" Under paragraph 2 of Article 10, dividends arising in the Philippines and paid to a resident of Singapore may be taxed in the Philippines, but the rate of income tax that may be imposed thereon shall not exceed (a) 15 percent of the gross amount of the dividends if the recipient is a company (including a partnership) which holds at least 15 percent of the outstanding shares or the voting stock of the company paying the dividends during the part of the company's taxable year which precedes 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, the cash dividends declared by BPI/MS on May 31, 2012, and paid on December 19, 2012, in favor of MSIG shall be subject to 15 percent based on the gross amount thereof, pursuant to Article 10 (2) of the Philippines-Singapore tax treaty. The lower rate applies since MSIG has been holding 48.49% of the outstanding shares of stock of BPI/MS on January 7, 2009. This ruling is issued on the basis of the foregoing 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