ITAD BIR Ruling No. 153-12

April 4, 2012 ITAD BIR RULING NO. 153-12 Articles 10, Philippines-Singapore tax treaty; BIR Ruling No. ITAD-030-10; BIR Ruling No. ITAD-010-10 Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Veronica Joy R. Catajoy Representative Gentlemen : This refers to your tax treaty relief application (TTRA) filed on November 3, 2011 requesting for confirmation that the dividends to be paid by ePDS, Inc. ("ePDS") to Quantium Solutions International Pte., Ltd. ("Quantium SG") and Data Post Pte., Ltd. ("Data SG") are subject to preferential income tax rate pursuant to 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"). SIcCTD It is represented that Quantium SG and Data SG are both foreign corporations organized and existing under the laws of Singapore and are residents of Singapore with principal address at 10 Eunos Road 8 Singapore based on their respective Certificates of Residence issued by the Inland Revenue Authority of Singapore on November 1, 2011; that Quantium SG and Data SG are not registered as corporation or partnership in the Philippines based on their respective Certifications of Non-Registration of Company issued by the Securities and Exchange Commission on September 12, 2011; and that, on the other hand, ePDS is a domestic corporation with principal business address at 2112 Primo Rivera Street corner Yague Street, Makati City. It is further represented that on August 24, 2011, the Board of Directors of ePDS, declared cash dividends amounting to PhP66,492,525.50 to all stockholders of record as of the close of business on July 31, 2011 based on the following schedule: Amount due to Data Date of Remittance SG and Quantium on or before SG Share of dividends PhP16,623,131.37 November 4, 2011 (July 31, 2011) Share of dividends PhP16,623,131.37 May 31, 2012 (July 31, 2011) Totals PhP33,246,262.75 N/A ============== that Data SG owns a total of 9,900,000 shares of the common stock or 30 percent of the common shares in ePDS, with a par value of PhP1.00 per share, or a total of PhP9,900,000.00, including those of its nominees, acquired on various dates through 2003 to 2007; that on the other hand, Quantium SG owns a total of 6,600,000 shares of the common stock or 20 percent common shares in ePDS, with a par value of PhP1.00, or a total of PhP6,600,000.00, including those of its nominees, acquired on various dates through 2003 to June 21, 2011 based on the Secretary's Certificate issued by ePDS on November 8, 2011. ACTEHI It is finally represented that the issue or transaction subject of the above application is 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 Sworn Statement issued by the Executive Vice President and General Manager of ePDS on November 8, 2011. In reply, please be informed that Section 28(B)(1) of the National Internal Revenue Code of 1997, as amended, provides that dividends derived by Data SG and Quantium SG , being non-resident foreign corporations not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "Section 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Non-resident 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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). HSDCTA xxx xxx xxx" However, Section 32 (B) (5) of the same Code provides that such dividends may be exempt from income tax or partially exempt (if subject to a reduced rate only) to the extent required by any treaty obligation on the Philippines, 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" For this purpose, you invoke the Philippines-Singapore tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: cTESIa "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. xxx xxx xxx" Based on the aforequoted provisions, 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 of the gross amount of the dividends if the company or recipient of the dividends owns at least 15 percent of the outstanding voting stock of the company paying the dividends during the part of the latter's taxable year immediately preceding 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. AcHCED Accordingly, since Data SG owns 30 percent and Quantium SG owns 20 percent of the common shares of stock of ePDS during the part of ePDS' taxable year immediately preceding the date of payment of the dividends on November 4, 2011 and May 31, 2012, and during the whole prior taxable year of 2010, such dividends paid by ePDS to Data SG and Quantium SG are subject to a preferential tax rate of 15 percent pursuant to paragraph 2 (a), Article 10 of the Philippines-Singapore tax treaty. (BIR Ruling No. ITAD-30-10 dated August 27, 2010 and BIR Ruling No. ITAD-10-10 dated June 8, 2010) 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