ITAD BIR Ruling No. 168-11

June 7, 2011 ITAD BIR RULING NO. 168-11 Article 10, Philippines-Singapore tax treaty; BIR Ruling No. ITAD-076-10 BPI/MS Insurance Corporation 11th and 16th Floors, Ayala Life-FGU Center 6811 Ayala Avenue, 1226 Makati City Attention: Ms. Merina P. Mendoza Senior Manager Gentlemen : This refers to your application for relief from double taxation dated November 24, 2009 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 treaty rate of 15 percent final withholding tax pursuant to Article 10 (2) (a) 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 is a corporation organized and existing under the laws of Singapore with principal office address at 4 Shenton Way #27-01, Singapore 068807 per Certificate of Residence dated October 15, 2009; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated September 9, 2009; that BPI/MS, on the other hand, is a corporation duly organized and existing under the laws of the Philippines with office address at 31st Floor, Ayala Life FGU Centre 6811, Ayala Avenue, Makati City. It is further represented that at a regular meeting of the Board of Directors of BPI/MS on May 29, 2009 a resolution was unanimously approved declaring cash dividends of Eighty-One Pesos and Forty-Three Centavos (P81.43) per share or a total amount of Two Hundred Eighty-Five Million Five Thousand Pesos (P285,005,000.00) on the total outstanding shares of the capital stock of BPI/MS, payable to all stockholders of record as of May 29, 2009 and distributable upon receipt of the approval by the Insurance Commission of the said dividend declaration; that starting January 7, 2009 up to November 30, 2010, MSIG owns 48.49% of the outstanding capital stock of BPI/MS, or One Million Six Hundred Ninety-Seven * Two Hundred Nineteen (1,697,219) voting shares out of the Three Million Five Hundred Thousand (3,500,000) outstanding shares as per Corporate Secretary's Certificate dated January 14, 2010; that the Insurance Commissioner, in a letter dated July 15, 2009, interposes no objection to the subject dividend declaration BPI/MS; and that the dividends were paid on November 27, 2009 as per certificate issued by BPI/MS dated November 10, 2010. SHIETa It is finally represented, based on the Sworn Statement by the Senior Manager of BPI/MS on January 8, 2010 that the issue subject of the above request is not under any investigation or on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal. 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 from income tax or subject to a reduced rate to the extent required by any treaty obligation binding upon the Philippine Government, thus: "Section 32. Gross Income. DHETIS 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" Accordingly, there is the Philippines-Singapore tax treaty which is invoked in this application. Its Article 10 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 DCcHAa 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. 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. 6. Where a company which is a resident of a Contracting State derived profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to persons who are resident of that State, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company's undistributed profits to a tax on the company's undistributed profits even if the dividends paid or undistributed profits consist wholly or partly of profits or income arising in such other State." TICAcD 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, owning at least 15 percent of the outstanding shares of the voting stock of the paying company 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 years and 25 percent in all other cases. In view thereof, considering that the 48.49197% shareholdings of MSIG in BPI/MS were acquired only on January 7, 2009 and not during the year prior to the year of payment of the dividends as required under Article 10 (2) (a) of the Philippines-Singapore tax treaty tax, your application for a preferential tax rate of 15 percent to be applied on the dividends paid by BPI/MS to MSIG is hereby denied. However, such dividend payment of BPI/MS to MSIG is qualified for, and shall then be subject to the 25 percent preferential tax rate, pursuant to Article 10 (2) (b) of the same tax treaty. (BIR Ruling No. 076-10 dated December 14, 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