ITAD BIR Ruling No. 173-14

September 18, 2014 ITAD BIR RULING NO. 173-14 Article 10, Philippines-Singapore Tax Treaty Fujitsu Ten Corporation of the Philippines 100 South Science Avenue Laguna Technopark Don Jose, Sta. Rosa Laguna 4026 Attention: Yukini Muramatsu President Gentlemen : This refers to your tax treaty relief application filed on December 10, 2012, on behalf of Fujitsu Ten (Singapore) Pte., Ltd. ("Fujitsu Singapore") , requesting confirmation that the dividends to be paid by Fujitsu Ten Corporation of the Philippines ("Fujitsu Philippines") to Fujitsu Singapore are 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 Fujitsu Singapore , with registered office address at 138 Robinson Road, #17-00, Singapore 068906 is a resident of Singapore within the meaning of the Singapore tax treaty based on the Certificate of Residency issued by the Inland Revenue Authority of Singapore dated November 30, 2012; that Fujitsu Singapore 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 November 22, 2012; and that, on the other hand, Fujitsu Philippines is a domestic corporation duly organized and existing under the laws of the Philippines with office address at 100 South Science Avenue, Laguna Technopark, Don Jose, Sta. Rosa, Laguna. It is also represented, per Secretary's Certificate issued on November 28, 2012 by Fujitsu Philippines , that Fujitsu Singapore owns 325,000 common shares with total par value of Php97,500,000.00 constituting twenty-five percent (25%) of the total subscribed and paid up capital stock of Fujitsu Philippines ; that said shares were acquired by Fujitsu Singapore on August 17, 1990, October 12, 1995 and October 12, 1995; that at a special meeting on November 9, 2012 of the Board of Directors of Fujitsu Philippines , the Board unanimously passed and approved the declaration of cash dividends amounting to Eight Million One Hundred Fifty-six Thousand US Dollars (US$8,156,000.00) or its equivalent, out of the unappropriated retained earning based on its records as of September 30, 2012 at the rate of Six US Dollars at 27/100 (US$6.2738462); and that per Certification of Remittance of the Bank of the Philippine Islands dated January 8, 2012, said dividends were remitted by Fujitsu Philippines to Fujitsu Singapore on December 12, 2012. CITSAc It is finally represented, based on the Certification by Fujitsu Philippines on November 26, 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: "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. TDSICH xxx xxx xxx" With respect to a treaty, what you invoke for this purpose is 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. 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. TcCSIa 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." Based on the foregoing, the 15 percent preferential tax rate on dividends applies whenever the recipient of the dividends is a resident of Singapore owning at least 15 percent of the outstanding voting shares of the paying company, and which 15 percent shareholdings should have existed during the part of the paying company's taxable year immediately preceding the date of payment of the dividends and during the whole of its prior taxable year, if any. The rate of 25 percent shall apply in all other cases. Considering that Fujitsu Singapore is a resident of Singapore with no fixed place of business in the Philippines, and holds 25 percent of the total outstanding shares of stocks of Fujitsu Philippines since August 1995 or for a period more than the required holding period that is, during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year, then this Office is of the opinion and so holds that the subject dividends received by Fujitsu Singapore are subject to the preferential tax rate of 15 percent, pursuant to the 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. THCSEA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue