ITAD BIR Ruling No. 176-14

September 18, 2014 ITAD BIR RULING NO. 176-14 Article 10, Philippines-Singapore tax treaty Keppel Philippine Holdings, Inc. Unit 3B Country Space 1 Bldg. Sen. Gil J. Puyat Avenue Makati City Attention: Ms. Felicidad V. Razon Treasurer This refers to your application for tax treaty relief (TTRA) dated July 2, 2013 requesting confirmation that dividends paid by the Keppel Philippines Holdings, Inc. ("Keppel-Philippines") to Keppel Corporation Ltd. ("Keppel-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 Keppel-Singapore , with principal address at 1 Harbour Front Avenue, #18-01 Keppel Bay Tower, Singapore 098632, is a corporation organized and existing under the laws of Singapore and a resident thereof based on the consularized and notarized Certificate of Residence issued by the Inland Revenue Authority of Singapore on March 18, 2013; that Keppel-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 March 25, 2013; and that Keppel-Philippines , on the other hand, is a domestic corporation with address at Unit 3B, Country Space I Bldg., Sen. Gil Puyat Ave., Makati City. It is also represented, per Certification dated June 27, 2013, that Keppel-Singapore is the legal and beneficial owner of 16,894,082 common shares, with total par value of Php16,894,082.00, representing 27.985% ownership of the total outstanding of 60,367,419 common shares in Keppel-Philippines ; that the shares of stock of Keppel-Singapore were acquired through subscription on various dates since December 29, 2000 to July 15, 2005; that in a regular meeting of the Keppel-Philippines' Board of Directors on June 6, 2013, the Board declared payment of cash dividends in the total amount of P6.04 Million from the unrestricted retained earnings of Keppel-Philippines as of December 31, 2013; that dividend was remitted by Keppel-Philippines to Keppel-Singapore as confirmed in a letter dated August 14, 2013 from Keppel-Singapore. caCSDT 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 Sworn Statement issued by Keppel-Philippines executed on June 20, 2013. 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 Keppel-Singapore are 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." EDIHSC For this purpose, you invoke 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." 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 Keppel-Singapore directly holds 16,894,082 shares in Keppel-Philippines representing 27.985% of the outstanding capital stock of Keppel-Philippines or more than 25 percent since July 2005, this Office is of the opinion, and so holds, that dividends paid by Keppel-Philippines to Keppel-Singapore are 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. THcaDA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.