ITAD BIR Ruling No. 191-13

July 9, 2013 ITAD BIR RULING NO. 191-13 Article 10, Philippines-Singapore tax treaty Star Alliance VIP World, Inc. 5/F Star Cruises Centre 100 Andrews Avenue, Newport City Pasay 1309 Attention: Armando De Asa Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on September 26, 2012, requesting confirmation that the dividends paid by STAR ALLIANCE VIP WORLD, INC. ("Star Alliance") to STAR RESORT MANAGEMENT SERVICES PTE. LTD. ("Star Resort") are subject to 15 percent preferential tax rate 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 Star Resort is a corporation organized and existing under the laws of Singapore and is a resident thereof, having its registered address at 1 Marina Blvd #28-00, Singapore 018989 based on the Certificate of Residence issued by the Assistant Commissioner of the Corporate Tax Division for Comptroller of Income Tax of the Inland Revenue Authority of Singapore dated August 17, 2012; 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 July 31, 2012; and that, on the other hand, Star Alliance is a corporation organized and existing under the laws of the Philippines with principal address at 5/F Star Cruises Centre, 100 Andrews Avenue, Newport City, Pasay 1309. It is further represented that on July 5, 2012, the Board of Directors of Star Alliance approved the declaration of dividends in the amount of One Hundred Forty Million Five Hundred Sixty-Five Thousand Five Hundred Thirty-Four Pesos and 12/100 (P140,565,534.12), in favor of all stockholders of record as of September 15, 2012, payable on or before September 30, 2012; that per Corporate Secretary's Certificate issued by Star Alliance on July 30, 2012, Star Resort is the legal and beneficial owner One Thousand Nine Hundred Ninety-Eight (1,998) common shares (including of two [2] common shares covered by separate declaration of trusts held by its nominee directors) in Star Alliance , acquired through various subscriptions beginning August 4, 2008, representing 40% of the shares of Star Alliance ; and that, based on a proof of bank remittance issued by Banco de Oro, Paseo branch, such dividends were remitted to Star Resort on September 28, 2012. It is finally represented that the issue or transaction subject of this 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 per the Affidavit issued by Star Alliance dated September 25, 2012. CHEIcS In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, 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. (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 interest, 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%)." However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: "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." In this particular case, you invoked 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: SEAHID 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 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. xxx xxx xxx" Based on the aforequoted provisions, the 15 percent preferential tax rate on dividends applies whenever the recipient of the dividends owns at least 15 percent of the outstanding voting shares of the paying company, 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. Considering that Star Resort holds 40 percent of the total outstanding shares of Star Alliance during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year or since August 4, 2008, the dividends received by Star Resort are subject to the preferential tax rate of 15 percent, pursuant to 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. TAScID Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue