ITAD BIR Ruling No. 201-13

July 15, 2013 ITAD BIR RULING NO. 201-13 Article 11, Philippines-Singapore Tax Treaty Baniqued & Baniqued Attorneys at Law 8/F Jollibee Center, San Miguel Avenue Pasig City, 1605 Attention: Suzette A. Celicious-Sy Luis Martin V. Tan Francesca Noelle M. Huang Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on September 18, 2012, on behalf of Ibiden Asia Holdings Pte. Ltd. ("Ibiden-Singapore") , requesting that the interests paid by Ibiden Philippines, Inc. ("Ibiden-Phil") to Ibiden-Singapore are subject to 15 percent final withholding tax rate under Article 11 of 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") . TAEDcS It is represented that Ibiden-Singapore is a corporation organized and existing under the laws of Singapore and is a resident thereof, having its registered address at 31 Kaki Bukit Rd 3 #06-22, Singapore 417818, based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore dated July 12, 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 September 4, 2012; and that, on the other hand, Ibiden-Phil is a corporation organized and existing under the laws of the Philippines, with principal address at First Philippine Industrial Park, Barangay Sta. Anastacia, Sto. Tomas, Batangas 4234. It is further represented that on June 1, 2012, Ibiden-Singapore and Ibiden-Phil entered into a Credit Facility Agreement ("Credit Facility") , whereby Ibiden-Singapore shall make available to Ibiden-Phil during the drawdown period, upon request and subject to the terms and conditions set forth, a loan in a maximum aggregate principal amount of One Hundred Twenty-Five Million US Dollars (US$125,000,000.00); that the Credit Facility has a drawdown period from June 1, 2012 until December 31, 2012 with an Interest Rate Swap plus 0.25% per year and shall be calculated on the basis of a 360-day year from the actual days elapsed; and that, during the drawdown period of the Credit Facility, Ibiden-Singapore and Ibiden-Phil entered into two (2) Loan Agreements in the amount of Fifty Million US Dollars (US$50,000,000.00) and Twenty Million US Dollars (US$20,000,000.00); that per the Certificate of Inward Remittance issued on August 24, 2012 by the Bank of Tokyo-Mitsubishi UFJ-Manila Branch, both loans were credited to the account of Ibiden-Phil on June 18, 2012 and July 5, 2012 respectively; and that, per the proof of bank remittance from the Bank of Tokyo-Mitsubishi UFJ, interest payments were remitted to Ibiden-Singapore on September 27, 2012. In reply, please be informed that interest income derived by a nonresident foreign corporation is generally taxable under Section 28 (B) (5) (a) of the National Internal Revenue Code of 1997 (NIRC of 1997), as amended. It provides: "Section 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Nonresident Foreign Corporation . xxx xxx xxx (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation . (a) Interest on Foreign Loans . A final withholding tax at the rate of twenty percent (20%) is hereby imposed on the amount of interest on foreign loans contracted on or after August 1, 1986;" However, said income may be exempt from income tax or partially exempt pursuant to a treaty obligation to which the Philippine government is bound. Thus, Section 32 (B) (5) of the NIRC of 1997, as amended, provides: EcHIDT "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." Thus, Article 11 of the Philippines-Singapore tax treaty, which you invoke, may apply to the instant case. It states: "Article 11 Interest 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 3. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises, including interest on deferred payment sales. Penalty charges for late payment shall not be regarded as interest for purposes of this Article. DACaTI xxx xxx xxx" Based on the above provisions, interest derived by a corporation which is a resident of Singapore may qualify for a preferential rate of 15 percent of the gross amount thereof under the Philippines-Singapore tax treaty, if the recipient of such interest is also the beneficial owner thereof. However, the 15 percent tax rate shall not apply if such corporation has a permanent establishment in the Philippines and the subject interest income is effectively connected to the said permanent establishment. In view of the foregoing, and considering that Ibiden-Singapore does not have permanent establishment in the Philippines to which the subject interests are effectively connected, this Office is of the opinion and so holds that the interests to be paid by Ibiden-Phil to Ibiden-Singapore are subject to Philippine income tax at the preferential rate of 15 percent of the gross amount thereof pursuant to Article 11 (2) of the Philippines-Singapore tax treaty. Moreover, the two (2) Loan Agreements entered into between Ibiden-Phil and Ibiden-Singapore are both subject to documentary stamp tax imposed under Section 179 of the Tax Code of 1997, as amended, at the rate of One Peso (P1.00) on each Two Hundred Pesos (P200) or fractional part thereof, of the issue price of any such loan agreement. This ruling is issued on the basis of the foregoing 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