ITAD BIR Ruling No. 204-14

October 3, 2014 ITAD BIR RULING NO. 204-14 Article 10, Philippines-Singapore tax treaty NMGRALAW 8th Floor 139 Corporate Center 139 Valero Street, Salcedo Village Makati City Attention: Atty. Jose Roberto L. Mamuric Atty. Mark Jorel O. Calida Gentlemen : This refers to your tax treaty relief application filed on May 9, 2012, requesting confirmation that dividends paid by AIR LIQUIDE PHILIPPINES, INC. ("Air Liquide Philippines") to AIR LIQUIDE INDUSTRIAL SERVICES PTE. LTD. ("Air Liquide") are subject to income tax at 15 percent preferential tax rate 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 Air Liquide is a foreign corporation organized and existing under the laws of Singapore and a resident of Singapore based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore consularized on August 28, 2012; that Air Liquide is situated at 3 HarbourFront Place, #09-04 HarbourFront Tower Two, Singapore; that Air Liquide is not registered as a corporation or partnership in the Philippines based on Certification of Non-Registration of Company issued by the Securities and Exchange Commission ("SEC") on May 18, 2012; that Air Liquide Philippines is a domestic corporation situated at Lot 37, DBP Avenue, FTI Complex, Taguig City, Philippines. AaIDHS On May 7, 2012, the Board of Directors of Air Liquide Philippines, at its special meeting, declared cash dividends in the amount of One Hundred Twenty Million Pesos (P120,000,000.00) payable to Air Liquide pro rata on or before May 10, 2012; and that Air Liquide holds 881,491,395 common shares equivalent to P881,491,395.00 which constitute 74 percent of the shares Air Liquide Philippines based on the Secretary's Certificate dated June 13, 2012. It is finally represented that the dividends subject of the above application 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 Certificate issued by the Air Liquide Philippines on May 9, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ( "Tax Code" ), as amended, provides that dividend paid to Air Liquide, a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "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 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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). DSHcTC xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code provides that such dividend may be exempt from income tax or subject to reduced rate to the extent required by any treaty obligation on the Philippines, viz. : "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. xxx xxx xxx" With respect to a treaty, you invoke the Philippines-Singapore tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: "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 HSIaAT 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. xxx xxx xxx" Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of the Singapore may be taxed in the Philippines at a rate not to exceed: (a) 15 percent of the gross amount of dividends if the recipient of the dividends 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 percent of the outstanding shares of the voting stock of the paying company; and (b) 25 percent of the gross amount of the dividends in all other cases. Accordingly, inasmuch as Air Liquide, the recipient of the dividend from Air Liquide Philippines, holds directly 74 percent of the capital of Air Liquide Philippines, such dividends paid by Air Liquide Philippines to Air Liquide 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue