ITAD BIR Ruling No. 219-13

August 13, 2013 ITAD BIR RULING NO. 219-13 Article 10, Philippines-Singapore Tax Treaty Petrolift, Inc. 6F Mapfre Insular Corporate Center Madrigal Business Park 1220 Acacia Avenue Ayala Alabang, Muntinlupa City Attention: Ms. Regina F. Magbitang Chief Financial Official Gentlemen : This refers to your tax treaty relief application filed on September 28, 2012, on behalf of Soleado Holdings Pte. Ltd. ("Soleado") , requesting confirmation that the dividend payment of Petrolift, Inc. ("Petrolift") to Soleado is 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") . THaAEC It is represented that Soleado , with registered office address at 78 Shenton Way, #04-02, Singapore 079120, is a resident of Singapore within the meaning of the Philippines-Singapore tax treaty based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore dated October 12, 2011; that Soleado is a Company Limited by Shares per Memorandum and Articles of Association lodged in the Office of the Registrar of Companies, Singapore; that Soleado 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 October 4, 2011; and that, on the other hand, Petrolift is a domestic corporation duly organized and existing under the laws of the Philippines with office address at 6F Mapfre Insular Corporate Center, Madrigal Business Park 1, 1220 Acacia Avenue, Ayala Alabang, Muntinlupa City. It is also represented that as of September 30, 2012, Soleado owns of 503,740,180 common shares, inclusive of three (3) shares being held by its nominees, which constitute 39.72% of the outstanding capital stock of Petrolift; that 489,056,155 of the said shares were acquired through subscription from the unissued authorized capital stock on April 15, 2010 and the 14,684,025 shares by secondary subscription of Soleado on December 22, 2010; that at a special meeting on August 15, 2012 of the Board of Directors of Petrolift, the Board resolved the declaration of a cash dividend amounting to 200 Million chargeable against the undivided profits of Petrolift, in favor of the stockholders of record as of September 30, 2012; and that per Secretary's Certificate of Petrolift, dividend was remitted to Soleado via telegraphic transfer through Security Bank Corporation on October 2, 2012. It is finally represented, based on the Sworn Statement by Petrolift on May 9, 2013, 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%). acADIT 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. 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: cAEaSC 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. 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. xxx xxx xxx" Under paragraph 2 of Article 10, dividends arising in the Philippines and paid to a resident of Singapore may be taxed in the Philippines, but the rate of income tax that may be imposed thereon shall not exceed (a) 15 percent of the gross amount of the dividends if the recipient is a company (including a partnership) which holds at least 15 percent of the outstanding shares or the voting stock of the company paying the dividends during the part of the company's taxable year which precedes the date of payment of the dividends and during the whole of its prior taxable year (if any); and (b) 25 percent of the gross amount of the dividends in all other cases. SHADEC Accordingly, the cash dividend declared by Petrolift on August 15, 2012, and paid to Soleado on October 2, 2012, is subject to 15 percent tax rate based on the gross amount thereof, pursuant to Article 10 (2) of the Philippines-Singapore tax treaty. The lower rate applies since Soleado is a company holding 39.72 percent of the outstanding shares of stock of Petrolift since December 2010. 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