ITAD BIR Ruling No. 222-12

May 31, 2012 ITAD BIR RULING NO. 222-12 Article 10, Philippines-Singapore tax treaty; BIR Ruling No. ITAD-218-11 Petrolift, Inc. 6F Mapfre Insular Corporate Center MBP 1220 Acacia Avenue Ayala Alabang, Muntinlupa City Attention: Regina F. Magbitang Chief Financial Official Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on September 23, 2011 requesting confirmation that the dividends paid by Petrolift, Inc. ("Petrolift") to Soleado Holdings Pte. Ltd. ("Soleado") 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 Soleado is a corporation organized and existing under the laws of Singapore and is a resident thereof, having its registered address at 78 Shenton Way #04-02, Singapore 079120 based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore dated October 12, 2011; 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 October 4, 2011; and that, on the other hand, Petrolift is a corporation organized and existing under the laws of the Philippines with principal address at 6/F Mapfre Insular Corporate Center, Madrigal Business Park I, 1220 Acacia Avenue, Ayala Alabang, Muntinlupa City. It is further represented, based on the Secretary's Certificate issued by Petrolift, that at the special meeting of the Board of Directors of Petrolift on August 2, 2011, the Board approved the declaration of cash dividends to all stockholders of Petrolift as of record date of September 2, 2011, in the amount of Php0.1588 per share; that per Secretary's Certificate issued by Petrolift dated September 22, 2011, that through various subscription beginning April 5, 2010 and as of the record date on September 2, 2011, Soleado is a stockholder of 503,740,180 shares (inclusive of three (3) shares being held by its nominees) representing 40 percent of the total outstanding capital stock of Petrolift; and that, based on the proof of bank remittance from Chinabank, the subject dividends were remitted to Soleado on October 3, 2011. 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. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. DSCIEa (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: a) 15 percent 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 percent 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 percent 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 Soleado holds 40 percent of the total outstanding and voting shares of Petrolift during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year, the dividends received by Soleado shall be subject to the preferential tax rate of 15 percent, pursuant to Article 10 (2) (a) of the Philippines-Singapore tax treaty. (BIR Ruling No. ITAD-218-11 dated September 1, 2011) TAECSD 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