ITAD BIR Ruling No. 223-11

September 2, 2011 ITAD BIR RULING NO. 223-11 Article 10 (Dividends); Philippines-Singapore tax treaty; BIR Ruling No. DA-ITAD 52-10 SGV & Co. 6750 Ayala Avenue 1226 Makati City Philippines Attention: Luis Jose P. Ferrer Partner Gentlemen : This refers to your application for tax treaty relief filed on June 9, 2011, requesting confirmation that dividends paid by Carmelray-JTCI ("Carmelray") to Ascendas Holdings (Manila) Pte. Ltd. ("Ascendas") (formerly, JTCI Industrial Holdings (Manila) Pte., Ltd.) are subject to income tax in the Philippines at a rate not to exceed 15 percent based on the gross amount thereof 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") . CHIScD Basic Facts It is represented that Ascendas is a foreign corporation organized and existing under the laws of Singapore and is a resident thereof, based on its Memorandum and Articles of Association, as amended, and on its Certificate of Residence issued by the Inland Revenue Authority of Singapore on March 10, 2011; that Ascendas is situated at 61 Science Park Road, No. 04-01, Singapore; that Ascendas is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration issued by the Securities and Exchange Commission on January 10, 2011; and that, on the other hand, Carmelray is a domestic corporation situated at Carmelray Industrial Park II, Kilometer 54 National Highway, Calamba City, Laguna, Philippines. It is further represented, based on the Certificates issued by the Corporate Secretary of Carmelray on June 7, 2011 that, on June 1, 2011, the Board of Directors of Carmelray declared cash dividends amounting to PhP30,000,000.00 in favor of all stockholders of record of Carmelray as of June 1, 2011, and payable on June 15, 2011; that the dividends will be taken out of the unrestricted retained earning of Carmelray as of December 31, 2010; and that since November 28, 2002, up to present, Ascendas holds 3,351,869 common shares of stock of Carmelray , each share with a par value of Php84.00 or a total of Php281,556,996.00, constituting 40 percent of the outstanding and voting shares of Carmelray . It is finally represented that the dividends subject of this ruling are not subject of investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, judicial or administrative protest, collection proceedings, or judicial appeal, based on the Sworn Statement issued by the Corporate Secretary of Carmelray on June 1, 2011. Ruling In reply, please be informed that dividends paid to Ascendas , a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax in the Philippines at the rate of 30 percent of the gross amount thereof. Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, provides: "SEC. 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) and (d) above: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." aHSTID However, such dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines. Section 32 (B) (5) of the Code provides: "SEC. 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: (5) Income Exempt under Treaty . Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." With respect to a treaty, what you invoke for this purpose is the Philippines-Singapore tax treaty. Paragraphs 1 and 2, Article 10 thereof provide as follows: "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 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" Under paragraph 2 of Article 10, dividends arising in the Philippines and paid to a resident of Singapore may be taxed in the Philippines at a rate not to 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. ESacHC Accordingly, since Ascendas owns at least 15 percent (in fact, 40 percent) of the outstanding common (voting) shares of stock of Carmelray during the taxable year when the dividends were paid and during the whole taxable year prior to such payment, such dividends paid by Carmelray to Ascendas 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. (BIR Ruling No. ITAD 52-10 dated October 18, 2010) 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