ITAD BIR Ruling No. 248-13

August 16, 2013 ITAD BIR RULING NO. 248-13 Article 10 (Dividends), Philippines-Singapore tax treaty Gardenia Bakeries Philippines, Inc. Gardenia Centre, Star Avenue, Laguna International Industrial Park (LIIP), Mamplasan, Bian, Laguna Attention: Simplicio P. Umali, Jr. Authorized Representative Gentlemen : This refers to your application for tax treaty relief (TTRA) dated 06 May 2013 requesting confirmation that dividends paid by Gardenia Bakeries Philippines, Inc. ("Gardenia-Philippines") to Gardenia International (S) Pte., Ltd. ("Gardenia-Singapore") are subject to income tax at the rate of 15 percent 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") . HTDCAS It is represented that Gardenia-Singapore is corporation duly organized and existing under the laws of Singapore with principal office at 150 STH Bridge Road, #09-04, Singapore 058727 based on the notarized and consularized Certificate of Residence issued by the Inland Revenue Authority of Singapore and the Articles of Association of Gardenia-Singapore . The company Gardenia-Singapore is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission (SEC) on 24 April 2013. On the other hand, Gardenia-Philippines is a domestic corporation with address at Gardenia Centre, Star Avenue, Laguna International Industrial Park (LIIP), Mamplasan, Laguna. It is represented that Gardenia-Singapore owns Four Hundred Ninety Thousand shares (490,000) valued at Four Hundred Ninety Million Pesos (Php490,000,000.00) constituting One Hundred Percent (100%) of the ownership of Gardenia-Philippines ; the said shares were acquired by Gardenia-Singapore through conversion of loan to equity on 17 November 2004 and that on 25 March 2013, the Board of Directors of Gardenia-Philippines resolved to declare cash dividends in the amount of Ten Million Eight Hundred Thousand Pesos (Php10,800,000.00) to stockholders of record as of 31 December 2012 payable on or before 31 May 2013 based on a notarized Secretary's Certificate executed by the Corporate Secretary of Gardenia-Philippines . Further, that on 31 May 2013, it is represented that Gardenia-Philippines remitted the amount of Nine Million One Hundred Eighty Thousand Pesos (Php9,180,000.00) in favor of Gardenia-Singapore as cash dividend payment based on a notarized Certification issued by Rizal Commercial Banking Corporation, Muntinlupa City. It is finally represented that the dividends subject of this ruling 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 notarized Certification issued by the Financial Controller of Gardenia-Philippines on 16 April 2013. In reply, please be informed that under Section 28 (B) (5) (a) of the National Internal Revenue Code of 1997 ("NIRC of 1997") , as amended, dividends paid to Gardenia-Singapore is subject to income tax at the rate of 30 percent, thus: caTIDE "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%)." However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "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: 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." IDSaEA For this purpose, 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 b) in all other cases, 25 per cent of the gross amount of the dividends." Under paragraph 2 above, 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 if the recipient of the dividends is a company which owns directly at least 25 percent of the capital of the company paying the dividends; and (b) 25 percent in all other cases. Accordingly, considering that Gardenia-Singapore directly holds 490,000 shares of Gardenia-Philippines representing 100% of the outstanding capital stock of Gardenia-Philippines or more than 25 percent since 17 November 2004, this Office is of the opinion, and so holds, that dividend paid by Gardenia-Philippines to Gardenia-Singapore is 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. cDEHIC 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