ITAD BIR Ruling No. 263-15

September 9, 2015 ITAD BIR RULING NO. 263-15 Article 10, Philippines-Singapore tax treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue, 1226 Makati City Attention: J.R. Vergara Principal, Tax Services Gentlemen : This refers to your application for tax treaty relief dated April 2, 2014, requesting confirmation that dividends paid by Otis E & M Company Philippines, Inc. ("Otis-Philippines") to United Technologies International Corporation ("United-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"). Facts It is represented that United-Singapore is corporation duly organized and existing under the laws of Singapore based on the notarized and consularized Certificate of Residence issued by the Inland Revenue Authority of Singapore and is engaged in the business of being a holding company to undertake and transact all kinds of investment holding business based on the notarized and consularized Articles of Association of United-Singapore. The company United-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 March 12, 2014. On the other hand, it is represented that Otis-Philippines is a domestic corporation organized and existing under Philippine law and that it is engaged in the business of importing, buying and selling elevators, escalators, moving walkways and shuttle systems and all supplies, material, tools, machinery and components based on the certified machine copy of the Articles of Incorporation of Otis-Philippines . On March 27, 2014, as shown in the Secretary's Certificate issued by the Corporate Secretary, during the special meeting of the Board of Directors of Otis-Philippines, authorized and approved the declaration of cash dividend amounting to One Hundred Ten Million Pesos (P110,000,000.00) to its stockholder of record as of March 27, 2014, and payable on April 10, 2014; that following are the stockholding of United-Singapore to Otis-Philippines : Subscribed number of Shares Mode of Acquisition Percentage of Acquisition Date Ownership 144,995 plus the beneficial owner Original October 27, 100% of 5 shares held in nominees Subscription 2003 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 Statement issued by Otis Philippines dated March 31, 2014. Ruling In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 ("Tax Code"), as amended, provides that dividends paid to a foreign corporation not engaged in trade or business in the Philippines, are subject to income tax at the rate 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 . . . , dividends, . . . : Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code provides that 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, 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" 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 United-Singapore directly holds 144,995 shares plus the beneficial owner of 5 shares held in nominees of Otis-Philippines representing 100% of the outstanding capital stock of Otis-Philippines or more than 25 percent since October 27, 2003, this Office is of the opinion, and so holds, that dividend paid by Otis-Philippines to United-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. 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