ITAD BIR Ruling No. 264-15

September 9, 2015 ITAD BIR RULING NO. 264-15 Article 10, Philippines-Singapore tax treaty Du-Baladad and Associates 20th Floor, Chatham House Rufino corner Valero Streets Salcedo Village, 1227 Makati City Attention: Benedicta Du-Baladad Managing Partner Gentlemen : This refers to your tax treaty relief application filed on September 18, 2013, requesting confirmation that the dividend paid by BPI/MS Insurance Corporation ("BPI/MS") to MSIG Holdings (Asia) Pte. Ltd. ("MSIG") is 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 MSIG is a corporation organized and existing under the laws of Singapore, and is a resident thereof based on the Certificate of Residence issued by the Assistant Commissioner of the Corporate Tax Division for Comptroller of Income Tax of the Inland Revenue Authority of Singapore dated August 29, 2013; 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 July 25, 2013; and that, on the other hand, BPI/MS is a corporation organized and existing under the laws of the Philippines. It is further represented that at the regular meeting of the Board of Directors BPI/MS held on May 16, 2013, the Board of Directors of BPI/MS approved the declaration of cash dividend of One Hundred Sixty-Two Pesos and Seventy-Eight Centavos (P162.78) per share or a total amount of Five Hundred Sixty-Nine Million Seven Hundred Thirty Thousand Pesos (P569,730,000.00) on the total outstanding shares of the capital stock of BPI/MS , payable to all stockholders of record as of May 16, 2013 and distributable upon receipt by BPI/MS of the approval of the Insurance Commission of said dividend declaration; that MSIG is a stockholder of BPI/MS from January 7, 2009 up to the present with a stockholdings of 1,697,219 common (voting) shares which represent 48.49% of the total outstanding shares of BPI/MS as a result of the transfer of shares of Mitsui Sumitomo Insurance Co., Ltd. It is finally represented that the issue or transaction subject of this 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 per the Sworn Statement issued by BPI/MS dated September 17, 2013. 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. (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 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 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 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 which the company making the distribution is a resident. xxx xxx xxx 5. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the dividends, being a resident of a Contracting State, carries on in the other Contracting State of which the company paying the dividends is a resident, trade or business through a permanent establishment situated therein, or performs in that other State professional services from a fixed base situated therein, and the holding by virtue of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 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 MSIG, a resident of Singapore with no fixed place of business in the Philippines, holds 48.49 percent of the outstanding shares of stock of BPI/MS during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year or since January 7, 2009, the dividend paid by BPI/MS to MSIG is subject to the preferential tax rate of 15 percent, pursuant to Article 10(2)(a) 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