ITAD BIR Ruling No. 278-13

September 20, 2013 ITAD BIR RULING NO. 278-13 Article 10 (Dividends), Philippines-Singapore tax treaty SITC Container Lines Philippines, Inc. 6th Floor, Ramon Magsaysay Center 1680 Roxas Boulevard Malate, Manila Attention: Ms. Angela R. Bautista Gentlemen : This refers to your tax treaty relief application filed on December 27, 2012 requesting confirmation that dividends paid by SITC Container Lines Philippines, Inc. ("SITC Container Philippines") to SITC Shipping Asia Pte. Ltd. ("SITC Shipping") 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 SITC Shipping is a foreign corporation in Singapore based on its Memorandum and Articles of Association and Certificate of Residence issued by Inland Revenue Authority of Singapore on December 27, 2011. SITC Shipping is located at 50 Raffles Place, 32-01 Singapore Land Tower, Singapore. SITC Shipping 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 on March 19, 2013. On the other hand, SITC Container Philippines is a domestic corporation located at 6th Floor, Ramon Magsaysay Center, 1680 Roxas Boulevard, Malate, Manila, Philippines. DEacIT Based on the Corporate Secretary's Certificates issued on March 28, 2013 and December 3, 2012, the Board of Directors of SITC Container Philippines approved a resolution on July 25, 2012 declaring cash dividends amounting to P8,442,951.33 in favor of the stockholders on record of the corporation as of August 15, 2012. As of the date of declaration, these are the stockholders of SITC Container Philippines : Stockholder Number Date of Par Value Percentage of Shares Acquisition of shares SITC Shipping 7,996 3,998 399,800.00 19.99 (May 11, 2009 original subscription) 3,998 399,800.00 19.99 (Aug. 16, 2011 stock dividend) Ben Line Agencies 11,994 - 1,199,400.00 59.97 Philippines, Inc. 5 individual 10 - 1,000.00 0.05 nominees Total 20,000 - 2,000,000.00 100 ====== ========== ==== Based on the Certification issued by the Bank of the Philippine Islands 1 on May 31, 2013, the dividends were remitted by SITC Container Philippines to SITC Shipping as follows: SCIAaT Date of Amount Remitting Bank Reference Receiving Bank Remittance Number March 7, 2013 US$67,509.84 Bank of the FXBR49903 The Hongkong and (P2,746,435.31) Philippine F00155 Shanghai Banking Islands Corporation Queen's Road Central, Singapore Ruling In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" Tax Code "),as amended, dividends paid to a foreign corporation not engaged in trade or business in the Philippines are subject to income tax at the rate of 30 percent, to wit: " 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%). " (Emphasis ours) STcEIC However, under Section 32 (B) (5) of the same Tax Code, such dividends are exempt or partially exempt to the extent required by any treaty obligation on the Philippines, to wit: "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." In this regard, Article 10 of the Philippines-Singapore tax treaty provides relief to dividends 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. cEISAD 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 this article, dividends arising in the Philippines and paid to a resident of Singapore Japan may be taxed in the Philippines at a rate not to exceed (a) 15 percent if the company recipient of the dividends owns at least 15 percent of the outstanding shares of the voting stock of the company paying the dividends during the part of the taxable year preceding the payment of the dividends and during the whole prior taxable year, and (b) 25 percent in all other cases. Accordingly, since SITC Shipping owns at least 15 percent of the outstanding shares of SITC Container Philippines where it owns 39.98% percent of these shares during the whole prior taxable year of 2012 ,and during the part of taxable year 2013 preceding the payment of the dividends on March 7, 2013 ,such dividends paid by SITC Container Philippines to SITC Shipping shall be subject to incomes tax at the rate of 15 percent , pursuant to paragraph 2 (a), Article 10 of the Philippines-Singapore tax treaty. SIEHcA 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 Footnotes 1. Located at BPI Building, Ayala Ave corner Paseo de Roxas, Makati City, Philippines.