ITAD BIR Ruling No. 284-13

September 20, 2013 ITAD BIR RULING NO. 284-13 Article 11 (Dividends), Philippines-United States tax treaty CVC Law Center 11th Avenue, corner 39th Street, Bonifacio Triangle, Bonifacio Global City 1634, Metro Manila Attention: Rosa Michele C. Bagtas Authorized Representative Gentlemen : This refers to your application for tax treaty relief dated 14 June 2013 requesting confirmation that dividends paid by Synchrogenix Philippines, Inc. ("Synchrogenix-Philippines") to Synchrogenix Information Strategies, Inc. ("Synchrogenix-United States'') are subject to final withholding tax at the preferential rate of ten percent (20%) pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income ("Philippines-United States tax treaty") . It is represented that Synchrogenix-United States is a non-resident foreign corporation organized and existing under the laws of the United States, with office address at The Nemours Building, 1107 N. Orange Street, Suite 600, Wilmington DE 19801 based on the notarized and consularized Residence Certificate issued by the Internal Revenue Service, Philadelpia, United States and that Synchrogenix-United States is a juridical entity incorporated under the laws of the State of Delaware, United States based on the notarized and consularized Amended and Restated Certificate of Incorporation of Synchrogenix-United States . The company Synchrogenix-United States is not registered as a corporation or partnership in the Philippines based on the Certificate of Non-Registration of Company issued by the Securities and Exchange Commission on 11 June 2013. Synchrogenix-Philippines , on the other hand, is a domestic corporation with office address at 9th Floor, 6780 Ayala Avenue, Makati City, Metro Manila. ETCcSa It is further represented that Synchrogenix-United States owns 99.99% of the authorized capital stock of Synchrogenix-Philippines amounting to Eight Hundred Ninety Nine Thousand Nine Hundred Ninety Five Pesos (Php899,995.00) equivalent to Eight Hundred Ninety Nine Thousand Nine Hundred Ninety Five (899,995) shares valued at One Peso (Php1.00) per share since 29 August 2008 by way of subscription, based on the notarized Secretary's Certificate of executed by the Corporate Secretary of Synchrogenix-Philippines . On 15 December 2012, Synchrogenix-Philippines declared cash dividends in the total amount of Ten Million Two Hundred Thousand Pesos (Php10,200,000.00) to be distributed among the stockholders of record as of 31 December 2012 to be payable on or before 30 June 2013 based on the Secretary's Certificate executed by the Corporate Secretary of Synchrogenix-United States . Further, on 30 June 2013, Synchrogenix-Philippines remitted the amount of Ten Million Two Hundred Thousand Pesos (Php10,200,000.00) less taxes at the rate of 20% through journal voucher entries in the books of Synchrogenix-Philippines based on a Certification executed by the Corporate Secretary of Synchrogenix-Philippines with attached BIR Tax Payment Deposit Slip. 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, judicial or administrative protest, collection proceedings or judicial appeal based on the Certificate of Synchrogenix-Philippines Director, Rosa Michele C. Bagtas. HTaIAC In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" NIRC of 1997 "), as amended, dividends paid to Synchrogenix-United States are subject to income tax at the rate of 30 percent, thus: "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%)." CTIEac 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." For this purpose, you invoke the Philippines-United States tax treaty. Paragraphs 1 and 2 of Article 11 on Dividends thereof provide: "Article 11 Dividends 1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. IcHTED 2. The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed a) 25 percent of the gross amount of the dividend; or b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation'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 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation." Based on the above-quoted provisions, dividends arising in the Philippines and paid to a resident of United States may be taxed in the Philippines at a rate not to exceed (a) 25% of the gross amount of the dividend; or (b) 20% of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year, at least 10% of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. Considering that Synchrogenix-United States owns 99.99% shares in Synchrogenix-Philippines since 29 August 2008, which is more than the 10 percent shareholding requirement to avail of the 20% rate, this Office is of the opinion and so holds that the dividends paid by Synchrogenix-Philippines to Synchrogenix-United States are subject to the preferential tax rate of 20% of the gross amount thereof pursuant to Article 11 of the Philippines-United States tax treaty. DcCHTa 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