ITAD BIR Ruling No. 296-13

October 25, 2013 ITAD BIR RULING NO. 296-13 Article 10 (Dividends), Philippines-Singapore tax treaty Sycip Gorres Velayo & Co. 6760 Ayala Avenue, 1226 Makati City Attention: Wilfredo U. Villanueva Authorized Representative Gentlemen : This refers to your application for tax treaty relief (TTRA) dated 14 November 2013 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") . It is represented that United-Singapore is corporation duly organized and existing under the laws of Singapore with principal office at United Technologies International Corporation-Asia Private Ltd., 72 Anson Road #09-00, Singapore 07991 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 13 November 2012. On the other hand, it is represented that Otis-Philippines is a domestic corporation with address at 14/F Petro Mega Plaza, 358 Sen. Gil Puyat Avenue, Makati City 1200 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 . CITcSH It is represented that United-Singapore owns One Hundred Forty Four Thousand Nine Hundred Ninety Five shares (144,995) at a par value of One Hundred Pesos (P100.00) each and is also the beneficial owner through its nominees of Five (5) shares of the outstanding capital stock of Otis-Philippines with a total par value of Fourteen Million Five Hundred Thousand Pesos (P14,500,000.00) constituting Ninety Nine point Ninety Nine percent (99.99%) of the ownership of Otis-Philippines , the said shares were acquired by United-Singapore as follows: (a) 105,000 shares of stock were acquired through purchase on 15 April 2003, and (b) 40,000 shares of stock were acquired through original subscription on 27 October 2003 based on a notarized Secretary's Certificate issued by the Corporate Secretary of Otis-Philippines . It is represented that on 06 November 2012, per Board Resolution No. 11-2012, Otis-Philippines declared cash dividends in the amount of Eighty Million Pesos (P80,000,000.00) for fiscal year ending 31 December 2012 out of the unrestricted retained earnings of Otis-Philippines for the fiscal year ended 31 December 2011 in favor of United-Singapore based on the notarized Secretary's Certificate issued by the Corporate Secretary of Otis-Philippines . Further, that on 20 November 2012, it is represented that Otis-Philippines remitted the amount of One Million Six Hundred Forty Eight Thousand Four Hundred Eighty Four US Dollars and Eighty Four Cents (US$1,648,484.84) in favor of United-Singapore as cash dividend payment based on a notarized Certification issued by Hong Kong and Shanghai Banking Corporation Limited, Taguig City Branch. 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 Otis-Philippines on 09 November 2012. 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 United-Singapore is subject to income tax at the rate of 30 percent, thus: ITcCaS "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: IHTaCE 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-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 cDAEIH 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 of Otis-Philippines representing 99.99% of the outstanding capital stock of Otis-Philippines or more than 25 percent since 27 October 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