ITAD BIR Ruling No. 303-12

July 27, 2012 ITAD BIR RULING NO. 303-12 Article 10, Philippines-Singapore tax treaty SITC Container Lines Philippines, Inc. 6/F Ramon Magsaysay Center 1680 Roxas Blvd. Malate, Manila Attention: Ms. Angelita R. Bautista Accounting Head Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on September 30, 2011 on the dividends paid by your company SITC CONTAINER LINES PHILIPPINES, INC. ("SITC Philippines") to SITC SHIPPING ASIA PTE. LIMITED ("SITC Singapore") ,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 SITC Singapore, with address at 50 Raffles PL #32-01, Singapore 048623, is a resident of Singapore for income tax purposes and is duly incorporated under the laws of Singapore on June 11, 2008 based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore dated December 27, 2011 and the Certificate Confirming Incorporation of Company issued by the Registrar of Companies and Businesses of Singapore dated December 06, 2008; that it is not registered either as a corporation or as a partnership in the Philippines per certification issued by the Securities and Exchange Commission dated November 09, 2011; that, on the other hand, SITC Philippines is a corporation organized and existing under the laws of the Philippines 6/F Ramon Magsaysay Center, 1680 Roxas Blvd. Malate, Manila; that as of date of record and date of payment, SITC Singapore holds 399,800 common shares comprising 40 percent ownership in SITC Philippines, which were originally subscribed since May 11, 2009, based on the Secretary's Certificate issued by SITC Philippines dated May 29, 2012. It is further represented that on August 16, 2010, the Board of Directors of SITC Philippines approved a resolution declaring cash dividend in favor of stockholders of record as of August 15, 2010 in the amount of One Million Five Hundred Ninety-Nine Thousand Two Hundred Seventeen and 30/100 Pesos (Php1,599,217.30) payable on September 30, 2011; and that based on the bank statement with Certification from the Bank of the Philippine Islands, Port Area branch, SITC Philippines transferred cash dividends to SITC Singapore in the amounts of USD$10,372.11 and $37,197.63 on April 2, 2012. 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 received by a nonresident foreign corporation which provides: "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%)." However, Section 32 (B) (5) of the Tax Code of 1997, as amended provides: aCATSI "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, Article 10 of the Philippines-Singapore tax treaty which you invoked may apply to the instant case. 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 per cent of the gross amount of the dividends. xxx xxx xxx 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 of which the company making the distribution is a resident. ..." 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 SITC Singapore holds 399,800 common shares which is 40 percent of the total outstanding shares of SITC Philippines during the part of the taxable year which precedes the payment of the dividends and the whole of its prior taxable year, the subject dividends received by SITC Singapore are be subject to the preferential tax rate of 15 percent, pursuant to the 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. IcHTAa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue