ITAD BIR Ruling No. 312-13

December 2, 2013 ITAD BIR RULING NO. 312-13 Article 10 (Dividends), Philippines-Singapore tax treaty Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Alexander B. Cabrera Managing Partner Gentlemen : This refers to your tax treaty relief application filed on June 27, 2013 requesting confirmation that dividends paid by Western Union Services (Philippines), Inc. ("Western Union Philippines") to Western Union Services Singapore Pte. Ltd. ("Western Union Singapore") are subject to a preferential 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 Western Union Singapore is a corporation organized and existing under the laws of Singapore based on its Memorandum and Articles of Association, and with principal office at 77 Robinson Road, 35-01 Robinson 77, Singapore. Western Union Singapore is a resident of Singapore for income tax purposes for the Year of Assessment 2013 based on its Certificate of Residence issued by the Inland Revenue Authority of Singapore on July 5, 2012. It is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration issued by the Securities and Exchange Commission on July 15, 2013. On the other hand, Western Union Philippines is a domestic corporation with principal office at 1024 Global Trade Center, EDSA, Quezon City, Philippines. It is also represented based on the Corporate Secretary's Certificate issued on June 25, 2013 that, as of April 10, 2013, Western Union Singapore holds 91,205 shares of Western Union Philippines which constitute 99.99% ownership in Western Union Philippines. Western Union Singapore holds these shares since July 23, 2007. It is further represented based on another Corporate Secretary's Certificate issued on June 25, 2013 that in a special meeting of the Board of Directors of Western Union Philippines on April 10, 2013, the Board approved a resolution declaring cash dividends amounting to P85,000,000.00 and payable to all stockholders of record as of December 31, 2012. The dividends will be taken out of the company's unrestricted earnings as of December 31, 2012 and payable on June 28, 2013. Based on the Certification issued by Citibank N.A. Manila 1 on July 25, 2013, Western Union Philippines remitted the dividends to Western Union Singapore on July 23, 2013 by way of telegraphic transfer and amounting to US$1,663,712.00 (P71,843,830.41). In reply, please be informed that under Section 42 (A) (2) (a) of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, dividends are considered derived within the Philippines if paid by a domestic corporation, to wit: SIcCEA "SEC. 42. Income from Sources within the Philippines . (A) Gross Income from Sources within the Philippines . The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (2) Dividends . The amount received as dividends: (a) From a domestic corporation; and" Moreover, under Section 28 (B) (1) of the Tax Code, 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: DICSaH "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, such dividends 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: SaHcAC 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, paragraphs 1 and 2, Article 10 of the Philippines-Singapore tax treaty 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 Contracting State. 2. However, such dividends may also 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." DTcHaA Under Article 10, dividends arising in the Philippines and paid to a resident of Singapore may be taxed in the Philippines at a rate not to exceed 15 percent if the recipient is a company or a partnership which owns at least 15 percent of the outstanding shares of the voting stock of the company paying the dividends, and during the part of that company's taxable year which precedes the date of payment and during the whole of its prior taxable year (if any). Otherwise, the dividends are subject to 25 percent. Accordingly, considering that Western Union Singapore owns at least 15 percent of the outstanding shares of the voting stock of Western Union Philippines during the part of the company's taxable year which precedes the date of payment and during the whole of its prior taxable year, where Western Union Singapore owns 99.99 percent of the outstanding shares of Western Union Philippines since July 23, 2007 up to present, such dividend paid by Western Union Philippines to Western Union Singapore is subject to income tax at the rate of 15 percent 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 Footnotes 1. Located at 8741 Paseo de Roxas, Makati, Philippines.