ITAD BIR Ruling No. 329-14

December 18, 2014 ITAD BIR RULING NO. 329-14 Article 10 (Dividends) Philippines-Singapore tax treaty Petrolift Inc. 6th Floor MAPFRE Insular Corp. Center MBP 1220 Acacia Avenue Ayala Alabang, Muntinlupa City Attention: Ms. Regina F. Magbitang Chief Financial Controller Gentlemen : This refers to your tax treaty relief application filed on May 8, 2014 requesting confirmation that dividends paid by Petrolift Inc. ("Petrolift") to Soleado Holdings Pte. Ltd. ("Soleado Holdings") are subject to a preferential tax 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 Soleado Holdings is a corporation organized and existing under the laws of Singapore based on its Memorandum and Articles of Association, and with principal office at No. 78 Shenton Way #04-012, Singapore. Soleado Holdings is a resident of Singapore for income tax purposes for the Year of Assessment 2014 based on its Certificate of Residence issued by the Inland Revenue Authority of Singapore on October 2, 2013. It 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 May 21, 2014. On the other hand, Petrolift is a domestic corporation with principal office at 6th Floor MAPFRE Insular Corp. Center, MBP 1220 Acacia Avenue, Ayala Alabang, Muntinlupa City, Philippines. It is also represented based on the Corporate Secretary's Certificate issued on May 9, 2014 that, as of April 15, 2014, Soleado Holdings holds 23.3 percent of the total issued and outstanding shares of stock of Petrolift with a total of 2,159,350,452 shares; that 489,056,155 of these shares were acquired on April 15, 2010 and 14,684,025 shares were acquired on December 22, 2010. cASIED It is further represented based on the same Corporate Secretary's Certificate that in a regular meeting of the Board of Directors of Petrolift on March 21, 2014, the Board approved a resolution declaring cash dividends amounting to P0.2365528 per common shares of stocks and P0.002365 per preferred shares of stock to all stockholders of record as of April 15, 2014; and that on April 30, 2014, the amount of US$2,268244.53 was remitted to Soleado Holdings by way of telegraphic transfer through Security Bank. It is finally represented that the issue or transaction subject of the above application is 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 Sworn Statement issued by the Chief Financial Officer of Petrolift on August 1, 2014. In reply, please be informed that under Section 42 (A) (2) 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: "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. 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: "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: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." caCSDT 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: 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." 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 Soleado Holdings owns at least 15 percent of the outstanding shares of the voting stock of Petrolift 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 Soleado Holdings owns 23.3 percent of the outstanding shares of voting stock of Petrolift since December 22, 2010 up to present, such dividends paid by Petrolift to Soleado Holdings shall be subject to income tax at the rate of 15 percent pursuant to paragraph 2 (a), Article 10 of the Philippines-Singapore tax treaty. EcHIAC 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 Bureau of Internal Revenue Footnotes n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.