ITAD BIR Ruling No. 336-14

December 18, 2014 ITAD BIR RULING NO. 336-14 Article 10, Philippines-Singapore tax treaty Fuji Philippines Services, Inc. Lot 1 Blk. 6 Building G2B Panorama Compound CPIP Batino Calamba, Laguna Attention: Takashi Miyazaki Gentlemen : This refers to your tax treaty relief application (TTRA) filed on September 25, 2013 requesting for confirmation that the dividends paid by Fuji Philippines Services, Inc. (" Fuji PH ") to Fuji Machine Asia Pte. Ltd. (" Fuji SG ") are subject to preferential income tax rate of 15 percent pursuant to 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 Fuji SG is a foreign corporation organized and existing under the laws of Singapore and is a resident thereof with principal address at 2/51 Ubi Ave 1, #01-24, Singapore based on the Certificate of Residence issued by the Inland Revenue Authority of Singapore on September 25, 2012; that Fuji SG is not registered as corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on December 18, 2012; that, on the other hand, Fuji PH is a domestic corporation with principal business address at the Lot 1 Blk. 6 Building G2B Panorama Compound, CPIP Batino Calamba, Laguna. It is further represented that on March 1, 2013, Fuji PH declared cash dividends in the amount of PhP7,000,000.00 per share on the common stock of Fuji PH , to be distributed among the stockholders of record as of December 31, 2012, based on the Certificate of the Corporate Secretary of Fuji PH issued on April 1, 2013; that Fuji SG holds 9,195 common shares in Fuji PH , constituting 99.95 percent ownership of the voting stock in Fuji PH based on the Secretary's Certificate of Fuji PH . TIaDHE In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended, provides that dividends derived by non-resident foreign corporations not engaged in trade or business in the Philippines, are subject to income tax at the rate of 30 percent, thus: "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 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): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the same Code provides that such dividends may be exempt from income tax or partially exempt (if subject to a reduced rate only) to the extent required by any treaty obligation on the Philippines, thus: "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. xxx xxx xxx" For this purpose, you invoke the Philippines-Singapore tax treaty. Paragraphs 1 and 2, Article 10 thereof provide: ADaECI " 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" (emphasis supplied) Based on the aforequoted provisions, 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 of the gross amount of the dividends if the company or recipient of the dividends owns at least 15 percent of the outstanding voting stock of the company paying the dividends during the part of the latter's taxable year immediately preceding the date of payment of the dividends and during the whole of its prior taxable year, if any, and (b) 25 percent of the gross amount of the dividends in all other cases. Accordingly, since Fuji SG is a company which owns 99.95 percent of the voting stocks of Fuji PH during the part of Fuji PH's taxable year immediately preceding the date of payment of the dividends, and during the whole prior taxable year of 2013, in fact since 2011, such dividends paid by Fuji PH to Fuji SG are subject to a preferential tax rate of 15 percent pursuant to paragraph 2 (a), Article 10 of the Philippines-Singapore tax treaty. ISHCcT 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