ITAD BIR Ruling No. 347-13

December 9, 2013 ITAD BIR RULING NO. 347-13 Article 10 (Dividends), Philippines-Singapore tax treaty Keppel Subic Shipyard, Inc. Unit 3B, Country Space I Bldg., Sen. Gil Puyat Ave.,Salcedo Village, Makati City Attention: Yee Kim Foh and Jasmin Lapara Authorized Representative Gentlemen : This refers to your application for tax treaty relief (TTRA) dated 23 July 2013 requesting confirmation that dividends paid by the Keppel Subic Shipyard, Inc. ("Keppel-Philippines") to Keppel Corporation Ltd. ("Keppel-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 Keppel-Singapore is a foreign corporation duly organized and existing under the laws of Singapore and a resident thereof with principal address at 1 Harbour Front Avenue, #18-01 Keppel Bay Tower, Singapore 098632 based on the consularized and notarized Certificate of Residence issued by the Inland Revenue Authority of Singapore and Articles of Association of Keppel-Singapore .The company Keppel-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 10 July 2013. On the other hand, Keppel-Philippines is a domestic corporation with address at Unit 3B, Country Space I Bldg.,Sen. Gil Puyat Ave.,Salcedo Village, Makati City. Keppel-Singapore owns 100% percent of the shares of stock of Keppel-Philippines acquired through various modes and dates based on a notarized Certification issued by the Corporate Secretary of Keppel-Philippines : EcASIC Par No. of % of Amount % of Date and Value Shares Ownership as Subscribed/ Payment as Mode of Subscribed to No. of Paid- to Total Acquisition Shares Up (Php) Amount Subscribed Paid-up 1.00 81,841,768 - 81,841,768.00 100% 21 April 1994 Shares purchased from Philyards Holdings, Inc. 1.00 9,058,190 - 9,058,190.00 100% 17 October 1995; additional subscription 1.00 4,544,998 - 4,544,998.00 100% 29 November 1997; additional subscription 1.00 4,772,248 - 4,772,248.00 100% 17 September 1997; additional subscription 1.00 82,636,374 - 82,636,374.00 100% Present shareholding as a result of the decrease in authorized capital stock (approved by the SEC on 12 December 2000) It is represented that in a special meeting of the Keppel-Philippines Board of Directors on 19 June 2013, Keppel-Philippines was authorized to declare and pay cash dividends of Php0.20 per share or a total amount of Two Hundred Four Million Six Hundred Four Thousand Four Hundred Twenty One Pesos and Forty Centavos (Php204,604,421.40) out of unrestricted retained earnings in favour of all stockholders of record as of 31 December 2012 to be paid not later than 31 July 2013 based on the Secretary's Certificate issued on 09 July 2013. As per notarized document with attached Telegraph Transfer Slip from MetroBank Subic, Keppel-Philippines remitted the amount of Two Hundred Eighty Four Thousand Four Hundred Three US Dollars and Eighty Three Cents (US$284,403.83) in favor of Keppel-Singapore on 24 July 2013. 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 Sworn Statement issued by the Vice-President of Keppel-Philippines executed on 19 July 2013. 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 Keppel-Singapore are subject to income tax at the rate of 30 percent, thus: ECcDAH "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%)." CIaHDc 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: AcTHCE 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 SITCcE 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 Keppel-Singapore directly holds 82,636,374 shares of Keppel-Philippines representing 100% of the outstanding capital stock of Keppel-Philippines or more than 25 percent since 12 December 2000, this Office is of the opinion, and so holds, that dividends paid by Keppel-Philippines to Keppel-Singapore are 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