ITAD Ruling No. 053-03

April 9, 2003 ITAD RULING NO. 053-03 Article 10, RP-Singapore DA-ITAD-24-03 Roxas Delos Reyes Laurel & Rosario Law Offices 19/F 1st e-Bank Tower 8737 Paseo de Roxas, Makati City Attention: Anna Melissa R. Lichaytoo Gentlemen : This refers to your letter dated December 20, 2002, that the preferential tax treaty rate of 15% be applied on the dividend payments of Micro-Mechanics (Philippines), Inc. (Micro-Phils.) to Micro-Mechanics (Holdings) Pte. Ltd. (Micro-Holdings) pursuant to Article 10(2)(a) of the RP-Singapore tax treaty. It is represented that Micro-Holdings is a non-resident foreign corporation duly organized and existing under the laws of Singapore with business address at No. 31 Kaki Bukit Place, Eunos Techpark, Singapore 416209; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated February 27, 2003; that Micro-Phils. is a domestic corporation with principal office at 14395 Governor's Drive, Bancal, Carmona, Cavite; that Micro-Holdings owns 100% of the outstanding capital stock of Micro-Phils.; that Micro-Phils. intends to wind-up its business in the Philippines as of December 31, 2002; that the Board of Directors of Micro-Phils. in its meeting held on December 12, 2002, declared cash dividends in the amount of Eighteen Million Eight Hundred Thousand Pesos (P18,800,000.00) to be taken from its unrestricted retained earnings as of June 30, 2002. In reply, please be informed that Article 10 of the RP-Singapore tax treaty provides as follows: "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. "3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. AEcIaH "4. 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." "xxx xxx xxx" Based on the aforequoted provisions, the 15 percent preferential tax rate on dividends applies whenever the beneficial owner/recipient of the dividends owns at least 15 percent of the outstanding voting shares of the paying company and such shareholdings should have existed during the part of the taxable year immediately preceding the day of payment and during the whole of its prior taxable year, if any. Since Micro-Holdings holds the entire capital stock of Micro Phils., the dividends received by Micro-Holdings shall be subject to the preferential tax rate of 15 per cent pursuant to Article 10(2)(a) of the RP-Singapore tax treaty. ( BIR Ruling DA-ITAD-24-03 dated January 30, 2003 ) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service