ITAD Ruling No. 082-02

May 2, 2002 ITAD RULING NO. 082-02 Article 10, RP-Singapore BIR Ruling No. ITAD-31-00 Quisumbing Torres 11th Floor, Pacific Star Building, Makati Ave. cor. Sen. Gil Puyat Ave. Makati City 1200 Attention: Messrs. Lucas Nunag and Dennis G. Dimagiba Gentlemen : This refers to your letter dated November 14, 2001 on behalf of your client, The Development Bank of Singapore, Ltd. (DBS), requesting confirmation of your opinion that the dividend payments of Ayala DBS Holdings, Inc. (ADHI) to DBS are subject to the preferential withholding tax rate of ten (10%) per cent, pursuant to Article 10 of the RP-Singapore tax treaty. It is represented that DBS is a nonresident foreign corporation duly organized and existing under and by virtue of the laws of Singapore with principal address at #6 Shenton Way, DBS Building, Tower One, Singapore; that on November 27, 1995, DBS was granted the license to operate a branch in the Philippines, which license was cancelled, however, on February 19, 2001 as evidenced by the Certificate of Corporate Filing/Information issued by the Securities and Exchange Commission dated October 30, 2001; that ADHI is a domestic corporation organized and existing under the laws of the Philippines with office address at 34th Floor Ayala Tower One, Ayala Ave., Makati City; that ADHI was organized as a joint venture between the Ayala Corporation and DBS for the purpose of investing in shares of stock, bonds, debentures, notes, evidences of indebtedness and other securities or obligations of domestic and foreign corporations; that DBS originally subscribed to 39,998 Class B common shares of the outstanding capital stock of ADHI, with nominees of DBS subscribing to the remaining two Class B common shares, for a total investment of P400,000.00; that on May 28, 2001, ADHI filed a Certificate of Increase in its Authorized Capital Stock and Amendment of its Articles of Incorporation with the SEC and accordingly increased its authorized capital stock from P1,000,000.00 to P3,352,800.00; that DBS subscribed to an additional 101,163,056 Class B shares at P18.00 per share, for a total par value of P1,820,935,008.00; that DBS owned a total of 101,203,056 Class B common shares of ADHI, composed of its original investment of 40,000 Class B common shares upon ADHIs incorporation, and its additional 101,163,056 Class B common shares subscribed as part of the increase in ADHI's capital stock, which is equivalent to 54.54% of ADHI's outstanding capital stock; that on November 5, 2001, the ADHI Board of Directors unanimously passed and approved a resolution declaring cash dividends out of its unrestricted retained earnings to all its stockholders of record as of November 5, 2001 amounting to P750,000,000.00, payable on or before November 15, 2001 as evidenced by the Board Resolution dated November 5, 2001; In reply, please be informed that Article 10 of the RP-Singapore tax treaty provides, viz : "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 amounts of the dividends. "xxx xxx xxx" Since DBS is the recipient and the beneficial owner of the dividends and directly owns 20% of the outstanding shares of the voting stock of the paying company (ADHI) as evidenced by the Secretary's Certificate dated July 23, 1999, the said cash dividends in the amount of P750,000,000.00 are subject to the 15% final withholding tax rate pursuant to Article 10(2)(a) of the RP-Singapore tax treaty. (BIR Ruling No. 31-00 dated February 2, 2000) This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service