ITAD Ruling No. 098-02

May 22, 2002 ITAD RULING NO. 098-02 RP-Singapore tax treaty Art. 10 Tax Code of 1997 Sec. 176 BIR Ruling No. ITAD-119-00 Zeller Plastik Philippines, Inc. Bldg. #3 Philcrest Compound Km 23 West Service Road Cupang 1772 Muntinlupa City Attention: Henry C. Bungabong General Manager Gentlemen : This refers to your letter dated December 14, 2001 requesting confirmation of your opinion that the dividends paid and remitted by your company to your non-resident shareholder, Zeller Plastik S.E. Asia Pte., Ltd. (Zeller Singapore), are subject to the preferential tax rate of fifteen percent (15%) pursuant to the RP-Singapore tax treaty. It is represented that Zeller Singapore is a corporation duly organized and existing under the laws of Singapore with principal business address at 750 D Chai Chee Industrial Park, Chai Chee Road, Singapore, that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines as evidenced by the Certificate of Non-Registration issued by the Securities and Exchange Commission dated February 26, 2002; that Zeller Plastik Philippines, Inc. (Zeller Philippines) is a domestic corporation duly organized and existing under Philippine laws; that from January 1, 2000 to present, Zeller Singapore is the duly registered stockholder of record and owns ninety nine and 99/100 percent (99.99%) of the outstanding capital stock of Zeller Philippines, equivalent to twenty four million two hundred fifty thousand (24,250,000) shares of stock, amounting to Twenty Four Million Two Hundred Fifty Thousand Pesos (P24,250,000.00); that on February 7, 2002, the Board of Directors of Zeller Philippines declared cash dividends out of its retained earnings as of December 31, 2001 in the amount of Thirteen Million Seven Hundred Forty Three Thousand Five Hundred and Five Pesos (P13,743,505.00) to its stockholders of record as of February 7, 2001; and that the said dividends were actually paid on December 28, 2001. 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 (emphasis supplied) b) in all other cases, 25 per cent of the gross amounts of the dividends. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 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. 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 foregoing provisions, the 15 percent preferential tax rate on dividend applies whenever the beneficial owner/recipient of the dividend 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. Since Zeller Singapore has been holding the aforementioned shares in Zeller Philippines from January 1, 2000 to the present, the dividends received by Zeller Singapore shall be subject to the preferential tax rate of 15 percent pursuant to Article 10(2)(a) of the RP-Singapore tax treaty. 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