ITAD Ruling No. 119-00

August 29, 2000 ITAD RULING NO. 119-00 RP-Singapore Article 10 ITAD 37 99 Follosco Morallos & Herce Attorneys at Law Suite 311 Windsor Tower 163 Legaspi Street, Legaspi Village 1229 Makati City Attention: Rachel P . Follosco Director Gentlemen : This refers to your letter dated April 10, 2000 on behalf of Provident Securities Pte Ltd. (Provident), requesting confirmation of your opinion that the dividends to be paid and remitted by OCBC Securities Philippine, Inc. (OSPI) to Provident is subject to the preferential tax rate of fifteen per cent (15%) pursuant to the RP-Singapore Tax Treaty. It is represented that Provident is a non-resident foreign corporation, duly organized and existing under the laws of Singapore with principal office address at 18 Church Street #06-00 OCBC Centre South Singapore 049479; that it is not a registered corporation/partnership in the Philippines as per certification dated March 1, 2000 issued by the Securities and Exchange Commission; that OSPI is a corporation duly organized and existing under the laws of the Philippines; that OSPI is a wholly owned subsidiary of Provident; that Provident holds 99.999% of the outstanding capital stock of OSPI; that Provident is the holder of the aforementioned shares from February 2, 1994 to present as per Secretary's Certificate dated June 2, 2000; that on March 14, 2000, the Board of Directors of OSPI passed and approved the declaration of cash dividends of twenty five million pesos (P25,000,000.00) from the unrestricted retained earnings of the corporation; and, that the dividends shall be paid on April 28, 2000 to the stockholders of record as of April 14, 2000. 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. The Competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation." The 15% preferential tax rate on dividend applies whenever the beneficial owner/recipient of the dividend owns at least 15% 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 Provident is the recipient and beneficial owner of the dividends, holding 99.999% of the outstanding shares of the voting stock of the paying company OSPI, evidenced by the Secretary's Certificate dated April 11, 2000, and being the holder of which from February 2, 1994 to present, dividend received by Provident shall be subject to the preferential tax rate of 15% pursuant to the above-quoted provision of RP-Singapore Tax Treaty. (BIR Ruling No. ITAD 37-99). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. IAEcCT Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group