Global Tax Alert | 16 July 2013

Philippines and Thailand sign new income tax treaty

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On 21 June 2013, the Philippines and Thailand signed a new income tax treaty (Treaty).

The Treaty will enter into force after both sides have exchanged ratification instruments. Once in force and effect, it will replace the current 1982 treaty.

Major portions of the 1982 tax treaty were revised in order to make the treaty more relevant to the changing times. The significant changes are summarized below.

Article 2, Taxes Covered

The Treaty is expanded to include taxes on stock transaction for the Philippines.

Article 4, Resident

Status of a corporation may now be determined by its place of incorporation or by its place of management.

Article 5, Permanent Establishment (PE)

The PE provisions now include: building site, construction, installation or assembly project or supervisory activities in connection therewith that continue for a period of more than three months and a service PE when furnishing services in the other Contracting State through the employees of a resident of one of the Contracting States for a period or periods aggregating more than six months within any twelve-month period.

Article 7, Business Profits

The provision specifies that business profits may be taxable. to the extent that such profits are attributable to the PE, or to the sale in the other state of goods or merchandise of the same or similar kind as those sold through that PE, or other business activities carried on in that other state of the same or similar kind as those effected through that PE.

Article 8, Shipping and Air Transport

Income or profits derived from sources within a Contracting State by an enterprise of the other state from the operation of aircraft or ships in international traffic may be taxed by the first-mentioned Contracting State at a rate not exceeding one and one-half percent (1 1/2 %) of the gross revenues from sources in that state.

Article 10, Dividends

A 10% rate applies to dividends paid to a beneficial owner that is a company (excluding partnerships) which holds directly at least 25 percent of the capital of the paying company, and a 15% rate applies in all other cases. A maximum 10% branch profits remittance tax also applies.

Article 11, Interest

The provision still maintains that a 10% rate applies if interest is received by any financial institution (including an insurance company), and 15% in all other cases but eliminated the 10% rate currently applicable to interest on Philippines publicly issued bonds, debentures or similar obligations.

Article 12, Royalties

A 15% rate applies to royalties in all cases.

Article 13, Capital gains

The provision now incorporates exclusive resident country taxation by eliminating an authority of either Contracting State to tax the gains or income from the sale or transfer of shares or other securities unless the investee company is a company with immovable assets representing majority of its assets.

Other changes

The Personal Services provision is now divided into Independent Personal Services (Article 14) and Dependent Personal Services (Article 15), each with its own criteria for determining when income/remuneration derived by a resident of a Contracting State for personal services rendered in the other Contracting State may be taxable in that other state.

Other provisions of the treaty substantially revised include Article 19 (Governmental Function), Article 20 (Student and Trainees), Article 23 (Elimination of Double Taxation), Article 25 (Mutual Agreement Procedure) and Article 26 (Exchange of Information).


The Treaty provides more exceptions to a PE and lower rates for dividends and royalties. This revised version provides necessary updates to increase benefits to investors and stimulate more investment activities in both jurisdictions.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Philippines (SGV & Co.), Makati City
  • Emmanuel C. Alcantara
    +63 2 894 8149
  • Ma. Fides A. Balili
    +63 2 894 8113
  • Fidela T. Isip-Reyes
    +63 2 894 8204
Ernst & Young Corporate Services Limited, Bangkok
  • Anthony Loh
    +662 264 0777 ext 77036
  • Korneeka Koonachoak
    +662 264 0777 ext 21003
  • Pathira Lam-Ubol
    +662 264 0777 ext 21015
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
  • Jeff Hongo
    +1 212 773 6143
  • Kaz Parsch
    +1 212 773 7201
  • Bee-Khun Yap
    +1 212 773 1816

EYG no. CM3649