BIR Ruling (DA-145-07) March 8, 2007

 

March 8, 2007

BIR RULING [DA-145-07]

208-89 SM Investment Corporation SM Corporate Offices, Building A 1000 Bay Boulevard  SM Central Business Park  Bay City, Pasay City

Attention: Ms. Cecille R. Patricio Vice President  Corporate Tax Division Gentlemen : This refers to your letter dated December 27, 2006 requesting for  confirmation of your opinion that the cash dividends declared by SM Investment Corporation (SM Investments), a Philippine domestic corporation whose shares of  stock are traded and listed in the Philippine Stock Exchange (PSE), to Asia Opportunities Limited (Asia Opportunities), a corporation organized and existing under the laws of the British Virgin Island (BVI), are subject to 15% preferential withholding tax pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337. In reply thereto, please be informed that Section 2 of R.A. No. 9337 reads as follows: "SEC. 2. Section 28(A)(1) and (B)(1) and (5)(b) of the same Code, as amended, amended, are hereby further further amended to read as follows: follows: SEC. 28.

 Rates of Income I ncome Tax on Foreign Corporations Corporat ions. — 

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(B) Tax on Nonresident Nonresident Foreign Foreign Corporation. —  xxx Copyright 2014

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(5) Tax on Certain Incomes Received by a Nonresident  Foreign Corporation. —  xxx

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(b)  Intercorporate Dividends. — A final withholding tax at the rate rat e of fifteen percent (15%) ( 15%) is hereby im imposed posed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as  provided in Section 57(A) of this Code, subject subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed  to have been paid in the Philippines equivalent to twenty  percent (20%), which which represents the difference difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in this subparagraph: Provided, That eff e ffective ective January 1, 2009, tthe he credit against the tax due shall be equivalent to fifteen  percent (15%), which which represents the difference difference between the regular income tax of thirty percent (30%) and the fifteen  percent (15%) tax ta x on divid dividends; ends; xxx

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This Office had already occasioned to rule on the matter, when it said in  BIR Ruling No. 208-89 dated September 28, 1989 , as follows: "Generally, under the above-quoted Section 24(b)(5)(B) of the Tax Code, as amended, dividend paid to a non-resident foreign corporation is subject to withholding tax at the rate of 35%. However, if the country where the non-resident foreign corporation is domiciled allows a credit against again st the tax t ax due from the non-resident non-resident corporation cor poration taxes deemed to have  been paid in the Philippi Philippines nes in an amount equivalent equivalent to 20% of such dividend, or does not subject such dividend to taxation, then dividend paid  to such non-resident foreign corporation are taxed only at the rate of 15%. TAEDcS

Thus, since the International Business Companies Ordinance of the Territory of the British Virgin Islands . . . does not impose any tax on dividend received from foreign sources, which logically would include those received from Philippine corporations by foreign corporations domiciled therein, then said cash dividend . . . is subject only to the  preferential withholdin withholding g tax rate of 15% im imposed posed under then Section 25(B)(5)(B) of the Tax Code, as amended (now Section 28(B)(5)(b) of the Copyright 2014

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Tax Code of 1997)."

SUCH BEING THE CASE, this Office hereby confirms your opinion that the cash dividends received by Asia Opportunities from SM Investments, a Philippine domestic corporation are subject to the 15% preferential withholding tax rate imposed under Section 28(B)(5)(b) of the Tax Code of 1997, as amended   by R.A. No. 9337. 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 considered null and void.

Very truly yours,

(SGD.) JAMES H. ROLDAN  Assistant Commissioner   Legal Service

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