BIR Ruling

April 10, 1973 Mr. Martiniano O. de la Cruz 64 Saluysoy Meycauayan, Bulacan D-212 S i r : In reply to your letter dated March 9, 1973 requesting further information on the taxability of the profits, dividends and interests which are being paid to you on account of your shareholdings in private banks, domestic and foreign corporations as well as in Government bonds and securities, I have the honor to inform you as follows: 1. Pursuant to Section 29(a) and 38 of the Tax Code, you are subject to income tax on your cash dividends and distributive share in the profits of the Philippine Long Distance Telephone Company (PLDT), Meralco Securities Corporation, Manila Electric Company and San Miguel Corporation for the year 1972. Consequently, the payments made by the aforesaid corporations of the income tax assessable and payable by you on such cash dividends and profits constitute additional taxable income to you (see Old Colony Trust Co. vs. Commissioner, 279 U.S. 716, 49 S. Ct., 499 (1929), which together with the total amount of your cash dividends and profits received from PLDT, Meralco Securities Corporation, Manila Electric Company and San Miguel Corporation should be reported as part of your 1972 gross income. 2. As a general rule, stock dividends like those received by you from Banco Filipino and the Philippine Banking Corporation do not constitute taxable income to the stockholder because while the stockholder acquires ownership of more shares through stock dividends, each represents a smaller fractional interest, and his proportionate interest and ownership in the assets of the corporation remain precisely the same. (Fisher vs. Trinidad, 43 Phil. 973) However, stock dividend constitutes income if it gives the shareholder an interest different from that which his former stockholdings represented. A stock dividend does not constitute income if the new shares confer no different rights or interests than did the old the new certificates plus the old representing the same proportionate interest in the net assets of the corporation as did the old (See. 252, Rev. Regs. No. 2) So also stock dividends redeemed by the corporation constitutes income to the shareholder. When a stock dividends is sold, the proceeds thereof constitute income to the stockholder. Your stock dividends should not be converted to cash dividends for purposes of your 1972 income tax return. 3. As a Filipino citizen, whether residing in the Philippines or abroad (Secs. 21 & 45(a)(1) (A), N.I.R.C.), you are subject to Philippine income tax on the dividends paid to you in 1972 on account of your shareholdings in a non-resident U. S. corporation. You may nevertheless claim a deduction or tax credit, as the case may be, against your Philippine income tax, the income tax paid by you on such dividends to the U.S. Government. 4. An individual taxpayer, like you, should report his income for taxation purposes on the cash basis or in the year of actual receipt or payment. You need not, therefore, report any receipt of dividends or profits from PICOP, Pampanga Bus Co., Hi Cement Corporation, House of Investments, Republic Cement Corporation, and Hi Marketing Corporation nor make mention of such corporations in your 1972 income tax return since, as represented, they have not actually declared and paid you any dividends during the said year. 5. Finally, with regard to your receipt of interests payments from Government bonds being held by you e.g. Progress Bond, NAWASA bond, National Power Corporations Bond, PWED Bond & Socio-Economic Bond, you are advised to refer to the ruling of this Office, which was issued to you on February 1, 1973 and be guided accordingly. cdt Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue