BIR Ruling

December 4, 1968 The Philippine National Bank Manila Attention: Mr . Jose Miranda Assistant Manager Gentlemen : This refers to your letter dated July 17, 1968 requesting information as to the increase of the withholding tax rate on individual dividends, from twenty to twenty-five percent. In reply thereto, I have the honor to inform you that under Section 53(b) of the National Internal Revenue Code, as amended by Section 6 of Republic Act No. 5431 approved June 27, 1968, every individual, corporation, partnership, or association, in whatever capacity acting, including a lessee or mortgagor of real or personal property, trustee acting in any trust capacity, executor, administrator, receiver, conservator, fiduciary, employer, and every officer or employee of the Government of the Republic of the Philippines having the control, receipt, custody, disposal, or payment of interest, dividends, rents, royalties, salaries, wages, premiums, annuities, compensations, remunerations, emoluments or other fixed or determinable annual, periodical, or casual gains, and income and capital gains of any non-resident alien engaged in trade or business within the Philippines, shall (except in the cases provided in sub-section (a)(1) of this section) deduct and withheld from the annual, periodical, or casual gains, profits, and income and capital gains, a tax equal to twenty-five (25) percent (formerly 20%) thereof. This deduction and withholding shall not be required in the case of dividends paid by a foreign corporation unless (1) the corporation is engaged in trade or business within the Philippines, and (2) more than eighty-five (85) percent of the gross income of the corporation for the three-year period ending with the close of its taxable year preceding the declaration of the dividends (or for part of the period as the corporation has been in existence) was derived from sources within the Philippines as determined under the provisions of Section 37. The Commissioner of Internal Revenue may authorize the tax to be deducted and withheld from the interest or other income upon any security or obligation the owners of which are not known to the withholding agent. (Emphasis supplied) Accordingly, non-resident alien individuals not engaged in trade or business in the Philippines are subject to the increased rate of tax prescribed by Republic Act No. 5431 on income derived by them from Philippine sources beginning January 1, 1968. If the income derived by the non-resident alien individuals during the first and second quarters of 1968 had not as yet been remitted to them the withholding agent is required to effect withholding thereon at the new rate prescribed by the amendatory law. However, if before July 1, 1968, the withholding agent had already remitted the income of non-resident aliens, proper adjustments for the additional 5% should be made, the amount still due to be taken from subsequent income or remittances during the year 1968, if any, of the non-resident alien, and said amount should be paid within ten (10) days after the said amount is deducted from the aforesaid subsequent income or remittances. In this connection, it may be stated as a general rule that the new period within which to pay withholding taxes prescribed by Republic Act No. 5431, being procedural in nature, shall be applicable even to income withheld before the passage of the law; and the period of payment of the withheld taxes prescribed therein shall be applicable to income of both non-resident alien individuals and corporations not engaged in trade or business in the Philippines. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue