BIR Ruling

June 29, 1977 Messrs. Sycip, Gorres, Velayo & Co. P. O. Box 589, Manila Attention: Mr . M . Gutierrez Tax Division Gentlemen : This refers to your letter dated September 7, 1976, requesting a certification from this Office that the dividends which your client, Sandvik Philippines, Inc. will remit to Sandvik AB Sweden is subject to withholding tax at the rate of 15% instead of 35%. It appears that your client is a domestic corporation while the recipient corporation is organized under the laws of Sweden and is not engaged in trade or business in the Philippines. Under Section 24(b) of the Tax Code, as amended by Presidential Decree No. 369, the domestic corporation is liable for the payment of the 15% withholding tax "subject to the condition that the country in which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends as provided in this section . . ." Pursuant to this provision, the 15% rate is applicable to all recipient non-resident foreign corporation whose countries of domicile do not impose any tax on dividends received by a non-resident foreign corporation from foreign sources or do not impose at all any tax on income of the non-resident foreign corporation from foreign sources. The pertinent provisions of the convention between the Government of the Republic of the Philippines and the Government of the Kingdom of Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital provides: "Article VI(4) Dividends paid by a corporation of one of the Contracting States to a corporation of the Other contracting State shall be exempt from tax in the last mentioned State, to the extent allowed by its national law, if both corporations had been corporations of that State." A certification dated July 5, 1974 issued by the Taxing Director of Sweden, Mr. Karl Engvist states as follows: " . . no Swedish income tax is levied on cash dividends from Sandvik Philippines, to Sandvik Aktiebolag, Sandvik, Sweden, irrespective of what withholding tax is imposed in the Philippines." From the foregoing provisions of Articles VI(4) of the Tax Treaty between the Philippines and Sweden as well as the certification of the Taxing Director of Sweden, it is clear that the cash dividends received by Sandvik AB Sweden from Sandvik Philippines, Inc. is exempt from Swedish income tax. In view thereof, the dividends which your client, Sandvik Philippines, Inc. will remit to Sandvik AB Sweden is subject only to the 15% withholding tax pursuant to Section 24(b) of the Tax Code, as amended. aisadc Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8