BIR Ruling

September 15, 1976 Tax on Cash Dividends of Domestic Corporations to be Remitted to a Foreign Parent Company This has reference to your letter dated August 20, 1976, bearing on the request on your client, AB Philippines, Inc., for a certification from this Office that the cash dividends it will remit to its parent company, the X Company, U.S.A., will be subject only to 15% withholding tax at source and not to 35% pursuant to Section 24(b)(1) of the National Internal Revenue Code, in relation to Sections 53 and 54 thereof, pertinent portion of which is quoted hereunder: ". . . PROVIDED, STILL FURTHER That on dividends received from a domestic corporation liable to tax under this Chapter, the tax shall be 15% of the dividends received, . . . 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. . . ." Considering that under Sections 901 and 902 of the U.S. Internal Revenue Code, the U.S. parent company will be entitled to a tax credit equivalent to at least 20% of the taxes deemed to have been paid in the Philippines, in addition to the 15% withholding tax, on the said inter-company dividend, the conditions provided in the above cited Section is fulfilled. (B.I.R. Ruling No. 76-004, July 19, 1976). Accordingly, AB Philippines, INC., as withholding agent, may withhold 15% only on the cash dividend declared and remitted to its parent company, X Company, U.S.A. This letter will serve as a certification which is being required upon your client by the Central Bank of the Philippines in connection with its remittance of dividends to its abovementioned parent company. cdtech