BIR Ruling

July 22, 1976 S. C. Johnson & Son, Inc. Makati, Rizal Attention: Mr . Romeo A . Lim Treasurer Gentlemen : This refers to your letter dated February 17, 1976 requesting confirmation of your opinion that the dividends which S. C. Johnson & Son, Inc. (Phil.) (hereinafter referred to as Philippine Johnson) will remit to S. C. Johnson & Son, Inc., Racine, Wisconsin, U.S.A. (hereinafter referred to as U.S. Johnson) are subject to the withholding tax of 15% in accordance with Section 24(b) of the Tax Code as amended by Presidential Decree No. 369. cd It is represented that Philippine Johnson is a domestic corporation and a wholly-owned subsidiary of U.S. Johnson which is a foreign corporation not engaged in trade or business in the Philippines. In reply, I have the honor to inform you that under Section 24(b) of the Tax Code as amended by Presidential Decree No. 369, only 15% withholding tax shall be imposed on the dividends to be remitted by the domestic corporation to the nonresident foreign corporation provided that the country where the non-resident foreign corporation is domiciled credits the taxes "deemed" to have been paid in the Philippines against the tax due from the recipient corporation, which should be equivalent to at least 20% of the dividends remitted to said corporation. (See Sec. 17(b), Revenue Regulations No. 2, as amended by Revenue Regulations No. 8-75) The amount of tax "deemed-paid" to the Philippine government for purposes of credit against the U.S. tax by the recipient of dividends includes a portion of the amount of income tax paid by the corporation declaring the dividend in addition to the tax withheld from the dividend remitted. In other words, the U.S. government will allow as credit to the U.S. corporation or recipient of the dividend, in addition to the amount of tax actually withheld, a portion of the income tax paid by the corporation declaring the dividend. (B.I.R. Ruling No. 76-004 dated July 19, 1976) In view thereof, and considering that the deemed paid income tax allowed by the U.S. Government to be credited against the U.S. tax on the dividends received by the U.S. corporation from a Philippine subsidiary will always result in more than the 20% tax credit requirement of Presidential Decree No. 369 (B.I.R. Ruling No. 76-004 supra ), this Office is of the opinion as it hereby holds that the dividends which will be remitted by Philippine Johnson to U.S. Johnson shall be subject to the withholding tax rate of 15% only. This ruling shall have force and effect only for as long as the present pertinent provisions of the U.S. Federal Tax Code, which are the basis of the ruling, are not revoked, amended and modified, the effect of which will reduce the percentage of tax deemed paid and creditable against the U.S. tax on dividends remitted by a foreign corporation to a U.S. corporation. aisa dc Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."