SM Investment Corporation

March 8, 2007 BIR RULING [DA-145-07] 208-89 SM Investment Corporation SM Corporate Offices, Building A 1000 Bay Boulevard SM Central Business Park Bay City, Pasay City Attention: Ms. Cecille R. Patricio Vice President Corporate Tax Division Gentlemen : This refers to your letter dated December 27, 2006 requesting for confirmation of your opinion that the cash dividends declared by SM Investment Corporation (SM Investments), a Philippine domestic corporation whose shares of stock are traded and listed in the Philippine Stock Exchange (PSE), to Asia Opportunities Limited (Asia Opportunities), a corporation organized and existing under the laws of the British Virgin Island (BVI), are subject to 15% preferential withholding tax pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337. In reply thereto, please be informed that Section 2 of R.A. No. 9337 reads as follows: "SEC. 2. Section 28(A)(1) and (B)(1) and (5)(b) of the same Code, as amended, are hereby further amended to read as follows: SEC. 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. xxx xxx xxx (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation . xxx xxx xxx (b) Intercorporate Dividends . A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subject to the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as provided in this subparagraph: Provided, That effective January 1, 2009, the credit against the tax due shall be equivalent to fifteen percent (15%), which represents the difference between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends; xxx xxx xxx" This Office had already occasioned to rule on the matter, when it said in BIR Ruling No. 208-89 dated September 28, 1989 , as follows: "Generally, under the above-quoted Section 24(b)(5)(B) of the Tax Code, as amended, dividend paid to a non-resident foreign corporation is subject to withholding tax at the rate of 35%. However, if the country where the non-resident foreign corporation is domiciled allows a credit against the tax due from the non-resident corporation taxes deemed to have been paid in the Philippines in an amount equivalent to 20% of such dividend, or does not subject such dividend to taxation, then dividend paid to such non-resident foreign corporation are taxed only at the rate of 15%. TAEDcS Thus, since the International Business Companies Ordinance of the Territory of the British Virgin Islands . . . does not impose any tax on dividend received from foreign sources, which logically would include those received from Philippine corporations by foreign corporations domiciled therein, then said cash dividend . . . is subject only to the preferential withholding tax rate of 15% imposed under then Section 25(B)(5)(B) of the Tax Code, as amended (now Section 28(B)(5)(b) of the Tax Code of 1997)." SUCH BEING THE CASE, this Office hereby confirms your opinion that the cash dividends received by Asia Opportunities from SM Investments, a Philippine domestic corporation are subject to the 15% preferential withholding tax rate imposed under Section 28(B)(5)(b) of the Tax Code of 1997, as amended by R.A. No. 9337. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service