BIR Ruling [DA-287-98]

July 1, 1998 BIR RULING [DA-287-98] Sycip Salazar Hernandez & Gatmaitan Sycip Law-All Asia Capital Center 105 Paseo de Roxas, 1226 Makati City Attention: Attys . Ernesto S . Taio, Jr . and Ma . Elizabeth E . Peralta-Loriega Gentlemen : This refers to your letter dated February 13, 1997 requesting for a ruling to the effect that cash dividends received from Amalgamated Development Corporation (ADC) by Far East Property (Holdings), Inc. (FEPHI) is subject to the preferential tax rate of 15% in accordance with then Section 25(b)(5)(B) of the Tax Code, as amended [now Section 28(B)(5)(b) of the Tax Code of 1997]. It is represented that FEPHI is a non-resident foreign corporation incorporated under the Companies Law of Cayman Islands; that it has equity investment in a domestic corporation, ADC; that under the said law, the dividends received from sources outside of Cayman Islands and any other income of Cayman Island Company are not subject to any form of taxation in the Cayman Islands; that you are of the opinion that the dividends received by FEPHI from ADC, being an exempted company under the Companies Law of Cayman Islands, is subject only to the 15% withholding tax pursuant to then Section 25(b)(5)(B) of the Tax Code, as amended [now Section 28(B)(5)(b) of the Tax Code of 1997]; and that in support of your opinion you submitted to this Office a copy of the Tax Concessions given to FEPHI as an exempted company under Section 182 of the Companies Law of Cayman Islands. LLphil In reply, please be informed that 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], dividends received by non-resident foreign corporations from a domestic corporation shall be subject to a withholding tax of 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. Thus, if the country of domicile of the recipient corporation does not subject such dividends to taxation, then the dividends paid to such non-resident foreign corporations are taxed only at 15%. For this purpose, the regular tax on corporations for the taxable year 1998 is 34%. Thus, taxes payable in the Philippines for this taxable year shall be deemed to be equivalent to 19% only. Such being the case, and since under the Tax Concessions Law (Revised) Undertaking as to Tax Concessions, the registrar of Companies of Cayman Islands has certified that FEPHI is a company registered as exempted company under Section 182 of the Companies Law (Revised) of Cayman Islands, this Office is of the opinion that the dividends received by FEPHI from ADC is subject to the 15% tax imposed under then Sec. 25(b) (5) (B) of the Tax Code, as amended [now Section 28(B)(5)(b) of the Tax Code of 1997]. (BIR Ruling No. 208-89 dated September 28, 1989). cdll Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)