BIR Ruling [DA-365-99]

June 24, 1999 BIR RULING [DA-365-99] Asea Brown Boveri, Inc. Km. 20 South Superhighway Sucat, Paraaque Metro Manila Attention: Mr . Job Asis Tax Manager Gentlemen : This refers to your letter dated February 9, 1999 requesting for a ruling that the cash dividend being remitted by ASEA BROWN BOVERI, Inc. to its parent corporation whose head office is located in Zurich, Switzerland is subject to 15% final tax pursuant to Sec. 28, par. (B)(5)(b) of the Tax Code of 1997. It is represented that ASEA BROWN BOVERI, Inc. (ABB, Inc.) is a domestic corporation engaged in the management of three (3) subsidiary companies in the Philippines, namely ABB Power, Inc., ABB Koppel, Inc. and ABB Industry, Inc.; that these subsidiary companies are dealing with power generation and transmission, electro-mechanical and refrigeration products; that its parent corporation is ABB Asea Brown Boveri Ltd. (ABB-Brown Boveri), a non-resident foreign corporation not doing business in the Philippines whose office is located in Zurich, Switzerland; that ABB remits cash dividends to its parent company, ABB-Brown Boveri; that the Republic of the Philippines has no existing tax treaty with Switzerland where ABB-Brown Boveri is domiciled; and that Switzerland, however, does not impose any tax on dividends received from foreign sources. In reply, please be informed that pursuant to Section 28, par. (B)(5)(b) of the 1997 Tax Code, pertinent portion of which reads as follows: "(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 tax credit against the tax due from foreign the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirty-five (35%) in 1997, thirty-four percent (34%) in 1998, thirty-three percent (33%) in 1999, and thirty-two percent (32%) thereafter on corporations and the fifteen percent (15%) tax on dividends as provided in this subparagraph;" Based on the foregoing, dividends received from a domestic corporation and collected and paid in accordance with Section 57(A) of the 1997 Tax Code are subject to the final tax rate of 15% on the total amount thereof, subject to the condition that the country in which the non-resident foreign corporation is domiciled allows a tax credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to the declining rates of twenty percent (20%) in 1997, nineteen percent (19%) in 1998, eighteen percent (18%) in 1999 and seventeen percent (17%) thereafter, which rates actually represent the difference between the regular declining income tax rates of 35%, 34%, 33% and 33% for 1997, 1998, 1999 and thereafter, respectively, and the 15% tax on dividends. Thus, as subsidiary company of ABB-Brown Boveri, you will be remitting profits or dividends to said country. Considering therefore, that the Philippines does not have a tax treaty with Switzerland, the provision of the foregoing Section 28(B)(5)(b) of the 1997 Tax Code shall apply with respect to dividend remittance. Moreover, since Switzerland does not impose any tax on dividends received from foreign sources, the dividends to be remitted by ABB, Inc. to its parent company in Switzerland will be subject to the withholding tax at the rate of 15% (BIR Ruling Nos. 30-80 dated February 15, 1980 and 85-178 dated October 4, 1985) LibLex 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 ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group