BIR Ruling [DA-523-03]

December 16, 2003 BIR RULING [DA-523-03] Sec. 36 IT Regs. 25-81; DA 096-00; DA 286-96; DA 274-03 SGV & Co . 6760 Ayala Avenue Makati City Attention: C.P. Noel Head, Tax Division Gentlemen : This refers to your letter dated October 2, 2002 requesting for a ruling that the remittance of assigned capital by Quezon Power, Incorporated Philippine Branch ("QPI Phils.") to its head office in Quezon Power, Incorporated Cayman Island ("QPI Cayman") is not subject to the branch profits remittance tax ("BPRT"). It is represented that QPI Cayman is a foreign corporation licensed to do business in the Philippines and has established a Philippine branch, QPI Phils.; that QPI Cayman has inwardly remitted assigned capital to QPI Phils.; that QPI Cayman has obtained a letter of approval from the Philippine Securities and Exchange Commission ("SEC") to decrease its assigned capital in QPI Phils. provided that the assigned capital after the decrease will not be less than US$200,000,00; and that QPI Phils. will now be remitting a portion of the assigned capital to QPI Cayman. In reply, please be informed that Section 36 of the Income Tax Regulations provides that income, in the broad sense, means all wealth which flows into the taxpayer other than as a mere return of capital. The remittance of production cost by a branch to its head office is not subject to the 15% profits remittance tax on the ground that production cost is not considered profit, the same being a mere return of capital which is not considered income ( BIR Ruling No. 025-81 dated January 29, 1981 ). The return of capital is not subject to income tax ( DA-277-03 dated August 21, 2003; DA-274-03 dated August 21, 2003; DA-286-98 dated June 29, 1998; BIR Ruling No. 010-96 dated January 23, 1996; BIR Ruling No. 184-90 dated September 20, 1990 ). Accordingly, irrespective of whether accounting profits exists at the time of the remittance, the remittance of assigned capital by QPI Phils. to QPI Cayman is not subject to the 15% branch profits remittance tax, the same being a mere return of capital which is not considered as profits. The amount of assigned capital remitted within a year by QPI Phils. may be determined by the decrease in the assigned capital for the year as indicated in QPI's audited financial statements. Please note that the unremitted branch profits should be shown separately in the financial statements of the branch, and will be subjected to the 15% branch profits remittance tax upon actual remittance. However, as required by the SEC, QPI Cayman should maintain at least US$200,000.00 assigned capital to QPI Phils. 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. AcHEaS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group