Sycip Gorres Velayo & Co.

October 8, 2009 BIR RULING [DA-(C-227) 587-09] R.A. No. 9337; Sec. 28 (B) (5) (b) Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Emmanuel C. Alcantara Head, Tax Services Gentlemen : This refers to your letter dated August 25, 2009 requesting confirmation that the cash dividends to be distributed by Marubeni Philippines Corporation ("MPC''), a domestic corporation, to its parent company, Marubeni Asean Pte. Ltd. ("M-Singapore"), a Singaporean company, are subject to the fifteen percent (15%) final withholding tax (WT) pursuant to Section 28 (B) (5) (b) of the National Internal Revenue Code ("Tax Code"), as amended by Republic Act (RA) No. 9337. The facts as represented are as follows: MPC is a domestic corporation duly organized and existing under Philippine laws with principal office address at 8th and 9th Floors, L.V. Locsin Bldg., corner Ayala and Makati Avenues, Makati City, Philippines. On the other hand, M-Singapore is a non-resident foreign corporation duly organized and existing under the laws of Singapore with principal office address at 16 Raffles Quay, Ste. 13-00 Hong Leong Bldg., Singapore, 048581, Singapore. MPC is a wholly-owned subsidiary of M-Singapore, the latter being the registered owner of 250,000 or 100% of the common shares of stock issued by MPC, including the five (5) common shares of stock of MPC's five (5) Directors who are all M-Singapore's nominees/trustees. On August 10, 2009, the Board of Directors of MPC has declared and approved the distribution of cash dividends equivalent to Four Dollars (US$4.00), United States currency, (or its equivalent in Philippine Peso at the time of payment) per share or a total of One Million Dollars (US$1,000,000.00) for the 250,000 MPC common shares held by M-Singapore which shall be payable on December 15, 2009. SAHITC Under the Singapore law, dividends derived by a resident of Singapore from sources outside Singapore are exempt from Singapore income tax if the income tax imposed by the source country on such dividends is equal to or greater than 15% as confirmed by the relevant letter dated May 21, 2009 of the Inland Revenue Authority of Singapore to M-Singapore. In connection therewith, you are requesting confirmation of your opinion as follows: 1. The distribution of cash dividends by MPC to M-Singapore shall be subject to the 15% final WT pursuant to Section 28 (B) (5) (b) of the Tax Code, as amended. 2. The 15% final WT shall be paid not later than January 15, 2010 pursuant to Section 2.58 of the Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-01, RR No. 12-01 and RR No. 17-03, in relation to Section 2.57.4 thereof. In reply, please be informed as follows: 1. The distribution of cash dividends by MPC to M-Singapore shall be subject to the 15% final WT pursuant to Section 28 (B) (5) (b) of the Tax Code, as amended. Section 28 (B) (5) (b) of the Tax Code , as amended, provides: "(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;" Based on the above provision, the final WT on dividends on Philippine-source dividends derived by a nonresident foreign corporation shall be reduced to 15% if the country of domicile of the nonresident foreign corporation receiving the dividends allows (as a credit against the tax due in the recipient's home country) a deemed paid tax equivalent to 15% beginning January 1, 2009. EADCHS However, in the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc., (G.R. No. L-68375 dated April 15, 1988), the Supreme Court held that the provision of Section 28 (B) (5) (b) [formerly, Section 24 (b) (1)], also applies when the country of domicile of the nonresident foreign corporation receiving the dividends does not impose any tax on dividends. In the said case, Wander Philippines, Inc. (Wander), a domestic corporation, remitted dividends to Glaro S.A. Ltd. (Glaro), a nonresident foreign corporation domiciled in Switzerland. Under Swiss law, dividends derived by Glaro from sources outside Switzerland are exempt from Swiss income tax. Given this, the Supreme Court ruled that the subject dividends were subject to 15% income tax by reason that such exemption of dividends in Switzerland would, in effect, allow Glaro not only the required (minimum) 20 percent deemed paid tax credit but, also, full tax credit on such dividends. Thus, the 15% final WT on dividends distributed to nonresident foreign corporations pursuant to Section 28 (B) (5) (b) of the Tax Code, as amended, applies in two instances: i. The country of domicile of the nonresident foreign corporation receiving the dividends allows (as a credit against the tax due in the recipient's home country) a deemed paid tax equivalent to 15%; or ii. The country of domicile of the nonresident foreign corporation receiving the dividends does not impose any tax on dividends. Applying the pronouncement in the said Wander case, and since Singapore law provides that dividends derived by a resident of Singapore from sources outside Singapore, are exempt from Singapore income tax if the income tax imposed by the source country on such dividends is equal to or greater than 15%, and since Philippine income tax on such dividends is 15% under Section 28 (B) (5) (b) or 30% under Section 28 (B) (1) of the Tax Code, as amended, dividends to be paid by MPC to M-Singapore are therefore subject to 15% Philippine income tax pursuant to Section 28 (B) (5) (b) of the Tax Code, as amended. (ITAD Ruling No. 124-04 dated November 3, 2004) ECaAHS 2. The 15% final WT shall be paid not later than January 15, 2010 pursuant to Section 2.58 of the Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-01, RR No. 12-01 and RR No. 17-03, in relation to Section 2.57.4 thereof. Section 2.58 of RR No. 2-98, as amended, provides: "Sec. 2.58. Returns and Payment of Taxes Withheld at Source . (A) Monthly return and payment of taxes withheld at source. (1) . . . (2) WHEN TO FILE (a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final (including final withholding taxes on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements) shall be filed and payments should be made, within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year; . . ." In relation thereto, Section 2.57.4 of RR No. 2-98, as amended, provides: "Sec. 2.57.4. Time of withholding. The obligation of the payor to deduct and withhold the tax under Section 2.57 of these Regulations arises at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor's books, whichever comes first. The term "payable" refers to the date the obligation becomes due, demandable or legally enforceable. Provided, however, that where income is not yet paid or payable but the same has been recorded as an expense or asset, whichever is applicable, in the payor's books, the obligation to withhold shall arise in the last month of the return period in which the same is claimed as an expense or amortized for tax purposes.'' Based on the terms of the Board resolution declaring and approving the said dividends to be distributed to M-Singapore, the same shall only be payable on December 15, 2009. Accordingly, it is only at that time that MPC will accrue and record in its books of account the dividends payable to M-Singapore. TaCEHA Thus, pursuant to Section 2.58, in relation to Section 2.57.4, of RR No. 2-98, as amended, MPC will file the final WT return and pay the 15% final WT covering the said dividends to be paid to M-Singapore not later than January 15, 2009. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service