Imposition of 15% Preferential Tax Rate on SGS Phil. for Dividends Paid Its Parent Company

January 5, 2000 BIR RULING NO. 008-00 SGS Philippines, Inc . Don Tim Building 5468 South Superhighway Makati City Attention: Ms . Marivic de Castro Villaflores Gentlemen : This refers to your letter dated September 13, 1999 stating that SGS Philippines, Inc. is a domestic corporation engaged in the business of laboratory, certification, and inspection services; that it is wholly owned by Societe Generale de Surveillance based in Switzerland; that SGS Philippines, Inc. paid a dividend in the amount of P4.0M to its parent company, Societe Generale de Surveillance on which 33% withholding tax thereof in the amount of P1,320,000.00 was withheld and paid to the Bureau of Internal Revenue (BIR) as evidenced by FEBTC Official Receipt No. 1809378 dated July 9, 1999; that SGS Philippines, Inc. is of the opinion that the dividends paid to its parent company is only subject to tax at the rate of 15% instead of the 33% and the SGS Philippines, Inc. is still entitled to a refund in the amount of P720,000.00 representing overpaid withholding tax on dividends as follows: Amount of dividend P4,000,000.00 Final tax at 15% P600,000.00 Remitted to BIR 1,320,000.00 Due for refund P720,000.00 In connection therewith, you now request for a ruling as to whether or not SGS Philippines, Inc. is entitled to a refund of the amount of P720,000.00 representing overpaid withholding tax on dividends. In reply, please be informed that Section 28(B)(5)(b) of the Tax Code of 1997 provides: "(b) 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 the said Code, 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 twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represented the difference between the regular income tax of thirty-five percent (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 the subparagraph." There can be no uncertainty that the purpose of the above-quoted provision is to subject SGS Philippines, Inc. to the preferential tax rate of 15% withholding tax on the dividends remitted to its foreign parent company, Societe Generale de Surveillance of Switzerland, a non-resident foreign corporation, subject to the condition that Switzerland 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 18% which represents the difference between the regular income tax (33%) on corporations for the taxable year 1999 and the 15% tax on dividends. Otherwise, to run counter to the very spirit and intent of said law will definitely affect the foreign corporations' interest here and discourage them from investing capital in our country. Similarly situated is the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc., No. L-68375 dated April 15, 1998 where the Supreme Court ruled ". . . since the Swiss Government does not impose any tax on the dividends to be received by the said parent corporation in the Philippines, the condition imposed under the above-mentioned section is satisfied. Accordingly, the withholding tax rate of 15% is hereby affirmed." cdll Based on the foregoing, SGS Philippines, Inc., being a subsidiary of Societe Generale de Surveillance is subject to the preferential tax rate of 15% withholding tax on dividends pursuant to Section 28(B)(5)(b) of the Tax Code of 1997. Accordingly, SGS Philippines, Inc. may now file with the Appellate Division, this Bureau, a claim for the refund of the amount of P720,000.00 representing overpaid withholding tax on dividends within a period of two (2) years after the payment of the said tax. 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue