15% Remittance Tax — Resident Foreign Corporation

January 29, 1981 BIR RULING NO. 025-81 24-b-1 000-00 025-81 Law Office of A.M. Sison, Jr. & Associates 6th Floor, Rufino Building 6784 Ayala Avenue Makati, Metro Manila Gentlemen : This refers to your letter dated November 23, 1978 requesting in behalf of your client, Columbia Pictures Industries, Inc., a ruling whether the remittance of it Philippine branch to the head office in the United States representing producer's share not exceeding 60% of the proceeds of the film exhibition/distribution in the Philippines net of releasing cost in compliance with Central Bank Circular No. 393, to be applied against its (Branch) share in production cost is subject to income, remittance or withholding taxes. cdta In this connection, in our letter dated October 27, 1980, we informed you that the method consistently used by your client in allocating to the Philippine Branch, proportionate share in production cost of films and general administrative expenses is in accordance with generally accepted accounting and tax practices and allowed under Section 37(d) of the Tax Code, as implemented by Section 160 of Revenue Regulations No. 2. In reply, I have the honor to inform you as follows: 1. In our letter of November 2, 1977, we ruled that the remittance by the Philippine Branch of its share in the production costs to its Head Office in the United States is not subject to the income tax imposed by Section 24(b)(1) of the Tax Code of 1977, on the ground that this provision of law imposes income tax on non-resident foreign corporations not engaged in trade or business in the Philippines. In the case of your client, it is a resident foreign corporation subject to the income tax imposed by Section 24(b)(2) of the same Code. Such being the case, your client is not subject to the income tax imposed by Section 24(b)(1)(iv) of the Tax Code, since this provision of law imposes the 25% income tax on gross income derived from sources in the Philippines by cinematographic film owners, lessors or distributors who are non-resident foreign corporations not engaged in trade or business in the Philippines. For the same reason, the withholding provisions of Sections 53 and 54 of the Tax Code do not apply in this case. 2. In the said letter of November 2, 1977, we also ruled that the remittance of production cost is not also subject to the 15% remittance tax on profits remitted abroad, pursuant to Section 24(b)(2) of the Tax Code of 1977, on the ground that production cost is not considered profit, the same being a mere return of capital which is not considered income. (Section 36, Revenue Regulations No. 2). Consequently, the remittance of the producer's share in the proceeds of the films exhibition/distribution in the Philippines, not exceeding 60% of said proceeds, not of releasing cost, to be applied to production cost, will not be subject to the 15% remittance tax. However, any remittance in excess of the share of the Philippine branch in the production cost shall be presumed to have been made from the accumulated profits of the branch and shall, therefore, be subject to the 15% remittance tax on profits. cdti Very truly yours, RUBEN B. ANCHETA Acting Commissioner