Dividends Remitted by Coca Cola Bottlers to its Home Office in the US Not Subject to 15% Branch Profit Remittance Tax

April 23, 1986 BIR RULING NO. 049-86 24 (b) (2) (ii) 000-00 049-86 Gentlemen : This refers to your letter dated January 28, 1986 requesting a ruling based on the following facts: cdta "THE COCA-COLA EXPORT CORPORATION (TCCEC) is a U.S. corporation with branch office in the Philippines, engaged in the manufacturing of beverage base and concentrates. The Philippine Branch of TCCEC sells its manufactured beverage base and concentrate to COCA-COLA BOTTLERS PHILIPPINES, INC., (CCBPI), a Philippine corporation, which the latter processes and packages into bottled or canned softdrinks. The Home Office of TCCEC owns 30% of the outstanding capital stock of CCBPI." Your query is whether the dividends to be paid and remitted by CCBPI to the Home Office of TCCEC in the United States are considered effectively connected with the conduct of the trade or business in the Philippines by TCCEC (Home Office); hence, considered branch profit subject to the 15% branch profit remittance tax pursuant to Section 24(b)(2)(ii) of the Tax Code, as amended by P.D. No. 1994. In reply, please be informed that your query is answered in the negative. Under Section 24(b)(2)(ii) of the Tax Code as amended, the 15% branch profit remittance tax is imposed on profits remitted abroad by a branch to its head office; and the profits, which in this case consist of dividends, shall not be considered branch profits unless the same are effectively connected with the conduct of its (head office) trade or business in the Philippines. However, in the instant case, the dividends to be remitted were earned by the Home Office of TCCEC as owner of 30% of the stocks of CCBPI; and the dividends were to be remitted to TCCEC (Home Office) not by its branch Office, TCCEC (Phil. Branch) but by CCBPI. In other words, the dividends do not represent profit earned by TCCEC (Phil. Branch) which are effectively connected with the conduct of TCCEC's (Home Office) trade or business in the Philippines. It is, however, understood in this connection, that the dividends are subject to the 10% final tax on the total amount thereof imposed by Section 24(c) of the Tax Code. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner