Dividends Being Remitted to National Development Company Subject to a Tax Equivalent to 35% of the Taxable Income of the National Development Company

July 30, 1996 BIR RULING NO. 082-96 Sec. 24 000-00 082-96 National Development Corporation Producers Bank Building 371 Sen. Gil J. Puyat Avenue Makati City Attention: Mr . Ernesto E . Sioson Assistant General Manager Gentlemen : This refers to your letter dated December 12, 1994 stating that the National Development Company (NDC), is a government owned and controlled corporation organized and existing pursuant to Commonwealth Act. No. 182, as amended by Presidential Decree Nos. 1648 and 1846; that Asean Bintulu Fertilizer Sdn. Bhd. (ABF), on the other hand, is a foreign corporation incorporated under the laws of Malaysia; that ABF is a joint venture among governments of Malaysia, Indonesia, Thailand, Philippines and Singapore in accordance with the Basic Agreement on Asean Industrial Project agreed upon by the Asean Foreign Affairs Ministers in behalf of their governments; that NDC holds thirteen (13%) percent equity shareholdings in the ABF; and that the dividends being remitted to NDC is tax exempt in Malaysia. aisadc Based on the foregoing representations, you are now requesting for a ruling on whether the dividends being remitted to NDC is taxable in the Philippines, and if so, at what rate. In reply, please be informed that under Article 10 (1) and (3) of the RP-Malaysia Tax Treaty, pertinent portion of which reads: "Article 10 DIVIDENDS 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. . . . 3. Dividends paid by a company which is a resident of Malaysia to a resident of the Philippines who is the beneficial owner thereof and is subject to Philippine tax in respect thereof shall be exempt from any tax in Malaysia which is chargeable on dividends in addition to the tax chargeable in respect of the income of the company: Provided that nothing in this paragraph shall affect the provisions of the Malaysian law under which the tax in respect of a dividend paid by a company which is a resident of Malaysia from which Malaysian tax has been, or has been deemed to be, deducted may be adjusted by reference to the rate of tax appropriate to the Malaysian year of assessment immediately following that in which the dividend was paid. xxx xxx xxx the dividends being remitted to NDC by ABF although exempt from tax under the laws of Malaysia, is taxable under Philippine laws pursuant to the aforequoted provisions of Article 10 (1) and (3) of the RP-Malaysia Tax Treaty. Such being the case and considering that the NDC is a domestic corporation subject to tax in the Philippines on income derived from all sources within and without the Philippines, the dividends to be remitted to it by a foreign corporation (ABF) being an income from without the Philippines, the same is subject to tax imposed under Section 24 of the Tax Code, as amended. Accordingly, this Office is of the opinion as it hereby holds, that the said dividends being remitted to NDC shall be subject to a tax equivalent to 35% of the taxable income of the National Development Company. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue