BIR Ruling No. 089-12

February 16, 2012 BIR RULING NO. 089-12 Sec. 28 (B) (5) (b) of the Tax Code of 1997 Sec. 25 (A) (2) & 25 (B), supra BIR Ruling No. 368-11 Manabat Sanagustin & Co. The KMPG Center, 9/F 6787 Ayala Avenue Makati City Attention: Atty. Herminigildo G. Murakami Principal, Tax & Corporate Services Gentlemen : This refers to your letter dated October 6, 2010 stating that your client, DP World Holdings (Australia) Limited (DPWHAL) [formerly P&O Australia Ltd.],is a corporation organized and existing under the laws of Australia with principal office address at Level 12, 160 Sussex Street, new South Wales, Australia; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines; that on the other hand, Asian Terminals, Inc. (ATI) is a domestic corporation with principal address at A. Bonifacio Drive, South Harbor, Port Area, Manila 1018 Philippines; that DPWHAL is the registered owner of 346,466,600 shares representing 17.3233% of the 2,000,000,000 outstanding issued shares of ATI; and that on September 22, 2010, the Board of Directors of ATI declared a cash dividend out of ATI's retained earnings as of August 31, 2010 in the amount of Five Hundred Million Pesos (P500,000,000.00) to the stockholders of record as of October 6, 2010, payable on or before October 20, 2010. Based on the foregoing representations, you now request for confirmation of your opinion that the cash dividends to be paid by ATI to DPWHAL is subject to the preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997. In further support thereof, you likewise point out that the Australian Tax Office ("ATO" for brevity) has issued a Taxation Ruling No. IT 2507 (dated November 10, 1988) confirming that Australia, which is the country of domicile of DPWHAL, allows as credit against the tax due from DPWHAL the income tax imposed by the Philippines on the said dividends, thus satisfying the condition for the application of the preferential rate of 15% set forth in Section 28 (B) (5) (b), supra. TSacAE In reply thereto, please be informed that Section 28 (B) (5) (b) of the Tax Code of 1997 provides that "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. ... xxx xxx xxx (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. xxx xxx xxx (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 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%), 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;" Prescinding from the above-cited provisions, it is undisputed that a final withholding tax at the lower rate of fifteen percent (15%) is imposed on cash dividends received by a non-resident foreign corporation from a domestic corporation, 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 fifteen percent (15%). This same holds true in Section 23AJ of the Income Tax Assessment Act of 1936 of Australia, foreign dividends received in Australia are not subject to income tax, by the government of Australia, being classified as non-assessable non-exempt income. In other words, the dividends are no longer included as taxable income but are treated as exempt. EACIaT This is fortified in BIR Ruling No. 368-011 dated October 5, 2011, where this Office ruled that ". . . that the dividends paid to DP World Overseas Pty. Limited, a company organized and existing under the laws of Australia, by Pecard Group Holdings, Inc. and ATI Holdings Inc. are subject to 15% final withholding tax provided under the 1997 Tax Code, as amended. It must be emphasized, however, that in line with Revenue Memorandum Circular No. 80-91, the preferential tax rate of 15% imposed under the said Section 28(B)(5)(b) may be availed of only when the following documentation requirements are punctiliously complied with within a reasonable time: a) To show that the dividends received by DP World Overseas Pty. Limited from Pecard Group Holdings, Inc. and ATI Holdings Inc. were not among the items considered in arriving at the income tax due from DP World Overseas Pty. Limited; b) To present the income tax return of DP World Overseas Pty. Limited, for the taxable year when the subject dividends were received; and c) To submit any authenticated document showing that the Australian Government did not impose any tax on the subject dividends. Otherwise, the general tax rate of 35% shall be applied." The above-mentioned principle is not without authority, in Commissioner of Internal Revenue vs. Wander Philippines, Inc., 160 SCRA 573, 1988, it was ruled that the exemption from taxes by the country of domicile of the non-resident foreign corporation on dividends received is sufficient basis for the applicability of the 15% tax rate. As such, ATI's issuance of cash dividends to DPWHAL will be subject to a final withholding tax at the rate of fifteen percent (15%). SUCH BEING THE CASE, this Office holds that the cash dividends to be paid by ATI to DPHWAL is subject to the preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997. 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. AaITCH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue