BIR Ruling No. 099-83

June 9, 1983 BIR RULING NO. 099-83 Gentlemen : This refers to your letter dated December 8, 1982 supplementing the written request of your client, Maersk-Tabacalera Shipping Agency (Filipinas) Inc. dated September 30, 1982, requesting confirmation of your opinion that the applicable withholding tax rate on dividends paid to one of its parent companies, Maersk Line A/S Denmark which is a non-resident Danish Corporation is subject only to 15% withholding tax. It is represented that your client is engaged in the general shipping agency by acting as an agent or representative of shipowners, brokers, charterers, consignees and any person, corporation or firm engaged in any business, enterprise or undertaking related to or connected with overseas shipping or international trade; and that Maersk Line A/S Denmark owns 7,478 shares of stock or fifty per cent (50%) of your client's equity. Section 24 (b)(1)(iii) of our Tax Code provides that dividends received by a non-resident foreign corporation from a domestic corporation shall be taxed at the rate of 15% provided that the country of domicile of the non-resident foreign corporation credits the whole 35% representing the 15% tax actually paid and the 20% spared by the Philippines. In reply, please be informed that under Article VI, paragraph (4) of the RP-Denmark Tax Treaty "dividends paid by a corporation of one of the Contracting States to a corporation of the other Contracting State shall be exempt from tax in the last-mentioned State to the extent allowed by its national law, if both corporations had been corporations of that State." In other words, dividends paid by a Philippine corporation to a Danish corporation shall be exempt from tax in Denmark to the extent allowed by Danish law, as if both corporations had been corporations of Denmark. Under the Danish law "Dividends paid by one Danish company to another Danish company holding at least 25 per cent of the stock during the entire income year for which the dividends are paid are exempt from tax", [Supplement No. 18, September 1977, 1977 International Bureau of Fiscal Documentation]; hence, dividends paid by a Philippine corporation to a Danish corporation shall likewise be exempt from tax in Denmark. The exemption in Denmark of dividends from a Philippine corporation to a Danish corporation satisfies the requirement of Section 24 (b)(1)(iii) of the Tax Code, in which case, the applicable withholding tax rate on the dividends payable by your client, to its parent Danish corporation (Maersk Line A/S Denmark) shall be 15%. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue