Taxability of Dividends Remitted to the Parent Company which is a Non-resident Foreign Corporation

March 30, 1992 BIR RULING NO. 105-92 25 (b) (5) (B) 000-00 105-92 Joaquin Cunanan & Company 8th Floor, BA-Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Ms . Tomasa H . Lipana Gentlemen : This refers to your letter dated December 4, 1991 requesting for confirmation of the opinion that the dividends which your client, EVEREADY BATTERY COMPANY PHILIPPINES, INC., will remit to its parent company, Ralston Purina Battery Company, a non-resident foreign corporation domiciled in the United States, are subject to withholding tax at the rate of 15% only. In relation to the above, you represented that under present provisions of the U.S. Federal Tax Code, the amount of tax deemed paid on such dividends, and to be credited against the U.S. Tax on said dividends, meet the 20% requirement of Section 25(b)(5)(B) of the Tax Code. In reply, please be informed that Section 25(b)(5)(B) of the Tax Code, as amended, provides the following: "Sec. 25. Rates of Tax on Foreign Corporation . . . . (b) Nonresident foreign corporations. . . . (5) Tax on certain incomes received by nonresident foreign corporations. . . . (B) On dividends received from a domestic corporation liable to tax under this Chapter [III Tax on Corporations], the tax shall be 15% of the dividends received, which shall be collected and paid as provided in Section 50(a) of the National Internal Revenue Code, as amended, subject to the condition that the country in which the nonresident foreign corporation is domiciled shall allow a credit against the tax due from the nonresident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends as provided in this subparagraph;" In view of the recent Supreme Court decision in the case of Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufacturing Corp., et al (G.R. No. 66838, December 2, 1991) to the effect that the task of the Supreme Court is to settle which tax rate is applicable, considering the state of U.S. tax law at a given time, and further that Section 24(b)(1) [now Section 25(b)(5)(B)] of the Tax Code, as amended, does not in fact require that the "deemed paid" tax credit shall have actually been granted but merely that the USA " shall allow a credit against the tax due from [P & G USA for] taxes deemed to have been paid in the Philippines . . . ", this Office, conformably to said decision, now holds that the dividend remittance by the Eveready Battery Company Philippines, Inc. to its parent company, Ralston Purina Battery Company, is subject to the preferential rate of 15% only. You are, however, required to submit to this Bureau an authenticated certification of the amount of the "deemed paid" tax credit actually and subsequently granted by the U.S. tax authorities to the U.S. parent corporation for the taxable year involved. Failure to submit said certification within a reasonable time would result in the imposition of a deficiency assessment for the twenty (20) percentage points differential. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue