BIR Ruling No. 114-13

March 22, 2013 BIR RULING NO. 114-13 Section 28 (B) (5) (b); BIR Ruling No. 368-2011; BIR Ruling No. 336-2011 Manabat Sanagustin & Co. The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226 Attention: Herminigildo G. Murakami Principal, Tax & Corporate Services Gentlemen : This refers to your letter dated 05 November 2010 requesting on behalf of your client, FRICUE PTY. LIMITED, for the confirmation of your opinion that the cash dividends paid by Philippine Seaport, Inc. to FRICUE PTY. LIMITED based on the Board of Directors meeting held on 21 October 2010 declaring cash dividends to the stockholders of record as of 22 October 2010 and paid on 29 October 2010, is subject to preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the 1997 Tax Code, as amended. It is represented that FRICUE PTY. LIMITED ("FRICUE" for brevity) is a corporation organized and existing under the laws of Australia with principal address at Level 12, 160 Sussex St.,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; and that Philippine Seaport, Inc. ("PSI" for brevity) is a domestic corporation with principal address at 3rd Floor, SSHG Law Centre, 105 Paseo de Roxas, Makati City. It is further represented that FRICUE is the registered owner of 398 common shares with par value of Php100.00 per share and representing 39.8% outstanding shares of PSI; that on 21 October 2010, the Board of Directors of PSI declared cash dividends of PhP49,227,881.00 out of its retained earnings to the stockholders of record as of 22 October 2010; and that as per dividend declaration on 21 October 2010, the total amount of PhP19,691,152.35 was declared in favor of FRICUE and paid on 29 October 2010. Based on the foregoing, you now request for the confirmation of your opinion that the cash dividends in the total amount of PhP19,691,152.35 of PhP49,227,881.00 out of the retained earnings to be paid by PSI to FRICUE based on the Board of Directors meeting held on 21 October 2010 declaring cash dividends to the stockholders of record as of 22 October 2010 and paid on 29 October 2010, is subject to the preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the 1997 Tax Code, as amended. ICAcHE In support of your request, you submitted the following documents: 1) Letter request for tax exemption; 2) Original copy of Certification of Non-registration of Company dated December 22, 2010 issued by the Securities and Exchange Commission; and 3) Certified true copy of Certificate Numbers 16 & 22 issued by Philippine Seaport, Inc. to FRICUE PTY. LIMITED; 4) Sworn Statement dated January 2, 2012 of Herminigildo G. Murakami; 5) Original copy of the Secretary Certificate dated July 26, 2011 as to the Board Resolution declaring cash dividends; 6) Secretary's Certificates dated October 25, 2012. In reply please be informed that Section 28 (B) (5) (b) of the Tax Code of 1997, as amended, provides the following: "SEC. 28. Rates of Income Tax on Foreign Corporations . ... (B) Tax on Nonresident Foreign Corporation . . . . (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. . . . (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 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 twenty percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirty-five percent (35%) in 1997, thirty-four percent (34%) in 1998, and thirty-three percent (33%) in 1999, and thirty-two percent (32%) thereafter on corporations and the fifteen percent (15%) tax on dividends as provided in this subparagraph;" EHTIcD Based on the foregoing Section, dividends received by non-resident foreign corporations from a domestic corporation shall be subject to a withholding tax of 15% of the dividends received 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 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends. Thus, if the country of domicile of the recipient corporation allows as credit against the tax imposable by it an amount equivalent to 20% of the dividends remitted to corporations domiciled therein, the dividends so remitted are subject to a withholding tax at the rate of 15% only. Moreover, under Section 23AJ of the Income Tax Assessment Act of 1936 of Australia, foreign dividends received in Australia are no longer included as taxable income but are treated as exempt, in which case then, no Philippine-sourced dividend income will be subject to tax in Australia against which a tax rebate may be claimed. (BIR Ruling No. 368-2011 dated October 5, 2011) Based on the foregoing, we confirm your opinion that the dividends paid to FRICUE PTY. LIMITED, a company organized and existing under the laws of Australia, by Philippine Seaport, Inc. based on the Board of Directors meeting held on 21 October 2010 declaring cash dividends to the stockholders of record as of 22 October 2010 and paid on 29 October 2010, are subject to 15% final withholding tax provided under the 1997 Tax Code, as amended. 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. DCHIAS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue