BIR Ruling No. 124-83

July 8, 1983 BIR RULING NO. 124-83 Gentlemen: This refers to your letter dated February 15, 1983 requesting certification that the dividends to be remitted by your company, the DKK Water Consultants, Inc., a domestic corporation, to KxK Consult Aps, Denmark is subject only to 15% withholding tax. It is represented that the KxK Consult Aps is a Danish corporation not engaged in trade or business in the Philippines; and that it owns 11,517 shares of your company representing 27% of the total capital stock thereof. In reply, please be informed that under Section 24(b)(1)(iii) of our Tax Code dividends received by a non-resident foreign corporation from a domestic corporation are taxed at the rate of 15% provided that the country in which the non-resident foreign corporation is domiciled credits the whole 35% representing the 15% tax actually paid and the 20% spared by the Philippines. In this connection, Article VI, paragraph (4) of the RP-Denmark Tax Treaty provides "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 percent 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. cdta The exemption in Denmark of dividends from a qualified 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 DKK Water Consultants, Inc. to KxK Consult Aps shall be 15%. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue