10% Final Tax — Resident Foreign Corporation

July 29, 1981 BIR RULING NO. 132-81 204-00 000-00 132-81 Construction and Development Corporation of the Phils. Tierra Factors Bldg., Buendia Ave. Makati, Metro Manila Attention: Atty . Tirso A . Tejada Assistant Vice-President Gentlemen : This refers to your letter dated March 23, 1981 requesting a ruling to the effect that the remittance of cash dividends by the Construction and Development Corporation of the Philippines (CDCP) to the head office of Marubeni Corporation in Japan are subject only to the 10% final withholding tax imposed by Section 24(c) of the Tax Code and that said dividends are not subject to the 15% branch profit remittance tax prescribed in Section 24(b)(ii) of said Code, as amended. It is represented that Marubeni Corporation, a corporation duly organized and existing under the laws of Japan, and duly licensed to do business in the Philippines, invested in April, 1980 in the capital stock of CDCP amounting to US $5,000,000.00 in preferred shares; that the investment was duly authorized and registered by the Central Bank on January 23, 1980 and July 17, 1980 respectively; that the investment in CDCP preferred shares shall be entitled to an annual preferential dividend in an amount equal to nine percent (9%) per share. In reply thereto, I have the honor to inform you that since Marubeni Corporation is a resident foreign corporation, the dividends received by it from CDCP, a domestic corporation, are subject to the 10% final tax, in accordance with Section 24(c) of the Tax Code, as amended. Fixed or determinable annual periodical gains, profits, and income on certain gains are not considered branch profits subject to the 15% remittance tax unless the same are effectively connected with the conduct of a trade or business in the Philippines by the foreign corporation. To be "effectively connected" it is not necessary that the income be derived from the actual operation of taxpayer-corporation's trade or business; it is sufficient that the income arises from the business activity in which the corporation is engaged. (See Rev. Memo. Cir. No. 55-80 dated December 3, 1980). Accordingly, although the aforesaid dividends will be remitted to the Head Office in Japan, they shall not be subject to the 15% remittance tax because the said dividends are not considered as branch profits since they did not arise from the business activity of Marubeni Corporation and, therefore, not effectively connected with the conduct of the trade or business of said corporation in the Philippines pursuant to Section 24(b)(ii) of the Tax Code, as amended. Very truly yours, RUBEN B. ANCHETA Acting Commissioner