Exemption from 15% Profit Remittance Tax — Dividends

July 13, 1981 BIR RULING NO. 157-81 024 (b) (2) 000-00 157-81 Sycip, Gorres, Velayo & Co. P.O. Box 589, Manila 2800 Attention: Mr . Gutierrez Tax Division Gentlemen : This refers to your letter dated January 29, 1981 requesting a ruling that the dividends received by Marubeni Corporation of Tokyo, Japan, from Atlantic Gulf and Pacific Co., Inc. (AG&P), a domestic corporation, are not effectively connected with its conduct of trade or business in the Philippines and as such are not considered branch profits subject to the 15% profit remittance tax imposed under Section 24(b)(2) of the Tax Code, as amended by Presidential Decree Nos. 1705 and 1773. cdti It is represented that Marubeni is duly licensed and actually engaged in several lines of business in the Philippines; that its office is located at the 4th Floor, FMII Building, Aduana Street, Intramuros, Manila, and that it has equity investments in AG&P, which investments were made directly by its Head Office in Tokyo, Japan and from which, Marubeni receives cash dividends declared by AG&P from time to time. In reply thereto, please be informed that pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits remitted abroad by a branch office to its head office which are effectively connected with its trade or business in the Philippines are subject to the 15% profit remittance tax. 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. For example, if a resident foreign corporation is engaged in the buying and selling of machineries in the Philippines and invests in some shares of stock on which dividends are subsequently received, the dividends thus earned are not considered "effectively connected" with its trade or business in this country. (Revenue Memorandum Circular No. 55-80) In the instant case, the dividends received by Marubeni from AG&P are not income arising from the business activity in which Marubeni is engaged. Accordingly, said dividends if remitted abroad are not considered branch profits for purposes of the 15% profit remittance tax imposed by Section 24(b)(2) of the Tax Code, as amended by Presidential Decree Nos. 1705-1773. cdta Very truly yours, RUBEN B. ANCHETA Acting Commissioner