Sycip Gorres Velayo & Co.

June 5, 2014 BIR RULING NO. 171-14 Section 28 (B) (5) (b) 1997 Tax Code, as amended; BIR Ruling No. 004-07 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Lucil Q. Vicerra Principal, Tax and Customs Services Madam : This refers to your letter dated December 10, 2012 requesting, on behalf of your client Clorox International Philippines, Inc. ("CIPI" for brevity), for the confirmation of your opinion that the payment of cash dividends by CIPI to the Glad Products Company ("Glad-US") is subject to the 15% preferential tax rate pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997, as amended. It is represented that CIPI is a corporation duly organized and existing under the laws of the Philippines, registered with the Securities and Exchange Commission (SEC) under SEC Reg. No. 136479, with principal place of business at the 15th Floor the JMT Corporate Condominium ADB Avenue, Ortigas Center, Pasig City. CIPI, formerly First Brands Philippines, Inc., was primarily formed in November 1986, "to engage in, conduct and carry on the business of developing, manufacturing, marketing, selling on wholesale basis, distributing, importing and/or exporting all kinds of products including but not limited to automotive coolant, brake fluid and other car care products and devices, plastic wrap, drinking straws, bag products, aluminum wrap, shoecare products, household products, toiletries and related home products". Glad-US , on the other hand, a subsidiary of the Clorox International Company, is a company duly organized and existing under the laws of the State of Delaware, with principal address at 1221 Broadway, Oakland, California, USA, and is not registered with the Securities and Exchange Commission as a foreign corporation engaged in trade or business in the Philippines as evidence by a Certificate of Non-Registration of Company issued on April 4, 2012 by the SEC. On May 29, 2012, the Board of Directors of CIPI approved and authorized the declaration of cash dividends amounting to Fifty One Million Six Hundred Forty One Thousand Five Hundred Four Pesos and 86/100 (Php51,641,504.86) in favor of all stockholders of record as of May 29, 2012 and payable on or before June 29, 2012. DHSCEc In support of your request, you submitted the following documents: 1. Certified true copy of SEC Certificate of Incorporation of CIPI; 2. Certified true copy of SEC Articles of Incorporation of CIPI; 3. 2012 SEC General Information Sheet of CIPI; 4. Copy of the BIR Certificate of Registration of CIPI; 5. Original Consularized Certification that Glad-US is a U.S. Corporation dated June 27, 2011; 6. Original Certificate of Non-registration issued by the SEC; 7. Secretary's Certificate dated May 31, 2012 certifying the Board resolution of CIPI declaring dividends on May 29, 2012 and authorizing the payment thereof on or before June 29, 2012; 8. Special Power of Attorney authorizing Daisy Del Mundo of SGV & Co. to represent CIPI to file a request for ruling; 9. Original Consularized Certificate of Incorporation of Clorox International Company and its US Corporation Income Tax Return for the tax year beginning July 1, 2011 to June 30, 2012. In reply, please be informed that Section 28 (B) (5) (b) of the Tax Code of 1997, as amended, provides that "(B) Tax on Nonresident Foreign Corporation. xxx xxx xxx "(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. xxx xxx xxx "(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 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 twenty percent (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%), on dividends as provided in this subparagraph : Provided, That effective January 1, 2009, the credit against the tax due shall be equivalent to fifteen percent (15%), which represents the difference between the regular income tax of thirty percent (30%) and the fifteen percent (15%) tax on dividends." cAECST Under the said provision, it is undisputed that a final withholding tax at the lower rate of fifteen percent (15%) is imposed on cash dividends received by a non-resident foreign corporation from a domestic corporation, 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 fifteen percent (15%). In other words, the only condition for the application of the tax sparing credit is that the country-domicile of the recipient corporation allows a credit against the tax due from the non-resident foreign corporations. In stressing the rationale of the above principle, the Supreme Court, in the case of Commissioner of Internal Revenue vs. Procter & Gamble Philippines Manufacturing Corporation , 204 SCRA 377, and later reiterated in Singapore Telecom International Pte. Ltd. vs. Commissioner of Internal Revenue , CTA Case No. 7406, that the preferential tax treatment of the final withholding tax on dividends received by a non-resident foreign corporation from a domestic corporation applies if the domiciliary law of the non-resident foreign corporation allows [a similar] tax credit for the taxes deemed paid in the Philippines. In the instant case, the US allows a credit against the tax due from the non-resident foreign corporation. The Supreme Court in Commissioner of Internal Revenue vs. Procter and Gamble Philippine Manufacturing Corp. (P & G) and Court of Tax Appeals (G.R. 66838, December 2, 1991) had occasion rule that dividends paid to a US resident shall be subject to fifteen percent (15%) dividend tax rate, as follows: "It is important to note that Section 34(b) (1), NIRC, now Section 25(b)(5)(B) of the Tax Code, does not require that the US must give a "deemed paid" tax credit for the dividend tax (20 percentage points) waived by the Philippines in making applicable the preferred dividend tax rate of fifteen percent (15%). In other words, our NIRC does not require that the US tax law deem the parent-corporation to have paid the twenty (20) percentage points of dividends tax waived by the Philippines, the NIRC only requires that the US "shall allow" P&G-USA a "deemed paid" tax credit in an amount equivalent to the twenty (20) percentage points waived by the Philippines." In a number of rulings the BIR has reiterated the findings of the Supreme Court in the case of Procter and Gamble Philippines Manufacturing Corp. vs. Comm. of Internal Revenue , saying that it "has confirmed that Section 901 of the United States Internal Revenue Code meets the 20% deemed tax credit requirement provided under then Section 25 (b) (5) (B) of the 1993 Tax Code [now Section 28 (B) (5) (b)]." (BIR Ruling No. 004-2007 dated February 19, 2007) In view of the foregoing, this Office hereby confirms your opinion that dividends declared by CIPI on May 29, 2012 and paid to Glad-US shall be subject to the preferential withholding tax rate of 15% pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997, as amended. AIaSTE 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue