BIR Ruling No. 196-13

May 21, 2013 BIR RULING NO. 196-13 Sec. 28 (B) (5) (b) of the Tax Code of 1997, as amended; BIR Ruling No. 257-2012; BIR Ruling No. 256-2012; BIR Ruling No. 304-2011 CE Casecnan II, Inc. 24th Floor, 6750 Ayala Avenue, Makati Metro Manila, Philippines Attention: Trinity S. Gatuz Director Gentlemen : This refers to your letter dated January 21, 2013 requesting an opinion as to whether the dividends to be remitted by CE Casecnan II, Inc. (CE II) to CE Casecnan Ltd. (CEL) are subject to the 15% preferential final withholding tax (FWT) rate under Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, otherwise known as the "tax sparing credit." ADaECI It is represented that CE II with TIN No. 222-235-515-000, is a corporation duly organized and existing under the laws of the Republic of the Philippines with office address at 24th floor, 6750 Building, Ayala Avenue, Makati City; that the company was formed in January 7, 2003 with Company Registration No. CS200260241; that its primary purpose is to acquire, hold, own and use for investment, or otherwise, sell or dispose of properties of every kind and description and whenever situated, as to the extent permitted by law; while CEL is a company duly organized and existing under the laws of Bermuda with address at Clarendon House, 2 Church Street, Hamilton, HM11 Bermuda; that it is an exempted company as certified by the Registrar of Companies in its Certificate of Incorporation dated August 15, 1994 pursuant to Section 14 of the Bermuda Companies Act of 1981; that it owns 99.99% of the total issued and outstanding shares of stock of CE II; that CEL is a non-resident company as evidenced by a Certificate of Non-registration issued by the Securities and Exchange Commission (SEC) dated January 18, 2013; that pursuant to the internal policies of CE II, it regularly declares dividends to its stockholders and the remittance of dividends by CE II and its receipt by CEL is therefore a recurring transaction between the companies; that on January 14, 2013, CE II declared dividends to CEL as evidenced by a resolution of the Board of Directors authorizing the same, to be paid out no later than fifteen days from the actual receipt by CE II of its share in the dividends declared by CE Casecnan Water and Energy Company, Inc. (CE Casecnan) during the board meeting held on January 10, 2013; and that in support of your request, the following documents have been submitted: 1. CEL's original consularized Certificate of Incorporation and as an exempt company under the laws of Bermuda; 2. Certificate of Compliance of CEL; 3. Original Consularized Assurance issued by the Minister of Finance to CEL; 4. Original Certificate of Non-registration of CEL issued by the SEC; 5. Original Board Resolution of CE II dated January 14, 2013 declaring the distribution of dividends to its stockholders, which include the share of CEL; 6. Special Power of Attorney (SPA) authorizing CE II to prepare and file this request for ruling on behalf of CEL and SPA authorizing Trinity S. Gatuz to file this request for ruling for CE II; 7. Articles of Incorporation of CE II; 8. Copy of BIR Certificate of Registration of CE II; TSIDEa 9. Copy of Caltex vs. CIR , C.T.A. Case No. 4986; 10. Copies of BIR Rulings issued to CE II. In reply please be informed that Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended, provides as follows: "Sec. 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (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 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 (20%), which represents the difference between the regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax 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;" (emphasis supplied) Under the above-mentioned provisions of the law, it is undisputed that the present applicable tax sparing credit is fifteen percent (15%).In the case of CIR vs. Wander Philippines, Inc. (160 SCRA 573) ,which involves a similar issue, the Supreme Court held that: "While it may be true that claims for refund are constructed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax on the dividends received . . . from the Philippines should be considered as a full satisfaction of the given condition. For, as aptly stated by respondent court, to deny private respondent the privilege to withhold only 15% tax provided for under Presidential Decree No. 369 amending Section 24(b)(1) of the Tax Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporation's interest here and discourage them from investing capital in our country." This was reiterated in BIR Ruling No. 304-2011 dated August 15, 2011 which held that considering that Bermuda does not impose tax on dividends received by corporation domiciled therein pursuant to The Exempted Undertaking Tax Protection Act of 1966 , this Office hereby confirms your opinion that dividends to be paid by IAC, a domestic corporation to IAHL, a non-resident foreign corporation domiciled in Bermuda, are subject to the 15% preferential withholding tax rate under Section 28 (B) (5) (b) of the Tax Code of 1997, as amended. ECHSDc Based on the representations and documents submitted, this Office, guided by the doctrine laid down by the Supreme Court as well as the cited BIR Rulings hereby confirms that the dividend received by CEL from CE II that was declared on January 14, 2013 shall be subject to the 15% preferential final withholding tax rate under Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended. However, as to the subsequent dividend payments/remittances to be made by CE II to CEL, this Office cannot issue a blanket ruling to cover the same. This ruling is being issued on the basis of the foregoing facts as herein 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