Taxability of the Dividends Received by Non-Resident Foreign Corporations from a Domestic Corporation

September 28, 1989 BIR RULING NO. 208-89 25 (b) (5) (B) 1978 208-89 Gentlemen : This refers to your letter dated September 14, 1989 stating that your client, Indosuez Asia Investment Services Limited (Indosuez Asia) is a limited liability company based in HongKong; that Indosuez Asia is the investment manager for the Manila Fund (Cagayan) Limited (Fund); that the Fund is a non-resident closed-end investment company organized and existing under the laws of Cayman Islands; and that the Fund proposes to invest in shares of Philippine companies listed on the Philippine Stock Exchange, as well as in shares of Philippine companies not listed on the Philippine Stock Exchanges. In connection therewith, you now request confirmation of your opinion to the effect that dividends payable and remitted to the Fund from its investment in the Philippine shares are subject to a withholding tax at the rate of 15%. cdtech In reply thereto, I have the honor to inform you that under Section 25(b)(5)(B) of the Tax Code, as amended, dividends received by non-resident foreign corporations from a domestic corporation shall be subject to a withholding tax of 15% of the dividends received 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 20% which represents the difference between the regular tax (35%) on corporations and the tax (15%) on dividends. Thus, if the country of domicile of the recipient corporation allows as credit against the tax imposable by it an amount equivalent to 20% of the dividends remitted to corporations domiciled therein, the dividends so remitted are subject to a withholding tax at the rate of 15% only. Since this Office has issued a ruling on February 23, 1978, that the cash dividends to be remitted to American Express International Development Co., Ltd. Cayman Islands is subject only to the 15% withholding tax under then Section 24(b) of the Tax Code, as amended based on the certification of the Financial Secretary of Cayman Islands "that dividends received from sources outside the Cayman Islands and any other income of a Cayman Islands Company are not subject to any form of taxation under the laws of the Cayman Islands" as well as a certification dated September 14, 1989 of Maples and Calder, Attorneys-at-Law in Cayman Islands that the "Government of the Cayman Islands will not under the existing laws of the Cayman Islands, impose any tax, levy, withholding or deduction on dividend income received by the Fund from companies incorporated in jurisdiction outside the Cayman Islands, including the Philippines" the dividends to be remitted to the Manila fund (Cayman) Limited is subject only to the 15% withholding tax pursuant to Section 25(b)(5)(B) of the Tax Code, as amended. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner