BIR Ruling No. 272-13

July 17, 2013 BIR RULING NO. 272-13 Section 28 (B) (5) (b) of the 1997 National Internal Revenue Code of 1997, as amended; BIR Ruling No. 420-11 dated November 3, 2011 I-Gateway Mobile Philippines, Inc. (Formerly: Wired Media Services, Inc.) Unit 203, 2nd Floor, Alegria Building 2229 Chino Roces Avenue, Makati City Attention: Mr. Dobin A. Tan President Gentlemen : This refers to your letter dated 22 February 2011 requesting for a confirmatory ruling that dividend income of Clarkston Technology Ltd. can 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. It is represented that I-Gateway Mobile Philippines, Inc. (IGMPI) is a corporation duly organized and existing under the laws of the Philippines, with office address at Unit 203, 2nd Floor, Alegria Building, 2229 Chino Roces Avenue, Makati City. It was registered with the Securities and Exchange Commission (SEC) on March 30, 2005, under SEC Registration No. CS200505202, primarily to perform information technology and business process outsourcing, software development, transcription of information and copyrighted materials, software testing services, development of digital content services, animation development, customization and localization of support IT services among others. Presently, IGMPI has an authorized capital stock of Php10,000,000.00 and the same has been fully subscribed as of December 31, 2010. In the Special Meeting of the Board of Directors dated September 28, 2011, the Board of Directors of IGMPI approved the declaration of cash dividends amounting to Php33,420,000.00, out of its retained earnings as of September 28, 2011, and is payable to Clarkston Technology Ltd. , a foreign corporation duly organized and existing under the laws of British Virgin Islands holding office at Offshore Incorporations Limited, P.O. Box, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. The SEC has issued a Certification dated February 4, 2011 that the company is not registered with the SEC. ATCaDE In support of your request, you submitted the following documents: 1. Original Consularized Certificate of Incorporation No. 636168 of Clarkston Technology Limited issued by the Registrar of Corporate Affairs of the Territory of the British Virgin Islands dated 6 January 2005; and 2. Original Consularized Memorandum and Articles of Association of Clarkston Technology Limited dated 6 January 2005; 3. SEC Certification of Non Registration of Clarkston Technology Ltd. ; 4. Original Consularized Certificate of Tax Exemption of Clarkston Technology Limited issued by the Office of the Commissioner of Inland Revenue, British Virgin Islands; and 5. Original SEC Certified True Copy of I-Gateway Mobile Philippines, Inc. 's Amended Articles of Incorporation, By-laws, and General Information Sheet. cECTaD In reply please be informed the 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. (A) . . . (B) Tax on Nonresident Foreign Corporation : (1) . . . (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation . (a) . . . (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) IaDcTC In stressing the rational of the above-mentioned provisions, the Supreme Court in the case of Commissioner of Internal Revenue vs. Wander Philippines, Inc. , G.R. No. L-68375 dated April 15, 1998, ruled that ". . . since the Swiss Government does not impose any tax on the dividends to be received by the said corporation in the Philippines, the condition imposed under the abovementioned section is satisfied. Accordingly, the withholding tax rate of 15% is hereby affirmed." Thus, in BIR Ruling No. 420-11 dated November 3, 2011, this Office ruled that: "In view of the foregoing and the fact that the Tax Authority of the canton of Bern that the tax exemption granted to the Swiss Federal Pension Fund PUBLICA extends to dividends on its Philippine shares, this Office hereby confirms your opinion that dividends paid by domestic companies to PUBLICA, are subject to the fifteen percent (15%) FWT rate as prescribed under Section 28 (B) (5) (b) of the Tax Code of 1997, as amended." In this case, the Office of the Commissioner of Inland Revenue of the Government of British Virgin Islands has issued a Certificate of Tax Exemption dated June 29, 2012 stating that: "In accordance with Section 242(1) and (3) of the BVI Business Companies Act of 2004, CLARKSTON TECHNOLOGY LIMITED No. 636168 is exempt from all provisions of the Income Tax Ordinance and is exempt from the payment of stamp duty under the Stamp Act." SUCH BEING THE CASE, this Office holds that the cash dividends declared by IGMPI on September 28, 2011 amounting to P33,420,000.00 and to be received by Clarkston Technology Limited February 29, 2012, are subject to the 15% final withholding tax imposed under Section 28 (B) (5) (b) of the Tax Code of 1997, as amended. 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. ICTaEH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue