BIR Ruling No. 368-11

October 5, 2011 BIR RULING NO. 368-11 Section 28 (B) (5) (b); BIR Ruling No. 208-98; BIR ITAD Ruling No. 033-04; BIR ITAD Ruling No. 020-07; BIR Ruling No. DA-(C-079) 266-09 Manabat Sanagustin & Co. The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226 Attention: Herminigildo G. Murakami Principal, Tax & Corporate Services Gentlemen : This refers to your letters dated November 5, 2010 and May 3, 2011 requesting on behalf of your client, DP WORLD OVERSEAS PTY. LIMITED, for the confirmation of your opinion that the cash dividends to be paid by ATI Holdings, Inc. and Pecard Group Holdings, Inc. to your client is subject to preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the 1997 Tax Code, as amended. It is represented that DP WORLD OVERSEAS PTY. LIMITED is a corporation organized and existing under the laws of Australia with principal address at Level 12, 160 Sussex St., New South Wales, Australia; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines; and that ATI Holdings, Inc. ("ATIHI" for brevity) and Pecard Group Holdings, Inc. ("PECARD" for brevity) are domestic corporations, both with principal address at the 3rd Floor, SSHG Law Centre, 105 Paseo de Roxas, Makati City. It is likewise represented that DP WORLD OVERSEAS PTY. LIMITED is the registered owner of 139,283,655 common shares with par value of Php1.00 per share, and representing 44.3178% of the outstanding shares of ATIHI and is also the registered owner of 181,144 preferred shares with par value of Php1,000,000.00 per share, and representing 38.5697% of the outstanding shares of PECARD; and that on 21 October 2010, the Board of Directors of ATIHI and PECARD declared a cash dividend to the stockholders of record as of 22 October 2010, payable on or before 15 November 2010. Based on the foregoing, you now request for the confirmation of your opinion that the cash dividends to be paid by ATIHI and PECARD to DP WORLD OVERSEAS PTY. LIMITED are subject to the preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the 1997 Tax Code, as amended. cSaATC In further support thereof, you likewise point out that the Australian Tax Office ("ATO" for brevity) has issued a Taxation Ruling No. IT 2507 (dated November 10, 1988) confirming that Australia, which is the country of domicile of DP WORLD OVERSEAS PTY. LIMITED, allows as credit against the tax due from DP WORLD OVERSEAS PTY. LIMITED the income tax imposed by the Philippines on the said dividends, thus satisfying the condition for the application of the preferential rate of 15% set forth in Section 28 (B) (5) (b) of the 1997 Tax Code. In support of your request, you submitted the following documents: 1) Letter requests for tax exemption; 2) Certified true copy of Certification of Non-registration of Company dated December 23, 2010 issued by the Securities and Exchange Commission; and 3) Copy of Taxation Ruling No. IT 2507 dated November 10, 1988. In reply please be informed that Section 28 (B) (5) (b) of the Tax Code of 1997, as amended, provides the following: SEC. 28. Rates of Income Tax on Foreign Corporations. . . . (B) Tax on Nonresident Foreign Corporation. . . . (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. . . . (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 percent (20%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirty-five percent (35%) in 1997, thirty-four percent (34%) in 1998, and thirty-three percent (33%) in 1999, and thirty-two percent (32%) thereafter on corporations and the fifteen percent (15%) tax on dividends as provided in this subparagraph; In BIR Ruling No. 208-98 dated September 28, 1998 , this Office had the occasion to rule that " 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 ." aHcACT Moreover, under Section 23AJ of the Income Tax Assessment Act of 1936 of Australia, foreign dividends received in Australia are no longer included as taxable income but are treated as exempt, in which case then, no Philippine-sourced dividend income will be subject to tax in Australia against which a tax rebate may be claimed. In BIR ITAD Ruling No. 033-04 dated April 2, 2004 , it was held therein that dividends remitted by Philmico-Mauri Foods Corporation, a domestic corporation, to Mauri Fermentation Philippines Pty. Limited, a company organized and existing under the laws of Australia, are subject to the preferential rate of 15%. "It is clear from the above provisions that the dividends received by MFP from PMF shall be taxed at 15% subject to the condition that Australia shall allow a credit against the tax due from MFP's corporate taxes deemed to have been paid in the Philippines equivalent to 17% which represents the difference between the regular tax (32%) on corporations and the tax (15%) on dividends. In the instant case, the fact that Australia will not impose any tax on the dividends received by MFP from PMF should be considered as a full satisfaction of the given condition. For to deny the privilege to withhold only 15% tax provided for under the NIRC of 1997 would run counter to the very spirit and intent of the law and definitely will adversely affect foreign corporations' interest here in the Philippines and discourage them from investing capital in our country." Similar to the instant case, this Office held in BIR ITAD Ruling No. 020-07 dated February 15, 2007 that the dividends remitted by MCC, a domestic corporation, to ANZ Funds, a non-resident foreign corporation in Australia, are subject to the preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the NIRC of 1997 as amended by R.A. No. 9337. Based on the foregoing, we confirm your opinion that the dividends paid to DP WORLD OVERSEAS PTY. LIMITED, a company organized and existing under the laws of Australia, by Pecard Group Holdings, Inc. and ATI Holdings, Inc. are subject to 15% final withholding tax provided under the 1997 Tax Code, as amended. It must be emphasized, however, that in line with Revenue Memorandum Circular No. 80-91, the preferential tax rate of 15% imposed under the said Section 28 (B) (5) (b) may be availed of only when the following documentation requirements are punctiliously complied with within a reasonable time: a) to show that the dividends received by DP WORLD OVERSEAS PTY. LIMITED from Pecard Group Holdings, Inc. and ATI Holdings, Inc. were not among the items considered in arriving at the income tax due from DP WORLD OVERSEAS PTY. LIMITED; ATaDHC b) to present the income tax return of DP WORLD OVERSEAS PTY. LIMITED, for the taxable year when the subject dividends were received; and c) to submit any authenticated document showing that the Australian Government did not impose any tax on the subject dividends. Otherwise, the general tax rate of 35% shall be applied. (BIR Ruling No. DA-(C-079) 266-09 dated June 3, 2009) 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. HaAISC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue