BIR Ruling No. 409-12

June 15, 2012 BIR RULING NO. 409-12 Section 28 (B) (5) (b) of the 1997 National Internal Revenue Code of 1997, as amended; BIR Ruling No. 304-2011 dated August 15, 2011 CE Casecnan II, Inc. 24th Floor, 6750 Ayala Avenue, Makati City, Metro Manila Philippines Attention: Trinity S. Gatuz Director Gentlemen : This refers to your letter dated 17 June 2011 requesting for a confirmatory ruling that dividend remittances as well as any similar and recurring payment of dividends by CE Casecnan II, Incorporated (CE II) to CE Casecnan Ltd. (CEL) 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. It is represented that CE II is a corporation duly organized and existing under the laws of the Philippines, with office address at 24th Floor, 6750 Building, Ayala Avenue, Makati City. The company was formed in January 7, 2003 primarily 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. CEL is a non-resident company as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission ("SEC") on April 8, 2011. Pursuant to its internal corporate policies, CE II regularly declares dividends to its stockholders. The remittance of dividends by CE II and receipt by CEL is therefore a recurring transaction between the companies. On June 9, 2011, 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 June 20, 2011. In support of your request, you submitted the following documents: 1. Original Consularized Certificate of Incorporation issued by the Register of Companies in Bermuda certifying CEL as an exempt company pursuant to section 14 of the Companies Act of 1981 and the Exempted Undertaking Tax Protection Act of 1966 dated August 15, 1994; 2. Certificate of Compliance of CEL issued by the Register of Companies in Bermuda dated September 9, 2010; 3. Original Consularized Assurance issued by the Minister of Finance of Bermuda to CEL that imposition of taxes shall not be applicable to CEL under the Exempted Undertakings Tax Protection Act dated November 29, 1994; 4. Original Consularized Letter from the Office of the Tax Commissioner advising that Bermuda does not impose income tax; cHCIEA 5. Original Certificate of Non-registration of CEL issued by the SEC; 6. Original Board Resolution of CE II dated June 9, 2011 declaring the distribution of dividends to its stockholders, which includes the share of CEL; and 7. 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. 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. (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) The above quoted provision of law clearly provides that the present applicable tax sparing credit is fifteen percent (15%). The applicable tax sparing rate of 15% having been established, we now discuss the issue on whether or not dividend remittances by CE II to CEL 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, considering that CEL is a tax exempt entity under the laws in Bermuda, as evidenced by the following documents: 1. Original Consularized Certificate of Authentication to the effect that the attached Exempted Undertakings Tax Protection Act, 1966 Assurance is in full force and effect as of 28 October 20120 n 2. Original Certification dated September 28, 2010, issued by Joelene Lindsay, Senior Tax Auditor, for the Tax Commissioner, Office of the Tax Commissioner, Ministry of Finance, Government of Bermuda, which states that "Bermuda is not an Income Tax jurisdiction. As such persons residing in Bermuda are not subject to Income Tax in Bermuda." cCEAHT 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." (emphasis supplied) The above quoted Supreme Court decision 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. This Office, guided by the doctrine laid down by the Supreme Court as well as the cited BIR Rulings hereby confirms that the dividend declared by CE II on June 9, 2011 to CEL 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, this Office can not issue a blanket ruling to cover subsequent remittances to be made by CE II to CEL as there are numerous future conditions that may affect the applicability of the foregoing ruling. 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 n Note from the Publisher: Copied verbatim from the official copy.