BIR Ruling [UN-142-94]

April 19, 1994 BIR RULING [UN-142-94] Sycip, Salazar, Hernandez & Gatmaitan 105 Paseo de Roxas, 1200 Makati M.M. Attention: Attys . Ernesto S . Taino, Jr . and Hector M . De Leon, Jr . Gentlemen : This refers to your letter dated February 15, 1994 stating that a foreign company, which will be an affiliate of CMS General Co. (CMS) intends to establish a branch in the Philippines (CMS Branch); that it is proposed that the CMS Branch and Magellan Utilities Development Corporation (MUDC), a corporation organized and existing under Philippine law, or its affiliate will form a Philippine partnership (Project Company) which will develop, finance and own a 300 MW coal-fired power plant (Project); that the Project will comprise the first phase (Unit 1) of a planned 2 x 300 MW power station in Pinamucan, Batangas and will be constructed for the Project company by a separate contractor consortium; and that after completion, the power from the facility will be sold by the Project Company to the Manila Electric Company (MERALCO) and will be transmitted by the National Power Corporation to Meralco receiving sub-stations. cdtech In connection therewith, you now request confirmation of your opinion that "1. The Project company will be treated as a corporation for income tax purposes and will be subject to a 35% tax under Section 24(a) of the Tax Code; "2. The distribution of profits by the Project Company to the partners will be deemed a distribution of dividends, and pursuant to Sections 24(e)(4) and 25(a)(5)(D) of the Tax Code, will be subject to a 0% tax when paid to a domestic corporation (such as MUDC or its affiliate) or a resident branch of a foreign company. In reply thereto, please be informed that your opinion is hereby confirmed. The Project Company which is a proposed Philippine partnership of the CMS Branch and Magellan Utilities Development Corporation or its affiliate that will develop, finance and own a 300 MW coal - fired power plant in Pinamucan, Batangas is subject to the 35% tax under Section 24(a) of the Tax Code, as amended. Moreover, the distribution of profits by the Project Company to the partners are not subject to income tax, since said profits are in the nature of dividends which are not subject to tax under Section 24(e)(4) of the Tax Code, as amended. (BIR Ruling No. 254-91 dated November 26, 1991) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation the same could not be substantiated, then this ruling shall be considered null and void. aisadc Very truly yours, JAIME M. MAZA Assistant Commissioner Legal Service