CE Casecnan II, Inc.

June 8, 2021 ITAD BIR RULING NO. 024-21 Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended CE Casecnan II, Inc. 24th Floor, 6750 Ayala Avenue 1226 Makati City Attention: AAA _______________ Gentlemen : This refers to your letters dated October 24, 2016, November 25, 2016, and December 22, 2016, requesting confirmation that dividends paid by CE Casecnan II, Inc. ("CE II") to CE Casecnan Ltd. ("CEL") are subject to income tax of fifteen percent (15%) under Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997 (Tax Code), as amended. ATICcS FACTS CEL is a corporation organized and existing under the laws of Bermuda based on its Certificate of Incorporation issued by the Registrar of Companies of Bermuda and Certificate of Compliance issued by the Ministry of Economic Development of Bermuda. CEL is not registered as a corporation or as partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission. On the other hand, CE II is a domestic corporation engaged in business primarily to acquire, hold, own and use for investment or otherwise, and to sell or dispose of any and all properties of every kind and description and wherever situated, as to the extent permitted by law, except land. CEL is the beneficial owner of all issued and outstanding shares _________ common shares, including those held by nominee shareholders, and __________ preferred shares of CE II. On October 13, 2016, November 24, 2016, and December 15, 2016, CE II declared cash dividends amounting to ______________, _________________, and ____________, respectively, which shall be paid not later than fifteen (15) days from actual receipt by CE II of its share in the dividends declared by CE Casecnan Water and Energy Company, Inc. during the board meeting held on October 12, 2016, November 23, 2016, and December 13, 2016. RULING In reply, please be informed that under Section 28 (B) (5) (b) of the Tax Code, dividends paid by a domestic corporation to a nonresident foreign corporation are subject to income tax of 15%, provided the country of domicile of the foreign stockholder corporation "shall allow" a tax credit against the tax payable to the domiciliary country by the foreign stockholder corporation "taxes deemed paid in the Philippines" equivalent to 15%, to wit: "SEC. 28. Rates of Income Tax on Foreign Corporations. xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. xxx xxx xxx (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. xxx xxx xxx (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%), 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;" In the instant case, the reduced fifteen percent (15%) dividend tax rate is applicable if Bermuda, the country of domicile of CEL, shall allow a tax credit for "taxes deemed paid in the Philippines" applicable against the taxes to be paid by CEL in Bermuda, which must, as a minimum, reach an amount equivalent to fifteen percent (15%). This deemed paid tax credit represents the difference between the regular thirty percent (30%) dividend tax rate imposed on nonresident corporations and the preferred fifteen percent (15%) dividend tax rate. However, in Commissioner of Internal Revenue vs. Wander Philippines, Inc. and the Court of Tax Appeals (G.R. No. L-68375, April 15, 1988) , the Supreme Court had the occasion to rule that the condition for the imposition of the preferred dividend tax rate of 15% is fully satisfied if the country of domicile of the nonresident foreign corporation exempts from taxation the dividends received from the Philippines, thus: ETHIDa "Accordingly, Wander claims that full credit is granted and not merely credit equivalent to 20%. Petitioner, on the other hand, avers the tax sparing credit is applicable only if the country of the parent corporation allows a foreign tax credit not only for the 15 percentage-point portion actually paid but also for the equivalent twenty percentage point portion spared, waived or otherwise deemed as if paid in the Philippines; that private respondent does not cite anywhere a Swiss law to the effect that in case where a foreign tax, such as the Philippine 35% dividend tax, is spared, waived or otherwise considered as if paid in whole or in part by the foreign country, a Swiss foreign-tax credit would be allowed for the whole or for the part, as the case may be, of the foreign tax so spared or waived or considered as if paid by the foreign country. While it may be true that claims for refund are construed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax or the dividends received by Glaro 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 corporations' interest here and discourage them from investing capital in our country." (Emphasis ours) Based on the Certificate of Tax Assurance issued by the Minister of Finance of Bermuda on December 20, 2012 pursuant to Section 2 of the Exempted Undertakings Tax Protection Act of 1966, CEL was given an assurance that any legislation enacted in Bermuda imposing tax computed on profits or income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, shall not be applicable to CEL or to any of its operations, shares, debentures or other obligations. This tax assurance shall remain in effect until March 31, 2035. In other words, CEL is exempt from any tax on profits or income, capital asset, gain or appreciation in Bermuda until March 31, 2035. Considering, therefore, that Bermuda does not impose any tax on profits, income, gains, or appreciations derived by CEL from sources within and outside Bermuda, the dividends it received from CE II are, therefore, subject to Philippine income tax at the rate of 15% pursuant to Section 28 (B) (5) (b) of the Tax Code. This ruling is issued on the basis of the facts as represented. However, if it shall be disclosed upon investigation that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue