Isla Lipana and Co.

November 19, 2018 ITAD BIR RULING NO. 117-18 Section 28 (B) (5) (b), National Internal Revenue Code of 1997, as amended Isla Lipana and Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: AAA _______________ Gentlemen : This refers to your letter dated August 15, 2017 requesting confirmation that dividends paid by Century Pacific Food, Inc. (" Century Pacific ") to Albizia ASEAN Opportunities Fund (" Albizia ") are subject to income tax of 15% under Section 28 (B) (5) (b) of the National Internal Revenue Code of 1997, as amended (" Tax Code "). FACTS Albizia is a corporation organized and existing under the laws of the Cayman Islands based on its Amended and Restated Memorandum of Association and Certificate of Incorporation issued by the Registrar of Companies of the Cayman Islands. The objects for which Albizia is established are unrestricted. Based on a certification issued by the Governor in Cabinet of the Cayman Islands, and pursuant to Section 6 of the Tax Concessions Law of 1999 of the Cayman Islands, no law enacted in the Cayman Islands imposing any tax on profits, income, gains, or appreciations shall apply to Albizia or its operations. This concession is valid for twenty years beginning September 29, 2009. On the other hand, Century Pacific is a domestic corporation. Based on its Audited Financial Statements as of December 31, 2016, Century Pacific is engaged in the business of buying, selling, processing, canning, packaging, and manufacturing of all kinds of food and food products, such as but not limited to fish, seafood and other marine products, cattle, hog, and other animals and animal products, and fruits, vegetables and other agricultural crops and produce of land, including byproducts thereof. Century Pacific 's shares of stocks were listed in the Philippine Stock Exchange on May 6, 2014 through an initial public offering and the listing of the company's 229,650,000 shares with total par value of P_______________. As of December 31, 2016, Century Pacific is owned 68.68% by Century Pacific Group, Inc. , also a domestic corporation. Century Pacific 's income tax expense is calculated using the 30% regular corporate income tax, or the 2% minimum corporate income tax, whichever is higher. Based on Corporate Secretary's Certificate dated August 7, 2017 on June 30, 2017, the Board of Directors of Century Pacific approved a resolution authorizing the declaration of regular dividends of P_____ per share and special dividends of P_____ per share in favor of all stockholders of record as of July 28, 2017, and payable on August 23, 2017. Based on a notice issued by DBS Bank Ltd. of Singapore on August 8, 2017, Albizia is the beneficial owner of 63,600,000 shares in Century Pacific . 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 that the country of domicile of the foreign corporation shall allow a credit against the tax due from that corporation, taxes deemed to have been paid in the Philippines equivalent to 15%, thus: " 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;" The 15% taxes deemed paid credit is the difference between the regular income tax of 30% on the domestic corporation paying the dividends and the 15% tax on dividends paid by the domestic corporation to the nonresident foreign corporation. Regarding taxes deemed paid credit, 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 ruled that the 20% taxes deemed paid credit under the 1939 amended Tax Code (now 15% under the 1997 amended Tax Code) is fully complied with by the country of domicile of the nonresident foreign corporation when the latter's country of domicile exempts dividends derived by that corporation from outside sources, thus: "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 on the dividends received by Glaxo 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) Accordingly, since Century Pacific (the domestic corporation paying dividends to a nonresident foreign corporation) is subject to regular income tax of 30%, and Albizia (the nonresident foreign corporation) is currently exempt from tax in the Cayman Islands (the country of domicile) on profits, income, gains, or appreciations arising within and outside the Cayman Islands, such dividends paid by Century Pacific to Albizia are subject to income tax of 15% under Section 28 (B) (5) (b) of the Tax Code. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed 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