ITAD Ruling No. 175-00

November 14, 2000 ITAD RULING NO. 175-00 Sec. 25 (b) (5) (B) of the 1993 Tax Code BIR Ruling Nos. 275-88 & 080-92 Joaquin Cunanan & Co. 14th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue 1226 Makati City Attention: Ms . Tomasa H . Lipana Managing Partner Tax and Corporate Services Gentlemen : This refers to your letter dated January 5, 1998 requesting for a ruling to the effect that the dividends paid and remitted by Warner Lambert Philippines (WL-Phil) to Warner Lambert Company, USA, (WL-US) are subject only to the 15% withholding tax pursuant to Section 25(b)(5)(B) of the Tax Code, as amended [now Section 28(B)(5)(b) of the Tax Code of 1997]. It is represented that WL-Phil is a corporation organized and existing under the laws of the Philippines and is engaged in the manufacture and distribution of pharmaceutical and confectionery products in the Philippines; that as of December 1, 1997, the Stock and Transfer book of WL-Phil shows that 99.99% of its shares of stocks are owned by WL-US, a company organized and existing under the laws of the United States; that on December 1, 1997, WL-Phil declared dividends amounting to One Hundred Fifty Million (P150,000,000.00) Pesos payable to its stockholders of record as of said date; that the dividend amounting to One Hundred Million (P100,000,000.00) Pesos was paid and remitted to WL-US on December 4, 1997; that the balance of the dividend amounting to Fifty Million Pesos (P50,000,000.00) Pesos was paid and remitted on December 29, 1997; and that the dividends remitted and paid to WL-US are subject to final withholding tax at the rate of 15% only pursuant to then Section 25(b)(5)(B) of the 1993 Tax Code. In reply, please be informed that Section 25(b)(5)(B) of the 1993 Tax Code (now Section 28(B)(5)(b) of the 1997 Tax Code) provides as follows: "Section 25. Rates of tax on foreign corporation . xxx xxx xxx "(b) Non-resident foreign corporations . . . . (5) Tax on certain incomes received by non-resident foreign corporation . xxx xxx xxx (B) On dividends received from a domestic corporation liable to tax under this Chapter, the tax shall be 15% of the dividends received, which shall be collected and paid as provided in Section 50 (a) of the National Internal Revenue Code, as amended 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 as provided under this paragraph." ADSTCI The Supreme Court, in the case of Procter and Gamble Philippines Manufacturing Corp. vs. Comm. of Internal Revenue (G.R. No. 66838) has confirmed that Section 901 of the United States Internal Revenue Code meets the 20% deemed tax credit requirement provided under then Section 25(b)(5)(B) of the 1993 Tax Code. The corresponding IRS Form 1118 of WL-US for the calendar year 1997 shows that a deemed tax credit of more than 20% was granted to the aforementioned foreign corporation. Moreover, the imposition of the 15% final withholding tax rate pursuant to then Section 25(b)(5)(B) of the Tax Code is within the 20% maximum tax rate imposed on dividends paid by a domestic corporation to a United States resident stockholder as provided under Article 11(2)(b) of the RP-US Tax Treaty. (BIR Ruling Nos. 275-88 dated June 28, 1988 and 080-92 dated March 17, 1992) Accordingly, since all conditions for availment of the reduced tax rate of 15% provided under Section 25(b)(5)(B) of the 1993 Tax Code [now Section 28(B)(5)(b) of the 1997 Tax Code] have been complied with in the present case, we hereby confirm your opinion that the dividend of P150,000,000.00 remitted by WL-Phil to WL-US last December 1997 is subject to 15% final withholding tax. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group