ITAD Ruling No. 189-00

December 7, 2000 ITAD RULING NO. 189-00 Sec. 28 105-92 Hunt-Universal Robina Corp. CFC Building, E. Rodriguez Jr. Avenue Bagong Ilog, Pasig City Attention: Mr . Jorge Q . Concepcion Managing Partner Gentlemen : This refers to your application for relief from double taxation dated June 6, 2000, on behalf Of Hunt-Wesson Foods International, to avail of the preferential tax rate of 15 per cent final withholding tax on your dividend remittances pursuant to the National Internal Revenue Code (NIRC) of 1997. It is represented that Hunt-Wesson Foods International (Hunt USA) is a non-resident foreign corporation duly organized and existing under the laws of the United States of America (USA) with principal office address at 1645 West Valencia Drive, Fullerton California, USA; that it is not registered as a corporation/partnership licensed to do business in the Philippines as per certification dated March 7, 2000 issued by the Securities and Exchange Commission; that Hunt-Universal Robina Corp. (Hunt Phil) is a corporation duly organized and existing under Philippine Laws; that Hunt USA owns 1,400,000 shares with a par value of PHP 10.00 per share representing 50 per cent of Hunt Phil's outstanding capital stock; that on November 11, 1999, the Board of Directors of Hunt Phil declared cash dividends out of its retained earnings in the amount of Forty Five Million Pesos (PHP 45,000,00) to its stockholders of record as of September 30, 1999; and that the said dividends are payable on or before March 31, 2000. In reply, please be informed of Section 28 (B)(5)(b) of the National Internal Revenue Code which reads, viz: "Section 28. Rates of income tax on foreign corporations . "xxx xxx xxx "(B) Tax on Nonresident Foreign Corporations . "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%) for 1997, nineteen percent (19%) for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference between the regular income tax of thirty-five percent (35%) in 1997, thirty-four (34%) in 1998, thirty-three percent (33%) in 1999 and thirty-two percent (32%) thereafter on corporations and fifteen percent (15%) tax on dividends as provided in this subparagraph; CSHcDT "xxx xxx xxx" Based on the foregoing, the regular income tax rate of thirty-two percent (32%) applicable to dividend remittances to non-resident foreign corporate stockholders of a Philippine corporation, is reduced to fifteen percent (15%) if the country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax credit for taxes deemed paid in the Philippines. In other words, in the instant case, the reduced fifteen percent (15%) dividend tax rate is applicable if the USA shall allow tax credit in favor of Hunt USA for "taxes deemed paid in the Philippines" against its US taxes. The Supreme Court in Commissioner of Internal Revenue vs. Procter and Gamble Philippine Manufacturing Corp. (PNG) and Court of Tax Appeals (December 2, 1991), in ruling that the USA domiciled stockholder of PNG is entitled to the preferential fifteen percent (15%) dividend tax rate, further declared that the NIRC, as amended, does not in fact require that the "deemed paid" tax credit shall actually been granted but merely that the country of domicile of the foreign stockholder corporation shall allow such foreign corporation a tax credit for "taxes deemed paid in the Philippines," applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. Such being the case, and in conformity with the aforementioned Supreme Court decision, your opinion that the dividends to be remitted by your company to Hunt-Wesson Foods International (Hunt USA) are subject to the preferential tax rate of 15 per cent pursuant to the provisions of the Tax Code of 1997 is hereby confirmed. You are, however, required to submit to this Bureau an authenticated certification of the amount of the "deemed paid" tax credit actually and subsequently granted by the U.S. tax authorities to Hunt USA for the taxable year involved. Failure to submit the said certification within a reasonable time would result in the imposition of a deficiency assessment for the seventeen (17) percentage points differential. DTIaCS This ruling is being issued on the basis of the foregoing facts as 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, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group