10% Final Tax on Intercorporate Dividends

April 1, 1976 REVENUE REGULATIONS NO. 04-76 SUBJECT : 10% Final Tax on Intercorporate Dividends TO : All internal revenue officers and others concerned SECTION 1. Scope . Pursuant to Section 338 of the National Internal Revenue Code, the following regulations implementing Presidential Decree No. 913 and amending certain provisions of Revenue Regulations No. 8-75 are hereby promulgated and shall be known as Revenue Regulations No. 4-76. cdt SECTION 2. Section 17 of Revenue Regulations No. 2 is hereby amended to read as follows: "Sec. 17. Intercorporate dividends . (a) Dividends received by a domestic or resident foreign corporation from a domestic corporation . Dividends received by a domestic corporation, resident foreign corporation or general co-partnership (except professional partnership) from a domestic corporation subject to tax under the National Internal Revenue Code, and a private educational institution, whether stock or nonstock, from a domestic corporation are subject to a final tax of 10% on the total amount thereof which shall be collected and paid as provided in Section 205 of these regulations. Such dividends shall not be included in the determination of the gross income of the recipient corporation. "(b) Basis for the final tax . Where a domestic or resident foreign corporation receiving the dividend has incurred an indebtedness abroad, the proceeds of which are invested in shares of stock of the domestic corporation paying the dividend, the interest paid or incurred on such indebtedness shall be allowed as a deduction from the intercorporate dividends in computing the 10% final tax. "(c) Limitation of amount of interest deductible . The amount of interest allowable in this paragraph as a deduction from intercorporate dividends shall not exceed the proportion of the said interest which the amount of foreign loan actually remitted to the Philippines and invested in original issues of shares of stock of a domestic corporation bears to the total amount of the foreign loan. Any excess of the interest herein allowed as deduction from the intercorporate dividend may be deducted from the other gross income of the recipient corporation subject to the provisions of Section 78 of these regulations. For purposes of this paragraph, the term "other gross income" does not include dividends received from a domestic corporation where the recipient corporation has not invested the foreign loan proceeds in the original issues of shares of stock of the said domestic corporation. "(d) Prima facie presumption as to the source of investment . Any funds invested in the shares of stock of a domestic corporation by a domestic or resident foreign corporation shall be deemed to be from the funds of the investing corporation rather than proceeds of loan indebtedness incurred abroad for such purpose, unless shown to the contrary by the investor corporation. "(e) Conditions for deductibility of Interest . The deduction of interest from dividends shall be allowed only if the recipient domestic or resident foreign corporation submits to the Commissioner of Internal Revenue: "(1) A duly authenticated copy of the foreign loan agreement stipulating the end-use of the proceeds of the loan. "(2) A certification from the Central Bank of the Philippines that the loan proceeds were actually remitted into the Philippines for the purpose of investing the same in the original issues of shares of stock of any domestic corporation. "(3) Other relevant information which may be required by the Commissioner. "(f) Procedure for withholding and remittance of taxes withheld . The payor corporation shall withhold the 10% final tax on the total dividends payable to another domestic or resident foreign corporation. However, where the Commissioner of Internal Revenue has certified that the recipient corporation has actually incurred a foreign loan and that the proceeds or a portion thereof was actually invested in the original issues of shares of stock of the payor corporation, the payor corporation shall withhold and remit 10% only of the excess of the dividend payable over the interest paid or incurred on such indebtedness, subject to the provisions of paragraph (c) hereof. "Where the 10% tax withheld on the intercorporate dividend was determined and subsequently remitted to the Bureau of Internal Revenue without the benefit of a deduction of interest on indebtedness herein allowed, the amount of the 10% final tax withheld and remitted which corresponds to the portion of the interest will be refunded by the Bureau of Internal Revenue. "Sec. 17-A. Dividends received by a non-resident foreign corporation from a domestic corporation . Dividends received by a non-resident foreign corporation from a domestic corporation liable to corporate income tax under Section 15(a) of these regulations are subject to tax at 15% thereof to be collected under Section 205 of these regulations 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 at least 20%,which represents the difference between the regular tax (35%) on corporations and the tax of 15% on dividends as provided in this subsection." aisa dc SECTION 3. Effectivity These regulations shall take effect immediately. PEDRO M. ALMANZOR Acting Secretary of Finance Recommended by: EFREN I. PLANA Acting Commissioner of Internal Revenue TAN 1456-040-3