Implementation of the 15% Tax on Intercompany Dividends Prescribed by Presidential Decree No. 299-A

November 2, 1973 REVENUE REGULATIONS NO. 08-73 SUBJECT : Implementation of the 15% Tax on Intercompany Dividends Prescribed by Pr esidenti al Decree No. 299-A TO : All internal revenue officers and others concerned Pursuant to Section 7 of Presidential Decree No. 299-A, the following rules and regulations are hereby promulgated and shall be known as "REGULATIONS IMPLEMENTING PRESIDENTIAL DECREE NO. 299-A." SECTION 1. Tax on intercompany dividends . Prior to the promulgation of Presidential Decree No. 299-A, dividends received by a domestic or resident foreign corporation from a domestic corporation, hereinafter referred to as intercompany dividends, are taxable only to the extent of 25% thereof, regardless of whether or not the domestic or resident payor corporation is subject to income tax, the only requirement being that said payor corporation is subject to tax under the Tax Code. However, Presidential Decree No. 299-A effected the following changes: (1) the recipient domestic or resident corporation is subject to income tax on the entire dividends received from another domestic or resident foreign corporation, but the rate of tax is only 15%, if the payor corporation is subject to income tax; and (2) if the payor corporation is not subject to income tax, the recipient corporation shall be subject to income tax at the normal rates of 25% and 35%. SECTION 2. Withholding of tax on intercompany dividends . The domestic payor corporation must deduct from the dividend payments it shall make to domestic and resident foreign corporations the 15% tax due thereon and hold it in trust for the Government until paid to the collecting officers. SECTION 3. Time and manner of payment of withheld tax . The domestic payor corporation shall pay the 15% tax it withheld from dividend payments to the collecting officers at the same time that it effects payment thereof to the recipient corporations. Payment shall be made in the manner provided for by Section 54 of the Tax Code as in other cases of withholding of tax at source. SECTION 4. Effect and character of the withheld tax on intercompany dividends . The 15% tax withheld on intercompany dividends when paid to the collecting officers shall constitute final payment of the tax due on such dividend income, and such dividend income shall no longer be considered in the determination of the net taxable income of the recipient corporation which is subject to the normal corporate income tax rates of 25% and 35%. SECTION 5. Relation of intercompany dividends to the dividend incomes of personal holding companies . Prior to the promulgation of Presidential Decree No. 299-A, dividends of all kinds, including intercompany dividends, were considered personal holding company income for purposes of determining whether or not such company is subject to the additional tax of 45% imposed by Section 63 of the Tax Code. However, with the amendment of Section 65 (a) by the aforesaid decree, dividends received by domestic personal holding companies are no longer considered personal holding company income, and therefore, no longer to be considered as part of dividend income of the personal holding company for purposes of the gross income requirement provided for in Section 64 of the Tax Code. Under Section 6 of the Decree, intercompany dividends received during the taxable year by personal holding companies and already declared in their returns for the quarters that had elapsed before the promulgation of the Decree, on which they paid the normal rates of income tax on the basis of only 25% thereof as then provided by Section 29(c) of the Tax Code, shall no longer be subjected to 15% tax although they are considered as if subject thereto. In other words, said dividends shall not be considered as part of the dividend income of said companies in the determination of their gross personal holding company income for said taxable year. cd SECTION 6. Effectivity . These regulations take effect immediately. PEDRO M. ALMANZOR Actg . Secretary of Finance Recommended by: MISAEL P. VERA Commissioner of Internal Revenue