BIR Ruling No. 532-2020

REPUBLIC OF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTMENT OF FINANCE

Quezon City

AAP PROPERTY HOLDINGS COMPANY.INC #1 American Road,Greenfield Automotive Park Special Economic Zone, Sta. Rosa Laguna 4026 Section 28B5bof the NationalInternalRevenue Code of 1997,as amended BIR Ruling No.453-13 BIR Ruling No.004-07 OT-0532-2020 SEP 2 3 2020

Attention: RODEL T.GALLEGA VP-Finance

Gentlemen:

amended, otherwise known as "tax sparing credit" FWT) under Section 28(B)5(b of the National Internai Revenue Code (NIRC) of 1997,as AAP dated December 18, 2014, requesting for confirmation that the dividends to be paid by AAP to Ford Motor Company is subject to the fifteen percent (15%) final withholding tax This refers to the letter of AAP PROPERTY HOLDINGS COMPANY, INC.

Park -- Special Economic Zone, Brgy. Don Jose, Sta. Rosa City, Laguna. is a corporation duly organized and existing under the laws of the Republic of the Philippines and having its principal place of business at No. 1 American Road,Greenfield Automotive It is represented that AAP with Taxpayer's Identification No. (TIN)

corporation registered and existing under the laws of the United States of America (USA) with the Philippines as evidenced by a Certificate of Non-Registration issued by SEC on November 20, 2014;and that it owns 40% of the outstanding shares of AAP. office at 1 American Road,Dearborn,MI 48126,USA; that it is not licensed to do business in On the other hand, Ford Motor Company Ford US is a non-resident foreign

December 19,2014 wherein Php amount of Php US. On December 17, 2014, the Board of Directors of AAP declared cash dividends in the out of its unrestricted retained earnings payable on of the said amount will be payable to Ford

dividends to be paid by AAP to Ford US is subject to the fifteen percent (15%) preferential final withholding tax rate prescribed in Section 28 (B)(5)(b) of the NIRC of 1997, as amended. Based on the foregoing representations, you now request confirmation that the

amended, provides that: In reply thereto, please be informed that Section 28 (B)(5)(b) of the NIRC of 1997, as

SEC.28.Rates of Income Tax on Foreign Corporation.

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(B) Tax on Nonresident Foreign Corporation.

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b) Inter-corporate Dividends. - A final withholding tax at the rate of fifteen percent (15%) is hereby imposed on the amount of cash

AAP PROPERTY HOLDINGS COMPANY,INC.(DeC.17,2014 OT-0532 -2020 SEP 2 3 2020

and/or property dividends received from a domestic corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subiect to the conditions 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 twenty percent (20%), which represents the difference between the regular

tax on dividends as provided in this subparagraph; Provided, that between the regular income tax of thirty percent (30%) and the effective January 1, 2009 the credit against the tax due shall be fifteen percent (15%) tax on dividends. income tax of thirty-five percent (35%) and the fifteen percent (15%) equivalent to fifteen percent (15%), which represents the difference

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resident foreign corporation from a domestic corporation and collected and paid in accordance the total amount thereof, subject to the condition that the country in which the non-resident foreign corporation is domiciled allows a tax credit against the tax due from the non-resident twenty percent (20%) [fifteen percent (15%) beginning January i,2009] of such dividend. with Section 57 (A) of the NIRC of 1997, as amended, are subject to final tax rate of 15% of foreign corporation taxes deemed to have been paid in the Philippines equivalent to the rate of Based on the above-quoted provision, inter-corporate dividends received by a non-

America. The US Tax Code allows such a credit on the amount of taxes paid or accrued to any foreign country, as provided in Sections 901 and 902 of its US Internal Revenue Code, thus: The country of residence of the dividend recipients, Ford US, is the United States of

"SEC. 901. Taxes of foreign.countries and of possessions of United States. -

(a) Allowance of credit. - If the taxpaver chooses to have the benefits of this

subpart, the tax imposed by this chapter shall, subject to the limitation of

paragraph of subsection (b) plus, in the case of a corporation, the taxes Section 904, be.credited with the amounts provided in the applicable deemed to have been paid under Sections 902 and 960.Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. The credit shall not be allowed against any tax treated as a tax not imposed by this chapter under Section 26 (b).

b) Amount allowed.- Subject to the limitation of Section 904, the following amounts shall be allowed as the credit under subsection (a):

(a) Citizens and domestic corporations.-- In the case of a citizen of the

United States andof a domestic corporation, the amount of any income, war profits,and excess profits taxes paid.or accrued during the taxable year to any foreign country or to any possession of the

United States: and

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SEC: 902.Deemed Paid Credit Where Domestic Corporation Owns 10% or More of Voting Stock of Foreign Corporation.-

(a Taxes Paid by Foreign Corporation Treated as Paid by Domestic

Corporation-For purposes of this subpart,a domestic corporation which

BIR Ruling No.453-13 dated November 27,2013.

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AAP PROPERTY HOLDINGSCOMPANY,INC.(DeC17,2014 OT-0532-2020 SEP 2 3 2020

owns 10 percent or more of the voting stock of a foreign corporation from the same proportion of such foreign corporation's income taxes as - which it receives dividends in any taxable year shall be deemed to have paid

(2) such foreign corporation's undistributed earnings. (1) the amount of such dividends bears to;

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(c) Definitions and special rules. - For purposes of this section -

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(4) Foreign income taxes

(A) In general -- The term "foreign income taxes" means any corporation to any foreign country or possession of the United income, war profits, or excess profits taxes paid by the foreign States. "

In BIR Ruling No. 004-07 dated February 19,2007, this Office ruled as follows:

held by KO, on the other hand, the same should be subject to the fifteen percent (15%) final withholding tax under Section 28 (B) (5) (b) of the Tax Code, as amended.by R.A. No. 9337, viz.: "b. With respect to the cash dividends on the preferred shares of stock

(b) Intercorporate Dividends.- rate of fifteen percent (15%) is hereby imposed on the -- A final withholding tax at the

amount of.cash.and/or property dividends received from a

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 domestic corporation, which shall be collected and paid as

due from the nonresidentforeign corporation taxes deemea

percent (20%), which represents the difference between the to have been paid in the Philippines equivalent to twenty 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

percent (15%) tax on dividends; 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

15% subject to the above-mentioned condition.The tax deemed paid is adjusted The tax on inter-corporate dividends is reduced by 20% from 35% to

to correspond to the decreasing corporate income tax rate. The law specifies that such tax creditfor "taxes deemed paid in the Philippines" must,as a

represents the difference between the regular 35%dividend tax rate and the minimum, reach an amount equivalent to 20 percentage points which

Philippine Manufacturing Corporation,G.R.66838,December 2,1991 In other words, in the instant case,the reduced fifteen percent (15%) dividend tax deemed paid in the Philippines" against its US taxes. preferred 15% rate.(Commissioner of Internal Revenue vs.Procter& Gamble rate is applicableif the US shall allow tax credit in favor of KO for "taxes

and Gamble Philippine Manufacturing Corp.(P&G and Court of Tax Appeals The Supreme Court in Commissioner of Internal Revenue vs. Procter O

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AAP PROPERTY HOLDINGS COMPANY, INC. (DeC.17, 2014) U-U35 SEP 2 3 2020 LULU

resident shall be subject to fifteen percent (15%) dividend tax rate, as follows: (G.R. 66838, December 2, 1991) had occasion rule that dividends paid to a US

Section 25(b)(5(B) of the Tax Code, does not require that the to the twenty (20) percentage points waived by the Philippines. US must give a"deemed paid"tax credit for the dividend tax (20 percentage points) waived by the Philippines in making (13%). In other words, our NIRC does not require that the US tax law deem the parent-corporation to have paid the twenty Philippines. The NIRC only requires that the US "shall allow" applicable the preferred dividend tax rate of fifteen percent (20 percentage points of dividends tax waived bythe P&G-USA a "deemed paid" tax credit in an amount equivalent It is important io note that Section 34(b)(1), NIRC, now

In BIR Ruling No.175-00, the BIR reiterated the findings of the Supreme

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 Comm. of Internal Revenue (G.R. No. 66838), saying that it "has confirmed that Court in the case of Procter and Gamble Philippines Manufacturing Corp. vs.

Tax Code [now Section 28 (B) (5) (b)].

In this connection, therefore, dividends distribution by CCBPI on the preferred shares of stock held by KO shall be subject to the fifteen percent 15%) final withholding tax under Section 28 (B)(5)(b) of the Tax Code.

In view of the foregoing and the fact that the United States of America, where Ford US

is registered, allows a credit against the tax due from the non-resident corporation taxes deemed

to have been paid in the Philippines,as clearly provided in the US Tax Code,this Office hereby

confirms your opinion that thedividends which shall be received by Ford US from the

dividends declared by AAP on December 17,2014 which shall be paid on December 19,2014 is subject to the fifteen percent (15%) final withholding tax as prescribed under Section 28 (B)

5) (b) of the NIRC of.1997; as amended.

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,

iaamne

Commissioner of Internal Revenue CAESAR R.DULAY

K-1-LMAT 036734

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