BIR Ruling No. 414-2020

REPUBLICOFHE PHLIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE K

Quezon City

Sec.28 (B)(5)(b) of the Tax Code of 1997, as amended. BIR Ruling No.442-13; BIR Ruling No. 629-12; BIR Ruling No.057-12 0T-0414-2020 JUL 2 4 2020

24TH Floor, 6750 Ayala Avenue, Makati City 1226 CE CASECNAN WATER AND ENERGY COMPANY,INC

Attention : Mr. Joseph L. Sullivan

President

Gentlemen:

otherwise known as "tax sparing credit" opinion that dividend remittances of CE Casecnan Water and Energy Company, Inc. (CE Casecnan) to CE Casecnan Ltd. (CEL) shall be subject to the 15% preferential final withholding tax rate under Section 28 (B)(5)(b) of the Tax Code of 1997, as amended. This refers to your letter dated June 18, 2014, requesting for confirmation of your

and with business address at 24th floor, 6750 Ayala Avenue, Makati City; that CE Casecnan was incorporated in September 1994 to design, develop, construct, erect, assemble, commission, finance, own and operate a combined irrigation and hydroelectric not registered with the Securities and Exchange Commission (SEC) as a foreign corporation engaged in trade or business in the Philippines as evidenced by a Certificate of Non-Registration issued by the latter on January 16, 2014; that CEL owns 15% of the total issued and outstanding shares of stock of CE Casecnan; and that per Secretary's provided by and under contract with the National Irrigation Administration (NIA) with a NIA located in the provinces of Nueva Ecija and Nueva Vizcaya; that on the other hand, CEL, is a company organized and existing under the laws of Bermuda with address at company as certified by the Registrar of Companies in its August 15, 1994 Certificate of Incorporation pursuant to Section 14 of the Bermuda Companies Act of 1981; that CEL is principal place of business at the Municipality of Pantabangan, Province of Nueva Ecija. power generation project and related facilities for the conversion into electricity of water rated capacity of 150 megawatts and for the supply of water for agricultural purposes to Clarendon House, 2 Church Street, Hamilton, HM1 1 Bermuda; that CEL is an exempted Documents submitted disclose that CE Casecnan, with Tax Identification No. is a corporation organized and existing under the laws of the Philippines, with

01-0L14-2020

JUL 2 4 2020

CE CASECNAN Water and Energy Company, Inc.

Page 2 of 4

Certificate dated June 18, 2014, cash dividends in the amount of US$ were

declared during the June 13, 2014 meeting of the Board of Directors of the Corporation, to

be paid out on or before June 30, 2014, as follows:

1 to CE Casecnan II, Inc.

2) to LaPrairie Group Contractors (International) Ltd., and

3) to CE Casecnan Ltd.

In reply thereto, please be informed that Section 28 (B)(5)(b) of the Tax Code of

1997, as amended, provides that -

"SEC.28. Rates of Income Tax on Foreign Corporations.

XXX XXX XXX

(B)Tax on Nonresident Foreign Corporation.

XXX XXX XXX

(5) Tax or 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 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 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 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 percent (15%) tax on dividends;"

rate of fifteen percent (15%) is imposed on cash dividends received by a non-resident foreign corporation from a domestic corporation, subject to the condition that the country Under the said provision, it is undisputed that a final withholding tax at the lower

tax due from the non-resident foreign corporation taxes deemed to have been paid in the in which the non-resident foreign corporation is domiciled shall allow a credit against the

OT -0 4 1 4 - 2 0 20 JUL 2 4 2020

CE CASECNAN Water and Energy Company, Inc. Page 3 of 4

application of the tax sparing credit is that the country-domicile of the recipient corporation allows a credit against the tax due from non-resident foreign corporations. Philippines equivalent to fifteen percent (15%). In other words, the only condition for the

credit for the taxes deemed paid in the Philippines. April 7, 2009, held that the preferential tax treatment of 15% of the final withholding tax on dividends received by a non-resident foreign corporation from a domestic corporation applies if the domiciliary law of the non-resident foreign corporation allows [a similar] tax Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufacturing Corporation, [204 SCRA 377 (1991)], and later reiterated in Singapore Telecom International Pte. Ltd. vs. Commissioner of Internal Revenue, CTA Case No. 7406 dated In stressing the rationale of the above principle, the Supreme Court, in the case of

country of domicile of the non-resident corporate stockholder on the dividends received, is sufficient basis for the applicability of the 15% tax rate. Thus: Philippines, Inc., [160 SCRA 573 (1988)] has ruled that exemption from taxes by the The Supreme Court, in the case of Commissioner of Internal Revenue vs. Wander

Code, would run counter to the very spirit and intent of said law and discourage them from investing capital in our country." not impose any tax on the dividends received by Glaxo from the condition. For, as aptly stated by respondent court, to deny private Presidential Decree No. 369 amending Section 24(b)(1) of the Tax definitely will adversely affect foreign corporation's interest here and strictly against the claimant, nevertheless, the fact that Switzerland did Philippines should be considered as a full satisfaction of the given respondent the privilege to withhold only 15% tax provided for under "While it may be true that claims for refund are construed

corporate stockholder on the dividends received is sufficient for the applicability of the 15% tax rate. (BIR Ruling No. 629-12 dated November 22, 2012) Thus, the exemption from taxes by the country of domicile of the non-resident

in Bermuda under The Exempted Undertaking Tax Protection Act of 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits, income, inheritance tax, such tax will not be applicable to CEL, or any of its operations until March 28, 2016. The undertaking does not, however, prevent the imposition of taxes on any person ordinarily resident in Bermuda or any company in respect of its ownership of real property or leasehold interests in Bermuda. gain or appreciation on any capital assets, or any tax in the nature of estate duty or In this case, CEL has received a written undertaking from the Minister of Finance

are not subject to income tax. (BIR Ruling No. 057-12 dated February 9, 2012) Certification that Bermuda is not an Income Tax jurisdiction and persons residing therein Moreover, the Minister of Finance of the Government of Bermuda issued a

-0h 1 42020 JUL 2 4 2020

CE CASECNAN Water and Energy Company, Inc Page 4 of 4

domiciled in Bermuda, on or before June 30, 2014, are subject to the 15% final withholding tax as prescribed in Section 28 (B)(5)(b) of the Tax Code of 1997. (BIR Ruling Nos. 629- 12 dated November 22, 2012 and 442-13 dated November 27, 2013) 13, 2014, to be paid by CE Casecnan to CEL, a non-resident foreign corporation SUCH BEING THE CASE, this Office holds that cash dividends declared on June

However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented.

neesanea Very truly yours,

Commissioner of Internal Revenue CAESAR R. DULAY

K-1-JAC 035784