BIR Ruling No. 763-2019

REPUBLIC OF THE PHILIPPINES

DEPARTMENT CF FINANCE BUREAU OF INTERNALREVENUE

Quezon City

Sec:28(B(5)(b BIR Ruling No.467-14 BIR Ruling`No. 428-14; BIR Ruling N378-13 BIR Ruling No. 304-11 BIR Ruling No. 374-13;

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R.G.MANABAT& CO The KMPG Center,9/F

Makari City 1226 6787 Ayala Avenue,

Attention: Atty. Maria Georgina J Soberano Principal, Tax

Gentiemen.

This refers to your letter dated*22 December 2014, requesting on behalf of . LAPRAIRIE GROUP CONTRACTORS INTERNATIONAL LTD. (LGCI), for confirmation that cash dividends received by LGCI from CE CASECNAN WATER AND ENERGY COMPANY, INC. (CECWEC) are subject to the fifteen percent (l5%) preferential final withholding tax rate under Section 28 (B)(5)(b) of the Tax Code of 1997 as amended, otherwise known as "tax sparing credit".

It is represented that LGCI is a non-resident foreign corporation organized and existing under the laws of Barbados with registered business address at 2nd Floor, Building 2. Cheiston Park.Collymore Rock. St. Michael, Barbados; that LGCI is not registered with the Securities and Exchange Commission (SEC) as a foreign corporation engaged in trade

business address at 24th Floor, 6750 Building, Ayala Avenue, Makati City, Philippines; that or business in the Philippines as evidenced by a Certificate of Non-Registration issued by the latter on 30 April 2014; that LGCI holds a total of : value of' Php 1.00 each or a total Php in CECWEC; a domestic corporation with - common shares, with par

LGCI has an equivalent to fifteen percent (15%) shareholding in CECWEC; that in a special meeting of the Board of Directors of CECWEC held on 17 December 2014, the Board resolved that of the cash dividends in the amount of USD equivalent of 15% thereof or USD will be distributed and paid to LGCI on or to be distributed, the

before 31 December 2014; and that the Department of Inland Revenue of the Government

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of Barbados has issued a certification confirming that the dividends received by LGCI frem the non-resident Philippine Company will not be included in the assessable income of the Company.

Based on the foregoing representations, you now request confirmation that cash dividends to be received by LGCI from CECWEC are subject to the fifteen percent (15%) preferential final withholding tax rate prescribed in Section 28 (B)(5)(b) of the Tax Code of 1997, as amended.

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 Corporation.

XXX XXX XXX

(B) Tax on Nonresident Foreign Corporation.

XXX XXX XXX

(b) Inter-corporate 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-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 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.

XXX JXX XXX

In stressing the rationale of the above provisions, the Supreme Court in the case of Commissioner of Internal Revenue v. Wander Philippines, Inc. (G.R. No. L-68375 dated April 15, 1988), ruled that---

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LaPrairie Group Contractors International Ltd. 22 December 2014 Page 3 of 4

"...since the Swiss Government does not impose any tax on the dividends to be received by the said corporation in the Philippines, the condition imposed under the abovementioned section is satisfied. Accordingly, the withholding tax rate of fifteen percent (15%) is hereby affirmed. "

Thus in BIR Ruling No. 304-11 dated August 15, 2011, this Office ruled that:

"In this case, the Department of Inland Revenue of the Government of Barbados has issued a Certification that LGCI will not be subject to tax on dividends from its non-resident affiliate in accordance with the provisions of the Income Tax Act Cap 73 Section 9 () (i) (iii), which stresses that:

"Calculation of Assessable Income.

Amounts Not Included

income yeut, the following amounts shall not be included 9. (1) In calculating the assessable income of a-person for an

namely

(a) xx

L(i X

I incor a (t ister ferene ipany and si. : Barbados r si. nose of por fol. ten percen( ears, amount. X res e. in Barbade vi. 'ends from a of income year 2007 and subsequent urer Vest a shareholder representing at he capital of the non-resident ding is not held solely for the ived by a resident company as dividends, other than non-resident company when C

the non-residert cor Barbados,sual n Act of Barb d s. Hence, c: nsi. b ir cluded any, tl ng tha Gcl holas mo livide eal ulating the assessable income under the Income Tax received by it, as a company registered in in ten percent (10%) of the capital of

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LaPrairie Group Contractors International Ltd. 22 December 2014 Page 4 of 4

Based on the foregoing and in view of the fact that LGCI has been certified by the Barbadian Department of Inland Revenue that it will not be subject to tax on the cash dividends ropeived from its non-resident affiliate in accordance/with the provisions of the Income Tax Act Cap 73 Section 9 (l)(1)(iii), this Officohereby confirms your opinion that cash dividends in the amount of USD declared by CECWEC on 17 December 204 4 to be received by LGCI on or before 31 December 2014 are subject to fifteen percent (15%) final withholding tax imposed under Section 28 (B)(5)(b) of the Tax Code of 1997) as amended. (BIR Ruling No. 378-13 daied October 11, 2013; BIR Ruling No. 374-13 dated October 10, 2013; BIR Ruling No. 304-11 dated August 15, 2011; BIR Ruling No. 428-2014 dated October 27, 2014; and BIR Ruling No: 467-2014 dated November 19, 2014)

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 AESARR.DULAY

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K-1-JAC