BIR Ruling No. 413-2020

BUREAU OF INTERNAL REVENUE REPUBLICO.THE FHILIPPINES DEPARTMENT OF FINANCE

Quezon City

OT-0413-2020 Sec.28(B)5)(b) of the Tax Code of 1997, as amended. BIR Ruling No. 442-13 BIR Ruling No.057-12 BIR Ruling No. 629-12

Makati City 1226 CE CASECNAN II, INC. 24th Floor, 6750 Ayala Avenue,

Attention :Mr. Joseph L. Sullivan

President

Gentlemen:

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

and outstanding shares of stock of CE II; that CEL is a non-resident company as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission (SEC) dated January 16, 2014; that pursuant to its internal corporate policies, CE II regularly declares dividends to its stockholders; that the remittance of dividends by CE II and its receipt by CEL is therefore a recurring transaction between the companies; and that per CE II's Secretary's Certificate dated June 18, 2014, cash dividends in the amount of of the Corporation, to be paid out to the stockholders of record as of June 16, 2014, no later than fifteen (15) days from actual receipt by CE II of its shares in the dividends declared by CE Casecnan Water and Energy Company, Inc. during the board meeting held on June organized and existing under the laws of Bermuda with address at Clarendon House, 2 Church Street, Hamilton, HM11 Bermuda; that CEL is an exempt 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 it owns business address at 24th floor, 6750 Ayala Avenue, Makati City; that the Company was situated, as to the extent permitted by law; that CEL, on the other hand, is a company US$4. 13, 2014. formed on January 7, 2003 primarily to acquire, hold, own and use for investment, or otherwise, sell or dispose of properties of every kind and description and whenever Documents submitted disclose that CE II, with Tax Identification No. is a corporation organized and existing under the laws of the Philippines, with were declared during the June 16, 2014 meeting of the Board of Directors of the total issued

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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.

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(B)Tax on Nonresident Foreign Corporation.

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(5) Tax or Certain Incomes Received by a Nonresident Foreign

Corporation.

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(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;"

Under the said provision, it is undisputed that a final withholding tax at the lower 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 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 fifteen percent (15%). In other words, the only condition for the 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.

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

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CE CASECNAN II, INC. Page 3 of 4

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

credit for the taxes deemed paid in the Philippines.

The Supreme Court, in the case of Commissioner of Internal Revenue vs. Wander

Philippines, Inc., [160 SCRA 573 (1988)] has ruled that exemption from taxes by the

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:

"While it may be true that claims for refund are construed strictly against the claimant, nevertheless, the fact that Switzerland did not impose any tax on the dividends received by Glaxo from the

Philippines should be considered as a full satisfaction of the given condition. For, as aptly stated by respondent court, to deny private respondent the privilege to withhold only 15% tax provided for under

Presidential Decree No. 369 amending Section 24(b)(1) of the Tax

Code, would run counter to the very spirit and intent of said law and definitely will adversely affect foreign corporation's interest here and discourage them from investing capital in our country.

Thus, the exemption from taxes by the country of domicile of the non-resident

corporate stockholder on the dividends received is sufficient for the applicability of the 15% tax rate.

that any legislation is enacted in Bermuda imposing any tax computed on profits, income, person ordinarily resident in Bermuda or any company in respect of its ownership of real in Bermuda under the Exempted Undertaking Tax Protection Act of 1966 that, in the event gain or appreciation on any capital assets, or any tax in the nature of estate duty or 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 property or leasehold interests in Bermuda. In this case, CEL has received a written undertaking from the Minister of Finance

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

meeting held on June 13, 2014, are subject to the 15% final withholding tax as prescribed the dividends declared by CE Casecnan Water and Energy Company, Inc. during the board 16, 2014, to be paid by CE II to CEL, a non-resident foreign corporation domiciled in Bermuda, not later than fifteen (15) days from the actual receipt by CE II of its share in SUCH BEING THE CASE, this Office holds that cash dividends declared on June

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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)

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

Very truly yours.

Commissioner of Internal Revenue 1cusa1neav CAESAR R. DULAY

K-1-JAC 035768