BIR Ruling No. 325-2020

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Sec.28B5(b

BIR Ruling No.378-13; BIR Ruling No. 374-13; BIR Ruling No.304-1 1 OT-0325-2020 JUN 1 5 2020

R.G.MANABAT & CO

6787 Ayala Avenue, Makati City 1226 The KPMG Center,9/F

Attention:Atty. Maria Georgina J. Soberano

Principal, Tax

Gentlemen:

This refers to your letter dated September 26, 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 (15%)

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, Chelston 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

or business in the Philippines as evidenced by a Certificate of Non-Registration issued by

the latter on April 30, 2014; that LGCI holds a total of common shares, with par

value of Php each or a total Php in CECWEC,a domestic corporation with

business address at 24th Floor, 6750 Building, Ayala Avenue, Makati City, Philippines;

that 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 September 11,2014 the

Board resolved that of the cash dividends in the amount of USD distributed, the equivalent of i 5% thereof or USD will be distributed and paid to be

to LGCI on or before September 30, 2014; and that the Department of Inland Revenue of

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the Government of Barbados has issued a certification confirming that the dividends

received by LGCI from the non-resident Philippine Company will not be inciuded 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 CE CASECNAN are subject to the fifteen percent

(15%) preferential 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 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

eguivalent 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 XXX 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, 1998), ruled that---

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...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 (1) (1) (iii), which stresses that:

"Calculation of Assessable Income:

Amounts Not Included

9.(1) In calculating the assessable income of a person for an

income year, the following amounts shall not be included

namely;

(a) xxx

l)(i)xxx

(ii) x x x (iii) in respect of income year 2007 and subsequent

income years, amounts received by a resident company

registered in Barbados as dividends, other than preference

dividends from a non-resident company when the Barbados

resident is a shareholder representing at least ten percent

(10%) if the capital of the non-resident company and such

shareholding is not held solely for the purpose of portfolio

investments. "

Hence, considering that LGCI holds more than ten percent (10%) of the capital of

the non-resident company, the dividends received by it, as a company registered in

Barbados, shall not be included in calculating the assessable income under the Income Tax

Act of Barbados.

Based on the foregoing and in view that LGCI has been certified by the Barbadian

Department of Inland Revenue that it will not be subject to tax on the cash dividends

received from its non-resident affiliate in accordance with the provisions of the Income

Tax Act Cap 73 Section 9 (1)(1)(ii), this Office hereby confirms your opinion that cash

dividends in the amount of USD declared by CECWEC on September 11,2014

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to be received by LGCI on or before September 30, 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 dated October 11, 2013; BIR Ruling No. 374-13 dated

October 10, 2013; and BIR Ruling No. 304-11 dated August 15, 2011)

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.

ruling shall be considered null and void.

Very truly yours,

raesa

CAESAR R. DULAY

Commissioner of Internal Revenue

034310

K-1-JAC