BIR Ruling No. 338-2016

REPUBLICOF THEPHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Code of 1997,as amended Sec.28B5b)of the Tax

BIR Ruling No. 442-13

BIR Ruling No. 057-12 BIR Ruling No. 629-12:

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24TH Floor. 6750 Ayala Avenue. CE CASECNAN HI,INC. Makati City 1226 Attention:Ms.Trinity S.Gatuz(s) PUREAU OF NTERNAT REVENU

Director JUN 2 8 2016 Gentlemen:

This refers to your letter dated July 23.2013.requesting for conffrmation of your LGAL3EVE

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 (B)(5)(b) of the Tax Code of 1997, as amended, otherwise known as tax sparing credit

Documents submitted disclose that CE II, with Tax Identification No.

is a corporation organized and existing under the laws of the Philippines. with

business address at 24th floor, 6750 Ayala Avenue, Makati City; that thc Company was

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

organized and existing under the laws of Bermuda with address at Clarendon House. 2 situated, as to the extent permitted by law; that CEL, on the other hand, is a company 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 of the total issued

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 April 30,2013: 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

US$ CE II's Secretary's Certificate dated July 24, 2013, cash dividends in the amount of were declared during the July 23,2013 meeting of the Board of Directors

than fifteen (15) days from actual receipt by CE II of its shares in the dividends declared of the Corporation, to be paid out to the stockholders of record as of July 23.2013,no later

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by CE Casecnan Water and Energy Company, Inc. during the board meeting held on July 22,2013:

In support of its request, you have submitted the following documents, to wit:

Original Consularized Certificate of Incorporation issued by the Registrar of

Companies in Bermuda certifying CEL as an exempt company pursuant to

section 14 of the Companies Act of 1981 and The Exempted Undertaking Tax Protection Act of 1966 dated August 15, 1994;

Certificate of Compliance of CEL issued by the Registrar of Companies in

Bermuda dated January 18,2012:

3.Original Consularized Assurance issued by the Minister of Finance of Bermuda

to CEL that imposition of taxes shall not be applicable to CEL under the Exempted Undertakings Tax Protection Act effective until March 31, 2035:

4.Original Certificate of Non-registration of CEL issued by the SEC

5 Original Board Resolution of CE II dated July 23.2013, declaring the

distribution of dividends to its stockholders, which includes the share of CEL:

6. Special Power of Attorney (SPA authorizing CE II to prepare and file this

request for ruling on behalf of CEL and SPA authorizing Trinity S. Gatuz to

file this request for ruling for CE II;

7. Copy of Certificate of Incorporation, Articles of Incorporation and By-Laws of

CE II; and

8.Copy of BIR Certificate of registration of CE II.

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

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bIntercorporate 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.

In stressing the rationale of the above principle, the Supreme Court, in the case of

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

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 SCR4 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

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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.

In this case, CEL has received a written undertaking from the Minister of Finance

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,

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

person ordinarily resident in Bermuda or any company in respect of its ownership of real

property or leasehold interests in Bermuda.

Moreover, the Minister of Finance of the Government of Bermuda issued a

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)

SUCH BEING THE CASE, this Office holds that cash dividends declared on July

22, 2013, 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

the dividends declared by CE Casecnan Water and Energy Company, Inc. during the board

meeting held on July 22, 2013, 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)

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.

KIM S.JACINTO-HENARES

Commissioner of Internal Revenue

K-1-JAC 042340 JUN 2 2016