August 12, 1991

REVENUE MEMORANDUM CIRCULAR NO. 80-91

Subject

Publishing the Resolution of the Supreme Court dated March

7, 1990 in G.R. No. 76573 entitled "Marubeni Corporation vs.
Commissioner of Internal Revenue and Court of Tax Appeals"
re: pre-requisites for the availment of 15% preferential tax
rate under then Section 24 (b)(1) [now Sec. 25(b)(5)(B)]
of the tax Code, as amended.

To

All Internal Revenue Officers and Others Concerned.

For the information and guidance of all concerned, there is quoted hereunder
the Resolution of the Supreme Court dated March 7, 1990:
"G.R. No. 76573 (Marubeni Corporation vs. Commissioner of Internal
Revenue and the Court of Tax Appeals). - In our decision dated September 14,
1989, we ruled that petitioner was a non-resident foreign corporation subject to
Section 24 (b) (1) of the National Internal Revenue Code of 1977 which states:
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"Tax on foreign corporations. (1) Nonresident

foreign corporations . . . (iii) On dividends received from a
domestic corporation liable to tax under this Chapter, the tax
shall be 15% of the dividends received which shall be collected
and paid as provided in Section 53 (d) 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 20% which
represents the difference between the regular tax (35%) on
corporations and the tax (15%) on the dividends provided in
this section; . . . ."
"Based on this finding, we reversed the decision of
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respondent Court of Tax Appeals dated February 12, 1986

which affirmed the denial by respondent Commissioner of
Internal Revenue of petitioner's claim for refund. We thus
ordered the Commissioner of Internal Revenue to refund or
grant as tax credit in favor of petitioner the amount of
P144,452.40.
"On October 5, 1989, the Solicitor General,
representing the public respondent, filed a motion for
reconsideration stating that although we correctly ruled that
petitioner is a non-resident foreign corporation still petitioner
could not avail itself of the preferential tax rate of 15% under
said Section 24(b)(1) because it failed to comply with the
requisites set forth thereunder.
"On October 9, 1989, petitioner similarly filed its
motion for reconsideration remaining steadfast to its position
that it is a resident foreign corporation subject only to the ten
percent (10%) final intercorporate dividend tax.
"We grant the motion for reconsideration filed by the
Solicitor General.
"Section 24(b)(1) is explicit on the conditions for the
availment of the preferential fifteen percent (15%) tax rate.
Under said provision, petitioner must show that Japan grants a
tax credit to Marubeni, taxes deemed to have been paid in the
Philippines equivalent to at least twenty percent (20%) against
the tax due from Marubeni.
aisa dc

"Noteworthy is the recent case of Commissioner of

Internal Revenue vs. Procter and Gamble PMC (G.R. No.
66835, April 15, 1988, 160 SCRA 560). In that case we denied
Procter and Gamble's claim for refund for its parent company
in the United States since it failed to meet the following
conditions necessary for the availment of the preferential
fifteen percent (15%) tax namely: (1) to show the actual
amount credited by the U.S. Government against the income
tax due from PMC-USA on the dividends received from
private respondent; (2) to present the income tax return of its
mother company for 1975 when the dividends were received;
(3) to submit any authenticated document showing that the US
Government credited 20% of the tax deemed paid in the
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Philippines.
"In the case at bar, petitioner similarly failed to comply
with the requisites set forth under Section 24(b)(1). Petitioner
reasons that it cannot furnish the Commissioner of Internal
Revenue with the confidential income tax return of Marubeni
Japan since such a requirement is beyond the power of
Philippine taxation laws. (Rollo, p. 238).
"Such reasoning finds no merit. Section 24(b)(i) of the
National Internal Revenue Code of 1977 is clear and explicit
on the conditions for the availment of the preferential fifteen
percent (15%) tax rate. Normally the Philippines imposes a
higher thirty five percent (35%) tax rate on corporations. But
since the Philippines seeks to lessen the impact of double
taxation between countries, we impose only the lower tax rate
of fifteen percent (15%) on dividends subject to the condition
that the country in which the non-resident foreign corporation
is domiciled allows a tax credit of twenty percent (20%). Such
prerequisite must be strictly complied with because the fifteen
percent (15%) tax rate is a concession in the nature of a tax
exemption vis-a-vis the normal rate of thirty five (35%) on
corporations.
"Petitioner's motion for reconsideration merely
reiterates the same arguments previously raised in its petition
and does not raise substantial issues not raised upon in our
decision dated September 14, 1989.
Accordingly, since petitioner failed to comply with the
conditions set forth under Section 24 (b)(1) of the National
Internal Revenue Code of 1977, we hereby modify the decision
dated September 14, 1989 and rule that petitioner corporation
is subject to the twenty five percent (25%) tax rate on
dividends pursuant to Article 10(2) of the Philippine-Japan Tax
Convention. The Commissioner of Internal Revenue is hereby
ordered to recompute the tax due from petitioner corporation
using the correct tax base and rate."
"Very truly yours,
(Sgd.) JULIETA Y. CARREON
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T/W JULIETA Y. CARREON

Clerk of Court
(Sgd.) Alfredo P. Marasigan, Jr.
T/W Alfredo P. Marasigan, Jr.
Asst. Div. Clerk of Court

SALIENT FEATURES
1. If the head office abroad, without passing its branch office in the
Philippines, directly invested shares of stock in a domestic corporation, and therefore
cash dividends were remitted likewise directly to the office, the said Office is
considered a non-resident foreign corporation regarding said transaction.
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2. Dividends
earned/received
by
the
non-resident
foreign
investor-stockholder shall be subject to the preferential tax rate of 15% imposed under
then Section 24(b)(1) [now Sec. 25(b)(5)(B)] of the Tax Code provided the following
documentation requirements are punctiliously complied with, viz:
a)

to show the actual amount credited by the Japanese Government

against the income tax due from the non-resident foreign
investor-stockholder (head office abroad) on the dividends
received from a domestic corporation;

b)

to present the income tax return of its mother company for the
taxable year when the dividends were received; and,

c)

to submit any authenticated document showing that the Japanese

Government credited 20% of the tax deemed paid in the
Philippines.
acd

3. Having failed to comply with the aforementioned requirements,

Marubeni, the non-resident foreign investor-stockholder is subject to the 25% income
tax rate on dividends pursuant to Article 10(2) of the RP-Japan Tax Treaty.
It is desired that this Circular be given as wide a publicity as possible.

(SGD.) JOSE U. ONG

Commissioner of Internal Revenue

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Copyright 2014

CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia First Release 2014