RMC 80-91

8/9/2019 RMC 80-91

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Copyright 2014 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2014 1

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 taxrate 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 toSection 24 (b) (1) of the National Internal Revenue Code of 1977 which states: cdt

"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 itsmotion 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 actualamount 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 InternalRevenue 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 rateof 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 corporationusing 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. cdasia

2. Dividends earned/received by the non-resident foreign

investor-stockholder shall be subject to the preferential tax rate of 15% imposed underthen 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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RMC 80-91