15% tax sparing credit rate for dividends

Under Section 28(B)(5)(b) of the Tax Code, a nonresident foreign corporation may avail of the 15% preferential tax rate on dividends received by it from a domestic corporation without need for applying for a tax relief from the International Tax Affairs Division (ITAD) if it meets the tax sparing credit requirement, i.e., the country of domicile of the nonresident foreign corporation allows a credit against the tax imposable by it at an amount equivalent to 20% (now 15%) of the dividends remitted from the Philippine domestic corporation to corporations domiciled therein.

The BIR held that the exemption from taxes of the dividends received by the country of domicile of the non-resident corporate stockholder is sufficient for the applicability of the 15% tax rate under Section 25(b)(5)(B) of the Tax Code.

Hence, dividends received by a nonresident foreign corporation domiciled in a country that imposes no tax on dividends from foreign sources are subject to the 15% preferential withholding tax rate under said tax sparing credit provision of the Tax Code.

(BIR Ruling Nos. 012-2013 and 014-2013, January 3, 2013)

Tax Brief - February 2013

Punongbayan and Araullo