Tax Alert No. 6 [Revenue Memorandum Order (RMO) No. 46-2020 dated 24 November 2020]

Prescribing the Guidelines and Procedures for the Availment of the Reduced Rate of 15% on Intercompany Dividends paid by a Domestic Corporation to a Non-resident Foreign Corporation pursuant to Section 28 (B)(5)(b) of the NIRC of 1997, as amended

The Commissioner of Internal Revenue (CIR) has issued RMO No. 46-2020 to prescribe the guidelines and procedures for the availment of the reduced rate of 15% on dividends paid by a domestic corporation to a non-resident foreign corporation (NRFC).

The salient provisions of the RMO are as follows:

• The reduced rate of 15% may be applied to the cash and/or property dividends declared by all corporations, irrespective of their corporate income tax regimes (i.e., regular rate of 30% or other rates under the Tax Code, or whether granted an income tax holiday or covered by special tax regimes).
• The domestic corporation may remit outright the dividends to the NRFC and apply thereon the reduced rate of 15%. However, it must first determine whether the existing law of the country of domicile allows the NRFC a “deemed paid" tax credit in an amount equivalent to the 15% waived by the Philippines or exempts from tax the dividends received.
• The foreign law can be established by complying with the mandate of Sections 24 and 25, Rule 132 of the Revised Rules of Court regarding certification and authentication of a copy thereof. In case the country of domicile is a member of the Apostille Convention, an apostilled copy of the foreign law can be submitted.
• Within 90 days from the remittance of the dividends or from the determination by the foreign tax authority of the deemed paid tax credit/non-imposition of tax, whichever is later, the NRFC or its authorized representative shall file a request for confirmation of the applicability of the reduced dividend rate with the International Tax Affairs Division (ITAD).
• Holders of Philippine Depository Receipts (PDRs) may also be entitled to the reduced rate, subject to fulfilment of the following conditions:
  • the PDR is coupled with a right to purchase the underlying shares; and
    
  • the said right can be legally exercised.
• If the ownership of the underlying shares is reserved to Philippine nationals under the Constitution and special laws, the foreign PDR holder cannot legally exercise the right to purchase the underlying shares but is only entitled to the monetary value or sales proceeds thereof.
• The BIR shall issue a certificate duly signed by the Assistant Commissioner for Legal Service in lieu of the usual BIR ruling. In case of denial, a BIR ruling signed by the CIR or his authorized representative, which shall contain the factual and legal bases that led to the conclusion, shall be issued. All unfavorable rulings are appealable to the Department of Finance within 30 days from receipt thereof.
• The NRFC has the option to avail of the reduced dividend rate under the Tax Code, irrespective of whether a double tax convention or tax treaty exists between the Philippines and its country of residence. If the taxpayer is not entitled to the reduced rate under the Tax Code, the treaty rate shall automatically be applied provided that the NRFC is able to prove its entitlement to the benefits.

In addition to the general and special documentary requirements specified in the RMO, the BIR may also require the presentation of original documents for verification purposes or request additional information or any related document.

You may access the full version of the RMO and its annexes through the BIR website.