CIR VS PROCTER AND GAMBLE PHILIPPINE MANUFACTURING CORPORATION (204 SCRA

377)
Category: Income Taxation

NON-RESIDENT FOREIGN CORPORATION- DIVIDENDS

Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend
remittances to non-resident corporate stockholders of a Philippine corporation. This rate
goes down to 15% ONLY IF the country of domicile of the foreign stockholder corporation
“shall allow” such foreign corporation a tax credit for “taxes deemed paid in the
Philippines,” applicable against the tax payable to the domiciliary country by the foreign
stockholder corporation. However, such tax credit for “taxes deemed paid in the
Philippines” MUST, as a minimum, reach an amount equivalent to 20 percentage points

FACTS:

Procter and Gamble Philippines declared dividends payable to its parent company and
sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35%
dividend withholding tax to the BIR which amounted to Php 8.3M It subsequently filed a
claim with the Commissioner of Internal Revenue for a refund or tax credit, claiming that
pursuant to Section 24(b)(1) of the National Internal Revenue Code, as amended by
Presidential Decree No. 369, the applicable rate of withholding tax on the dividends
remitted was only 15%.

MAIN ISSUE:

Whether or not P&G Philippines is entitled to the refund or tax credit.

HELD:

YES. P&G Philippines is entitled.

Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend
remittances to non-resident corporate stockholders of a Philippine corporation. This rate
goes down to 15% ONLY IF he country of domicile of the foreign stockholder corporation
“shall allow” such foreign corporation a tax credit for “taxes deemed paid in the
Philippines,” applicable against the tax payable to the domiciliary country by the foreign
stockholder corporation. However, such tax credit for “taxes deemed paid in the
Philippines” MUST, as a minimum, reach an amount equivalent to 20 percentage points
which represents the difference between the regular 35% dividend tax rate and the
reduced 15% tax rate. Thus, the test is if USA “shall allow” P&G USA a tax credit for ”taxes
deemed paid in the Philippines” applicable against the US taxes of P&G USA, and such
tax credit must reach at least 20 percentage points. Requirements were met.