The dividends received from a domestic corporation is liable to a 15% withholding tax, provided that the country in which the foreign corporation is domiciled shall allow a tax credit (equivalent to 20% which is the difference between the 35% tax due on regular corporations and the 15% tax due on dividends) against the taxes due to have been paid in the Philippines.
Facts:
Wander is a domestic corporation which is a wholly-owned subsidiary of Glaro S.A. Ltd.,a Swiss corporation not engaged in trade/business in the Philippines. In two instances, Wander filed its withholding tax return and remitted to Glaro (the parent company) dividends (P222,000 in the first instance and P355,200 in the second), on which 35% tax was withheld and paid to the BIR.
Wander now files a claim for refund of the withheld tax contending that it is liable only to 15% withholding tax pursuant to Section 24. B.1 of the Tax Code. The BIR did not act upon the claim filed by Wander so the corporation filed a petition to the Court of Tax Appeals (CTA). The CTA held that the corporation is entitled to 15% withholding tax rate on dividends remitted to Glaro, a non-resident foreign corporation.
Issue: Whether or not Wander is entitled to the 15% withholding tax rate.
Held:
Yes. According to Sec. 24.B.1 of the Tax Code, the dividends received from a domestic corporation is liable to a 15% withholding tax, provided that the country in which the foreign corporation is domiciled shall allow a tax credit (equivalent to 20% which is the difference between the 35% tax due on regular corporations and the 15% tax due on dividends) against the taxes due to have been paid in the Philippines.
In the case, Switzerland did not impose any tax on the dividends received by Glaro thus it should be considered as a full satisfaction of the given condition. To deny respondent the privilege to withhold 15% would run counter to the spirit and intent of the law and will adversely affect the foreign corporations’ interest and discourage them from investing capital in our country.
*Petition dismissed for lack of merit.
