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December 3, 1980 REVENUE MEMORANDUM CIRCULAR NO. 55-80 Subject : 1705.

To : Publishing Section 24(b) (2) (b) of the National Internal Revenue Code, as amended by Presidential Decree No.

All Internal Revenue Officers and Others Concerned.

For the information and guidance of all concerned, Section 24(b) (2) (b) of the Tax Code, as amended by P.D. No. 1705, is quoted as follows: "(b) Tax on branch profits remittances. — Any profit remitted abroad by a branch office to its mother company shall be subject to a tax of fifteen (15%) per cent (Except those registered with the Export Processing Zone Authority): Provided, that, any profit remitted by a branch office to its mother company authorized to engage in petroleum operations in the Philippines shall be subject to tax at seven and one-half (7.5%) per cent; And provided, further that fixed or determinable annual periodical gains, profits, and income or certain gains described in Section 24(b) (1) or 53(b)(2) of this code shall not be considered as branch profits unless the same are effectively connected with the conduct of a trade or business in the Philippines by foreign corporation." cdtai FEATURES OF THE AMENDMENT Two (2) amendments to Sec. 24(b) (2) (b) of the 1977 Tax Code on branch profit remittances have been effected by P.D. No. 1705. They are: 1. Reduction of the tax rate on the profits remitted by a branch office to its mother company authorized to engage in petroleum operations. — The tax on profits remitted by a branch office to its mother company authorized to engaged in petroleum operations in the Philippines has been reduced to 7.5%. 2. Imposition of a branch profits tax on income effectively connected with business. — Fixed or determinable annual periodical gains, profits, and income on certain gains described in Section 24 (b)(1) or 53(b) (2) of the 1977 Tax Code, (i.e. income earned from Philippine sources by non-resident foreign corporations) are generally not considered branch profits subject to the 15% remittance tax unless the same are effectively connected with the conduct of a trade or business in the Philippines by the foreign corporation. To be "effectively connected" it is not necessary that the income be derived from the actual operation of taxpayer-corporation's trade or business; it is sufficient that the income arises from the business activity in which the corporation is engaged. casia For example, if a resident foreign corporation is engaged in the buying and selling of machineries in the Philippines and invests in some shares of stock on which dividends are subsequently received, the dividends thus earned are not considered effectively connected with its trade or business in this country. On the other hand, if a resident foreign corporation with a branch office in the Philippines engaged in the canning business allows its trade name or brand to be used and royalties are received by its parent company, such royalties which constitute passive income, are effectively connected with its trade or business and should be subject to tax, if remitted abroad. Effectivity. — The foregoing amendment took effect upon the promulgation of P.D. No. 1705 on August 1, 1980. Enforcement. — It is desired that this Circular be given as wide a publicity as possible. cdasia RUBEN B. ANCHETA Acting Commissioner

C o p y r i g h t 2 0 0 2 C D T e c h n o l o g i e s A s i a, I n c.

11-04-1980 Revenue Memorandum Circular No. 54-80 Loss of One (1) Pad of Revenue Official Receipts