March 8, 2007

BIR RULING [DA-145-07]

208-89

SM Investment Corporation
SM Corporate Offices, Building A
1000 Bay Boulevard
SM Central Business Park
Bay City, Pasay City

Attention: Ms. Cecille R. Patricio

Vice President
Corporate Tax Division

Gentlemen :

This refers to your letter dated December 27, 2006 requesting for
confirmation of your opinion that the cash dividends declared by SM Investment
Corporation (SM Investments), a Philippine domestic corporation whose shares of
stock are traded and listed in the Philippine Stock Exchange (PSE), to Asia
Opportunities Limited (Asia Opportunities), a corporation organized and existing
under the laws of the British Virgin Island (BVI), are subject to 15% preferential
withholding tax pursuant to Section 28 (B) (5) (b) of the Tax Code of 1997, as
amended by Republic Act (R.A.) No. 9337.

In reply thereto, please be informed that Section 2 of R.A. No. 9337 reads
as follows:

"SEC. 2. Section 28(A)(1) and (B)(1) and (5)(b) of the same

Code, as amended, are hereby further amended to read as follows:

SEC. 28. Rates of Income Tax on Foreign Corporations.

xxx xxx xxx

(B) Tax on Nonresident Foreign Corporation.

xxx xxx xxx

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 (5) Tax on Certain Incomes Received by a Nonresident
Foreign Corporation.

xxx xxx xxx

(b) Intercorporate Dividends. A final withholding tax

at the rate of fifteen percent (15%) is hereby imposed on the
amount of cash and/or property dividends received from a
domestic corporation, which shall be collected and paid as
provided in Section 57(A) of this Code, subject to the
condition that the country in which the nonresident foreign
corporation is domiciled, shall allow a credit against the tax
due from the nonresident foreign corporation taxes deemed
to have been paid in the Philippines equivalent to twenty
percent (20%), which represents the difference between the
regular income tax of thirty-five percent (35%) and the
fifteen percent (15%) tax on dividends as provided in this
subparagraph: Provided, That effective January 1, 2009, the
credit against the tax due shall be equivalent to fifteen
percent (15%), which represents the difference between the
regular income tax of thirty percent (30%) and the fifteen
percent (15%) tax on dividends;

xxx xxx xxx"

This Office had already occasioned to rule on the matter, when it said in
BIR Ruling No. 208-89 dated September 28, 1989, as follows:

"Generally, under the above-quoted Section 24(b)(5)(B) of the Tax

Code, as amended, dividend paid to a non-resident foreign corporation is
subject to withholding tax at the rate of 35%. However, if the country
where the non-resident foreign corporation is domiciled allows a credit
against the tax due from the non-resident corporation taxes deemed to have
been paid in the Philippines in an amount equivalent to 20% of such
dividend, or does not subject such dividend to taxation, then dividend paid
to such non-resident foreign corporation are taxed only at the rate of 15%.
TAEDcS

Thus, since the International Business Companies Ordinance of the

Territory of the British Virgin Islands . . . does not impose any tax on
dividend received from foreign sources, which logically would include
those received from Philippine corporations by foreign corporations
domiciled therein, then said cash dividend . . . is subject only to the
preferential withholding tax rate of 15% imposed under then Section
25(B)(5)(B) of the Tax Code, as amended (now Section 28(B)(5)(b) of the

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 Tax Code of 1997)."

SUCH BEING THE CASE, this Office hereby confirms your opinion that
the cash dividends received by Asia Opportunities from SM Investments, a
Philippine domestic corporation are subject to the 15% preferential withholding
tax rate imposed under Section 28(B)(5)(b) of the Tax Code of 1997, as amended
by R.A. No. 9337.

This ruling is being issued on the basis of the foregoing facts as

represented. However, if upon investigation, it will be disclosed that the facts are
different, then this ruling shall be considered null and void.

Very truly yours,

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service

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