PROVIDING FOR THE TAX TREATMENT OF INTERCOMPANY DIVIDENDS, AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE FOR THE PURPOSE

• Number: Presidential Decree No. 369
• Sections: 7

Preamble

WHEREAS, it is imperative to adopt measures responsive to

the requirements of a developing economy foremost of which is the

financing of economic development programs;

WHEREAS, nonresident foreign corporations with investments

in the Philippines are taxed on their earnings from dividends at the

rate of 35%;

WHEREAS, in order to encourage more capital investment for

large projects an appropriate tax need be imposed on dividends received

by nonresident foreign corporations in the same manner as the tax

imposed on interest on foreign loans;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers in me vested by the Constitution as

Commander-in-Chief of all the Armed Forces of the Philippines, and

pursuant to Proclamation No. 1081, dated September 21, 1972, and General

Order No. 1, dated September 22, 1972, as amended, do hereby order and

decree as follows:

Section 1

SECTION 1. The first paragraph of subsection (b) of Section

24 of the National Internal Revenue Code, as amended, is hereby further

amended to read as follows:

"(b) Tax on foreign corporations. — (1) Nonresident

corporation. — A foreign corporation not engaged in trade or

business in the Philippines, including a foreign life insurance company

not engaged in the life insurance business in the Philippines, shall pay

a tax equal to 35% of the gross income received during its taxable year

from all sources within the Philippines, as interest (except interest

on foreign loans which shall be subject to 15% tax), dividends, rents,

royalties, salaries, wages, premiums, annuities, compensations,

remunerations for technical services or otherwise, emoluments or other

fixed or determinable, annual, periodical or casual gains, profits, and

income, and capital gains: Provided, however, That premiums

shall not include reinsurance premiums: Provided, further, That

cinematographic film owners, lessors, or distributors, shall pay a tax

of 15% on their gross income from sources within the Philippines: Provided,

still further, That on dividends received from a domestic

corporation liable to tax under this Chapter, the tax shall be 15% of

the dividends received, which shall be collected and paid as provided in

Section 2

SEC. 2. Subsection (d) of Section 24 of the National

Internal Revenue Code, as amended by Presidential Decree No. 299-A, is

hereby further amended to read as follows:

"(d) Rate of tax on certain dividends. — Dividends

received by a domestic or resident foreign corporation from a domestic

corporation liable to tax under this Chapter shall be subject to tax at

8.75% on the total amount thereof, which shall be collected and paid as

provided in Sections 53 and 54 of this Code."

Section 3

SEC. 3. Subsection (d) of Section 53 of the National

Internal Revenue Code, as amended by Presidential Decree No. 299-A, is

hereby further amended to read as follows:

"(d) Withholding tax on certain dividends. — The tax

imposed under Section 24 (b) (1) and (d) of this Code on dividends shall

be withheld by the payor corporation and paid in the same manner and

subject to the same conditions as provided in Section 54 of this Code."

Section 4

SEC. 4. The Commissioner of Internal Revenue shall

promulgate the rules and regulations to implement this Decree subject to

the approval of the Secretary of Finance.

Section 5 Effectivity.

SEC. 5. Effectivity. — This Decree shall take effect

on January 1, 1974.

Done in the City of Manila, this 9th day of January, in the year

of Our Lord, nineteen hundred and seventy-four.

(Sgd.) FERDINAND E. MARCOS

President

Republic of the Philippines

By the President:

(Sgd.) ROBERTO V. REYES

Assistant Executive Secretary

Section 53

Section 53(d) 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 20%

which represents the difference between the regular tax (35%) on

corporations and the tax (15%) on dividends as provided in this Section:

Provided, finally, That regional or area headquarters

established in the Philippines by multinational corporations and which

headquarters do not earn or derive income from the Philippines and which

act as supervisory, communication and coordinating centers for their

affiliates, subsidiaries or branches in the Asia-Pacific Region shall

not be subject to tax."