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69 would run counter to the very spirit and intent of said law
and definitely will adversely affect foreign corporations interest
and discourage them from investing capital in our country
(Commissioner vs Wander Philippines, Inc). The same rule
applies to Hongkong, which country does not impose income
tax on dividends paid by Philippine companies.
-Tax-Sparing Credit - Tax reduced by the Philippines should be
fully applied or credited to the tax on dividend
income received by the non-resident foreign
corporation imposed by the country of its domicile. This serves
as an incentive by reducing their tax liability in the Philippines
and in their residence countries.
Ex. Domestic corporation paid cash dividend to non-resident
foreign corporation (NRFC) organized in Brazil. This shall form
part of NRFCs income therefore taxable also in Brazil. The
dividend received shall only be taxed at 15% in the Phils
(instead of 35%) if Brazil will reduce/credit at least 20% of the
tax imposed in the Phils. from its tax imposed in Brazil. [See
Section 28(5)(b)]
If Brazil will credit/reduce less than 20% or will not credit any
amount, then the Phils will tax the dividend at 35% (ordinary
income tax).
Phils. cannot give more than 15% tax credit
because the law only allows such.
Dividend paid to foreign head office of a Philippine branch
The Supreme Court ruled that a single corporate entity cannot
be both a resident and a non-resident corporation depending
on the nature of the particular transaction involved.
Accordingly, where the dividends are paid directly to the head
office or coursed through its local branch is of no moment for
after all, the head office and the office branch constitute but
one corporate entity, the Marubeni Corporation, under both
Philippine tax and corporate laws, is a resident foreign
corporation because it is transacting business in the
Philippines
The Court explained that the 25% tax rate under the tax treaty
with Japan could not be imposed, as the treaty provides that
the rate of tax shall not exceed 25%. In other words, the 25%
would apply only if the tax imposed under the tax codeexceeds
25% limitation. In this connection, Section 24 (b)(1)(iii) of the
Tax Code provides that dividends received by a non-resident
foreign corporation would be taxed at 15%if its state of
domicile shall allow a credit against tax deemed paid in the
TREASURY SHARES
Stocks issued and fully paid for and re-acquired by the
corporation either by purchase, donation, forfeiture or other
means
May be re-issued and sold again as long as they are held by
the corporation as such
Treasury stocks distributed as stock dividends by a corporation
to its stockholders are not taxable to the recipients upon
receipt thereof, because out income tax law adopted the
change in the proportionate interests as the test in the
taxability of stock dividends.
Stockholders may realize income only upon their subsequent
sale
ROYALTY INCOME
Software is a program or series of programs containing
instructions for a computer required either for the operational
processes of the computer itself (operational software) or the
accomplishment of other tasks (application software).
Royalties is a payment of any kind received as a
consideration for the use of or the right to use, any copyright of
literary, artistic or scientific work
It covers both payments made under a license and
compensation which a person would be obliged to pay for
fraudulently copying or infringing the copyright over software.
Transactions involving software:
a. A (full or partial) transfer of a copyright right in software
b. A transfer of copy of the software
c. A provision of services for the development or
modification of the software
d. The provision of know-how relating to software
programming techniques.
* Any transaction involving software which consists of more than
one of the transactions above shall be treated as a separate action.
Characterization of Transactions
a. Transfer of copyright rights
i. The right to make copies of the software for purposes of
distribution to the public by sale or other transfer of ownership, or
by rental, lease or lending
ii. The right to make derivative computer programs based
upon the copyrighted software
iii. The right to make a public performance of the software
iv. The right to publicly display the computer program or