CIR VS PROCTER AND GAMBLE PHILIPPINE MANUFACTURING CORPORATION (204 SCRA 377)

FACTS:

Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder,
P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the
BIR which amounted to Php 8.3M It subsequently filed a claim with the Commissioner of Internal
Revenue for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal
Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on
the dividends remitted was only 15%.

ISSUE:

Whether or not P&G Philippines is entitled to the refund or tax credit.

HELD:

YES. P&G Philippines is entitled.

Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to
non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF he
country of domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax
credit for “taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary
country by the foreign stockholder corporation. However, such tax credit for “taxes deemed paid in the
Philippines” MUST, as a minimum, reach an amount equivalent to 20 percentage points which
represents the difference between the regular 35% dividend tax rate and the reduced 15% tax rate.
Thus, the test is if USA “shall allow” P&G USA a tax credit for ”taxes deemed paid in the Philippines”
applicable against the US taxes of P&G USA, and such tax credit must reach at least 20 percentage
points. Requirements were met.