CIR vs Marubeni

The dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are
not income arising from the business activity in which Marubeni Corporation is engaged.
Accordingly, said dividends if remitted abroad are not considered branch profits subject
to Branch Profit Remittance Tax.

Facts:
Marubeni Corporation is a Japanese corporation licensed to engage in business in the
Philippines. When the profits on Marubeni’s investments in Atlantic Gulf and Pacific Co.
of Manila were declared, a 10% final dividend tax was withheld from it, and another 15%
profit remittance tax based on the remittable amount after the final 10% withholding tax
were paid to the Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or
tax credit for the amount which it has allegedly overpaid the BIR.

Issues and Ruling:

1. Whether or not the dividends Marubeni Corporation received from Atlantic Gulf and
Pacific Co. are effectively connected with its conduct or business in the Philippines as to
be considered branch profits subject to 15% profit remittance tax imposed under Section
24(b)(2) of the National Internal Revenue Code.

NO. Pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits remitted
abroad by a branch office to its head office which are effectively connected with its trade
or business in the Philippines are subject to the 15% profit remittance tax. The dividends
received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are not income
arising from the business activity in which Marubeni Corporation is engaged.
Accordingly, said dividends if remitted abroad are not considered branch profits for
purposes of the 15% profit remittance tax imposed by Section 24(b)(2) of the Tax Code,
as amended.

2. Whether Marubeni Corporation is a resident or non-resident foreign corporation.


Marubeni Corporation is a non-resident foreign corporation, with respect to the
transaction. Marubeni Corporation’s head office in Japan is a separate and distinct
income taxpayer from the branch in the Philippines. The investment on Atlantic Gulf and
Pacific Co. was made for purposes peculiarly germane to the conduct of the corporate
affairs of Marubeni Corporation in Japan, but certainly not of the branch in the
Philippines.

3. At what rate should Marubeni be taxed?


15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in conjunction
with the Philippine-Japan Tax Treaty of 1980. As a general rule, it is taxed 35% of its
gross income from all sources within the Philippines. However, a discounted rate of 15%
is given to Marubeni Corporation on dividends received from Atlantic Gulf and Pacific
Co. on the condition that Japan, its domicile state, extends in favor of Marubeni
Corporation a tax credit of not less than 20% of the dividends received. This 15% tax rate
imposed on the dividends received under Section 24(b)(1)(iii) is easily within the
maximum ceiling of 25% of the gross amount of the dividends as decreed in Article
10(2)(b) of the Tax Treaty.

Note: Each tax has a different tax basis.
Under the Philippine-Japan Tax
Convention, the 25% rate fixed is the maximum rate, as reflected in the phrase “shall not
exceed.” This means that any tax imposable by the contracting state concerned hould not
exceed the 25% limitation and said rate would apply only if the tax imposed by our laws
exceeds the same.