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BIR issued RMO 27-2016 (dated June 23, 2016) providing that the mandatory tax treaty relief application no longer applies to dividends, interest and royalties. The RMO stated that filing of tax treaty relief application still applies to all other types of income.

The RMO, however, prescribed the new requirement of filing with the International Tax Affairs Division (ITAD) of the BIR a separate application for the availment of the 15% preferential tax on intercorporate dividends based on Section 28(B)(5)(b) of the Tax Code, instead of the regular 30% corporate tax. Among the requirement is the submission of a copy of the law of the country of the non-resident foreign corporation, expressly stating that the country in which such nonresident is domiciled allows a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in the Philippines equivalent to 15%. This certificate is oftentimes difficult to obtain or unavailable.

It should be noted that the benefit granted under Section 28(B)(5)(b) of the Tax Code recognizes the reciprocal benefit, whether in the form of exemption, credit or deemed credit, granted by other countries on dividends earned by their residents from Philippine sources. In several court decisions and BIR rulings, such reciprocal benefit has been confirmed to have been granted by certain countries, including tax haven countries like Hong Kong and the Cayman Islands. This new RMO, however, would in effect ignore previously-established rulings or decisions, and definitely make the availment difficult.

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