On June 23, 2016, BIR issued Revenue Memorandum Order (RMO) No. 27-2016 to provide new procedures in claiming preferential tax treaty benefits on dividend, interest and royalty income of non-residents sourced within the Philippines pursuant to effective tax treaties, amending RMO No. 72-2010.
Among the guidelines and policies are:
- In lieu of the mandatory tax treaty relief application (TTRA), preferential treaty rates for dividends, interests and royalties are granted outright by withholding final taxes at applicable treaty rates.
- Withholding agents should file the appropriate BIR Form Nos. 1601-F and 1604-CF as provided by existing regulations. Incomplete information provided on the form shall be a ground for denial of availment of the preferential treaty rates and disallowance of the pertinent expense of the withholding agent.
- Applications for ruling under tax sparing rule of the Tax Code for a preferential rate of 15% on inter-corporate dividends paid to a non-resident foreign corporation (NRFC) shall apply to the NRFC which country of residence/domicile:
- Has no effective tax treaty with the Philippines;
- Has a worldwide system of taxation; and
- Allows credit against the tax due from the NRFC dividend taxes deemed to have been paid in the Philippines equivalent to 15%.
- In the availment of preferential treaty rates, BIR Form Nos. 1601-F and 1604-CF should be timely filed before the appropriate revenue district office where the domestic withholding agents of non-residents are registered. Payment of pertinent final taxes due shall be made to an authorized agent bank.
- In the event of an audit investigation, a list of supporting documents withholding agents should keep for substantiation of the claim for preferential treaty rates are also provided.
- In availing of the reduced rate of 15% on inter-corporate dividends received by an NRFC under , the NRFC shall file a separate application with the BIR-ITAD (BIR International Tax Affairs Division) with supporting documents.
- Any violation of the provisions of this Order shall be subject to penalties provided in Section 250 and other pertinent provisions of the Tax Code.
- For income other than dividends, interest and royalties, the provisions contained in and procedures required in RMO No. 72-2010 shall continue to apply, and obtaining a ruling shall still be required.
- All applications for preferential treaty rates on dividends, interest and royalties already filed before the ITAD prior to the effectivity of this Order shall still be processed and the corresponding ruling shall be issued.
RMO No. 27-2016 provides that the applicable preferential treaty rates for dividends, interest and royalty are granted outright by withholding final taxes at the proper tax treaty rates thereby amending RMO No. 72-2010. This means that RMO No. 27- 2016 recognized the immediate or instant application of the treaty rates for these income types. A compliance check on withholding tax obligation and confirmation of the appropriateness of claiming treaty benefits shall be part of the BIR regular audit investigation conducted by the Revenue District Office (RDO) where the domestic withholding agent is registered.