New Procedures for Claiming Tax Treaty Benefits for Dividends, Interest, and Royalty Income
The Bureau of Internal Revenue has issued new procedures to claim preferential tax treaty benefits for nonresidents covered by tax treaties signed by the Philippines with other countries. Non-residents may now enjoy preferential withholding tax rates for dividends, interest, and royalty earnings from domestic sources.
BIR Commissioner Caesar Dulay approved and signed Revenue Memorandum Order (RMO) 8-2017 which amended the provisions of RMO 72-2010. The order classified nonresidents into two categories: (1) Nonresident alien not engaged in trade or business (NANETB) and (2) Nonresident foreign corporations. The general policies and guidelines discussed key changes which include:
- The mandatory tax treaty relief applications (TTRA) shall no longer be filed with the International Tax Affairs Division and should instead be used outright by the withholding tax agent;
- Nonresidents are allowed to use the prescribed certificate of residency of their country but would still have to accomplish A, B, and C of the Certificate of Residence for Tax Treaty Relief (CORTT)
- For dividend income purposes, the CORTT form shall be valid for two (2) years from date of issuance.
- Withholding agents or income payors can withhold at a reduced rate or exempt the nonresident based on the duly accomplished CORTT Form submitted to them.
- Failure to submit CORTT means the nonresident is not claiming any tax treaty relief and will be subject to the normal rates under the National Internal Revenue Code of 1997.
- The ITAD and RDO No. 39 shall be in charge of receiving and recording information stated in the CORTT.
- Pertinent information from the CORTT shall be accummulated and monitored by ITAD and RDO No. 39.
- Compliance and post reporting validation shall be part of BIR’s regular audit investigations conducted by the RDO.
The actual procedures stated in Section 6 highlighted the following steps:
- Nonresidents claiming the tax relief shall submit a duly accomplished CORTT Form (Part 1 and II) or the Prescribed Certificate of Residency with Part I (A, B, and C) and II of the CORTT form prior to payment or credit of the income.
- The withholding tax agent shall file BIR Form 1601-F and BIR Form 1604-CF and pay the withholding taxes.
- The withholding agent shall submit original copies of CORTT or prescribed certificate of residency with Part I (A, B, and C) and II of the CORTT Form to ITAD and RDO No. 39 within 30 days after payment.
- The withholding agent shall submit an updated part II of the CORTT form within 30 days after payment of withholding taxes due in the following cases:
- If the CORTT Form filed is used for another dividend payment within its prescribed period of validity; and
- In case of staggered payment of interest and royalty income.
The Philippines currently has a total of 40 effective tax treaties with two more treaties for implementation and two pending ratification. The main highlight of this new memorandum order is that the claiming party can enjoy outright application of the tax relief instead of having to file for the benefit to the International Tax Affairs Division of the BIR. The CORTT forms are also newly created by the BIR which replaces the old 0901 forms for dividends, interest, and royalty incomes.
The statements in this article are excerpts only of the actual Memorandum Order. To further understand these benefits, make sure to consult credible Tax Lawyers in the Philippines. If you’re residing, have a business operating in the south of manila, or are planning to put up business in the Philippines and wish to see if you can avail of these preferential tax rates, you can engage the services of reputable Tax Lawyers in BGC, Philippines.