The Philippine Bureau of Internal Revenue (BIR) removed the Tax Treaty Application (TTRA) for nonresident corporations availing the preferential withholding tax rates on dividends, interests & royalties earned from within the Philippines. Commissioner Caesar Dulay signed on 28 March 2017 Revenue Memorandum Order (RMO) 8 – 2017, effectively repealing RMO 7-2010 and all previous memos pertaining to dividends, interests & royalties. It has taken effect on 26 June 2017, 90 days after its signing.
Prior to RMO 8-2017, nonresident foreign corporations are required to file their Tax Treaty Relief Application (TTRA) at the International Tax Affairs Division (ITAD) of the BIR before they can avail of preferential withholding tax rates on dividends, interests, royalties, among other business profits. The complete mandatory requirements are set out in RMO 72-2010. This set of requirements have long been perceived onerous by various stakeholders taking months – even a few years to complete. The Philippines is a signatory to over 40 international tax treaties. Without an approved TTRA income payments from dividends, interest and royalties are subject to regular income tax rate at 30% in contrast to as low as 15% upon approval of the TTRA.
RMO 8-2017 prescribes the outright enjoyment of preferential treaty rates for nonresident foreign corporation income on dividends, interest and royalties (DIR) subject to post reporting validation. This is after subscribing to and submission of the new BIR Form Certificate of Resident for Tax Treaty (CORTT) (see annex 1). CORTT replaced the old 1901 Forms for DIR. It has two parts. Part 1 is for the nonresident entity to complete, to be signed by the competent Tax Authority of their country of residence. Nonresidents can also use the prescribed certificate of residency of their country but they will still have to submit the first part for monitoring purposes. Part II of the CORTT form is for the payor of the income to complete. It indicates the nature of income payments, amount and amount withheld.
While its enjoyment is outright, the benefit is subject to the compliance of both the income recipient and the income payor of the DIR. Incomplete, erroneous or misleading compliance of the CORTT of either party, and non-compliance of the 1604-F and 1604 CF by the payor of income, will invalidate the preferential rate, and the noncompliance will be subject to penalties as prescribed by the Philippine Tax Code.
The new RMO is in keeping with the Philippine government’s drive to improve Ease of Doing Business (EOBD). The Philippines is currently 99th among 190 countries per survey of World bank.