RMO No. 27-2016: Prescribes the procedures for claiming tax treaty benefits for dividend, interest and royalty income of non-resident income earners

Key points

1. Outright treaty rates. Instead of mandatory tax treaty relief applications, withholding agents apply the treaty rates for dividends, interest and royalties directly when withholding final taxes. The applicable rates are in Annex A of the Order.
2. Forms and payment. Withholding agents file BIR Form No. 1601-F and 1604-CF with the RDO where the domestic withholding agent is registered. Final taxes are paid to Authorized Agent Banks.
3. Penalties for incomplete forms. Incomplete information brings penalties under Section 250 and other provisions of the NIRC, as amended. Inaccurate or incomplete information on the two forms is a ground to deny the preferential treaty rates and disallow the withholding agent’s related expenses.
4. Monitoring and audit. ITAD and RDO No. 9 monitor the data from the forms for risk analysis, policy, treaty negotiating positions and management reports. Checking withholding obligations and treaty availment is part of regular audits by the RDO. Withholding agents keep the supporting documents specified in the Order under Revenue Regulations No. 5-2014.
5. 15% rate on intercorporate dividends. Applications for a ruling under Section 28 B (5) (b) of the NIRC apply to an NRFC whose country of residence has no effective tax treaty with the Philippines, has a worldwide system of taxation, and allows a credit for the 15% dividend taxes deemed paid in the Philippines. The NRFC files a separate application with ITAD with an application letter, authenticated proof of residency, a consularized copy of the foreign law, a Corporate Secretary certification and a Special Power of Attorney, if applicable.
6. Scope and pending applications. The Order covers only dividends, interest and royalties. Other income such as business profit and income from services remains under RMO No. 72-2010, which still requires a ruling. Applications already filed with ITAD before the Order took effect will still be processed and ruled on.

Who is affected

• Withholding agents of non-residents
• Non-resident income earners receiving dividends, interest and royalties
• NRFCs claiming the 15% intercorporate dividend rate