The Philippines Issues Restraining Order on Investor Disclosure Rules
On September 9th, the Philippines’ Supreme Court issued a temporary restraining order on the Bureau of Internal Revenue (BIR), which prevented it from enforcing regulations requiring withholding agents to submit lists of their investors receiving taxable income. These regulations were laid out in Revenue Regulations (RR) No. 1-2014, which were promulgated earlier this year.
This recent restraining order is the result of a petition for nullification organized by Philippine associations representing banks, fund managers, security brokers and dealers, trust officers and the Philippine Stock Exchange.
One of the key problems highlighted by the petition organizers centered on the issue of dividend income payments to their investors. Under Revenue Regulations (RR) No. 1-2014, listed companies were unable to use the PCD Nominee Corporation (PCD Nominees) as the paying agent of their dividends. This regulation was thus seen as an attempt by the government to force the companies to disclose the details of their investors.
In its quest to clarify the rules for investors, on September 12 the BIR issued Revenue Memorandum Circular No. 73-2014, which stated that, with regards to payment of dividends to Philippine Central Depository Nominees (PCD), companies must withhold the appropriate tax payments.
In the case that the investor is a PCD Nominee Filipino, the payment should be the net of a ten percent final withholding tax. However, this does not apply in the case that the recipient of the payment is a company.
For a PCD Nominee non-Filipino investor, they will be classified as a non-resident foreign corporation and will pay a final withholding tax of 30 percent. However, this will not apply if it can be shown that the investor is one of the following:
- A resident alien
- A non-resident alien, regardless of whether they are engaged or not engaged in a business in the Philippines
- A resident foreign corporation
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