PROVIDING FOR THE TAX TREATMENT OF INTERCOMPANY DIVIDENDS, AMENDING CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE FOR THE PURPOSE

WHEREAS, it is imperative to adopt measures responsive to
the requirements of a developing economy foremost of which is the
financing of economic development programs;

WHEREAS, nonresident foreign corporations with investments
in the Philippines are taxed on their earnings from dividends at the
rate of 35%;

WHEREAS, in order to encourage more capital investment for
large projects an appropriate tax need be imposed on dividends received
by nonresident foreign corporations in the same manner as the tax
imposed on interest on foreign loans;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers in me vested by the Constitution as
Commander-in-Chief of all the Armed Forces of the Philippines, and
pursuant to Proclamation No. 1081, dated September 21, 1972, and General
Order No. 1, dated September 22, 1972, as amended, do hereby order and
decree as follows:

SECTION 1. The first paragraph of subsection (b) of Section
24 of the National Internal Revenue Code, as amended, is hereby further
amended to read as follows:

“(b) Tax on foreign corporations. — (1) Nonresident
corporation. — A foreign corporation not engaged in trade or
business in the Philippines, including a foreign life insurance company
not engaged in the life insurance business in the Philippines, shall pay
a tax equal to 35% of the gross income received during its taxable year
from all sources within the Philippines, as interest (except interest
on foreign loans which shall be subject to 15% tax), dividends, rents,
royalties, salaries, wages, premiums, annuities, compensations,
remunerations for technical services or otherwise, emoluments or other
fixed or determinable, annual, periodical or casual gains, profits, and
income, and capital gains: Provided, however, That premiums
shall not include reinsurance premiums: Provided, further, That
cinematographic film owners, lessors, or distributors, shall pay a tax
of 15% on their gross income from sources within the Philippines: Provided,
still further, That on dividends received from a domestic
corporation liable to tax under this Chapter, the tax shall be 15% of
the dividends received, which shall be collected and paid as provided in
Section 53(d) of this Code, subject to the condition that the country
in which the nonresident foreign corporation is domiciled shall allow a
credit against the tax due from the nonresident foreign corporation,
taxes deemed to have been paid in the Philippines equivalent to 20%
which represents the difference between the regular tax (35%) on
corporations and the tax (15%) on dividends as provided in this Section:
Provided, finally, That regional or area headquarters
established in the Philippines by multinational corporations and which
headquarters do not earn or derive income from the Philippines and which
act as supervisory, communication and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region shall
not be subject to tax.”

SEC. 2. Subsection (d) of Section 24 of the National
Internal Revenue Code, as amended by Presidential Decree No. 299-A, is
hereby further amended to read as follows:

“(d) Rate of tax on certain dividends. — Dividends
received by a domestic or resident foreign corporation from a domestic
corporation liable to tax under this Chapter shall be subject to tax at
8.75% on the total amount thereof, which shall be collected and paid as
provided in Sections 53 and 54 of this Code.”

SEC. 3. Subsection (d) of Section 53 of the National
Internal Revenue Code, as amended by Presidential Decree No. 299-A, is
hereby further amended to read as follows:

“(d) Withholding tax on certain dividends. — The tax
imposed under Section 24 (b) (1) and (d) of this Code on dividends shall
be withheld by the payor corporation and paid in the same manner and
subject to the same conditions as provided in Section 54 of this Code.”

SEC. 4. The Commissioner of Internal Revenue shall
promulgate the rules and regulations to implement this Decree subject to
the approval of the Secretary of Finance.

SEC. 5. Effectivity. — This Decree shall take effect
on January 1, 1974.

Done in the City of Manila, this 9th day of January, in the year
of Our Lord, nineteen hundred and seventy-four.