BIR waives TTRA requirement for interest, dividend and royalties

(Revenue Memorandum Order No. 27-2016)

This Tax Alert is issued to announce the relaxed rules in applying preferential tax rates under tax treaties.

The treaty rates on interest, dividend and royalties can now be withheld and remitted without need to file a tax treaty relief application (TTRA).

The withholding agent/Philippine payor, however, has to retain the documents enumerated in the RMO, which are the same documents prescribed for TTRA . Correctness of the rate shall be confirmed during regular BIR audit.

Enhanced withholding forms BIR forms 1601F and 1604CF will be issued to capture relevant information which the BIR can use for risk assessment and selection for audit.

The RMO, on the other hand, clarifies that a ruling must be applied with the BIR ITAD to avail of the 15% preferential rate on dividends under the tax sparing proviso in Sec 28(B)(5)(b) of the Tax Code for dividend recipients who are not residents of treaty countries. Under this Section, dividends paid to a nonresident shareholder can be subject to a lower rate of 15% if the country of residence of the nonresident foreign corporation allows a credit of 15% against the tax due on Philippine-sourced dividends. The 15% rate also applies if the said country does not tax foreign-sourced dividends.