The capital cannot be distributed in the form of redemption of stock dividends

The capital cannot be distributed in the form of

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them as such. The capital cannot be distributed in the form of redemption of stock dividends without violating the trust fund doctrine. TAX6.11 Commissioner v. Procter & Gamble PMC FACTS: Procter and Gamble Philippines declared dividends payable to its parent company and sole stockholder, P&G USA. Such dividends amounted to Php 24.1M. P&G Phil paid a 35% dividend withholding tax to the BIR which amounted to Php 8.3M. It subsequently filed a claim with the Commissioner of Internal Revenue for a refund or tax credit, claiming that pursuant to Section 24(b)(1) of the National Internal Revenue Code, as amended by Presidential Decree No. 369, the applicable rate of withholding tax on the dividends remitted was only 15%. ISSUE: Whether or not P&G Philippines is entitled to the refund or tax credit. RULING: YES. P&G Philippines is entitled. Sec 24 (b) (1) of the NIRC states that an ordinary 35% tax rate will be applied to dividend remittances to non-resident corporate stockholders of a Philippine corporation. This rate goes down to 15% ONLY IF he country of domicile of the foreign stockholder corporation “shall allow” such foreign corporation a tax credit for “taxes deemed paid in the Philippines,” applicable against the tax payable to the domiciliary country by the foreign stockholder corporation. However, such tax credit for “taxes deemed paid in the Philippines” MUST, as a minimum, reach an amount equivalent to 20 percentage points which represents the difference between the regular 35% dividend tax rate and the reduced 15% tax rate. Thus, the test is if USA “shall allow” P&G USA a tax credit for ”taxes deemed paid in the Philippines” applicable against the US taxes of P&G USA, and such tax credit must reach at least 20 percentage points. Requirements were met.
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TAX.7.11. Commissioner v. Wander FACTS: Private respondents Wander Philippines, Inc. (wander) is a domestic corporation organized under Philippine laws. It is wholly-owned subsidiary of the Glaro S.A. Ltd. (Glaro), a Swiss corporation not engaged in trade for business in the Philippines. Wander filed its withholding tax return for 1975 and 1976 and remitted to its parent company Glaro dividends from which 35% withholding tax was withheld and paid to the BIR. In 1977, Wander filed with the Appellate Division of the Internal Revenue a claim for reimbursement, contending that it is liable only to 15% withholding tax in accordance with sec. 24 (b) (1) of the Tax code, as amended by PD nos. 369 and 778, and not on the basis of 35% which was withheld ad paid to and collected by the government. petitioner failed to act on the said claim for refund, hence Wander filed a petition with Court of Tax Appeals who in turn ordered to grant a refund and/or tax credit. CIR's petition for reconsideration was denied hence the instant petition to the Supreme Court.
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  • Taxation in the United States

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