Tax court rules on dividend tax

The Court of Tax Appeals (CTA) has ruled that local government units (LGUs) cannot impose dividend tax on gross receipts or sales of holding companies.

In a 16-page resolution, the court's Second Division reversed the decision of the Regional Trial Court of Makati subjecting the dividend income of Pacific Assets Holdings Corporation (PAHC) to taxation.

The court ordered the Makati City treasurer's office to return the erroneously paid tax in 2010 amounting to some R6.8 million.

The RTC based its ruling on Section 3A-02 of the Revised Makati Revenue Code which allegedly prescribed the payment, equivalent to 20 percent of the one percent on its gross sales.

The tax court, however, said LGUs are authorized only to collect dividend tax from banks and other financial institutions but not holding companies as mandated under Section 133 of the Local Government Code.