Article 11, DIVIDENDS

Paragraph (1) provides that dividends derived from sources within one Contracting State by a resident of the other Contracting State may be taxed by both Contracting States, However, paragraph (2) limits the rate of tax imposed by the Contracting State of source to a rate not in excess of 25 percent of the gross amount of the dividends, If the dividend recipient is a corporation, the rate of tax imposed by the Contracting State of source may not exceed 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior tax­ able year (if any), at least 10 percent of the outstanding voting stock of the paying corporation was owned by the recipient corporation. These rate limitations do not affect the taxation of profits of the corporation which pays the dividends,

Paragraph (3) provides that dividends paid by a corporation of one of the Contracting States to a person other than a citizen or resident of the other Contracting State may be taxed by that other Contracting State only in limited circumstances, Such other Contracting State may impose tax if the dividends are treated as income from sources in that State under paragraph (l)(b) of Article 4 (Source of Income), but only on the portion of the dividend which is deemed to be income from sources within the other Contracting State, Moreover, the Philippines may only tax such a dividend if the Philippine branch profits tax described in paragraph (6) has not been paid with respect to the earnings distributed, In addition, the other Con­ tracting State may impose tax if the recipient of the dividend has a permanent establishment or a fixed base in the State and the holding in respect of which the dividends are paid is effectively connected with such permanent

establishment or fixed base.

Paragraph (4) provides that the limitations of paragraph (2) shall not apply if the recipient of the dividends derived from sources within a Contracting State, being a resident of the other Contracting State, carries on business in the first-mentioned Contracting State through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein,

and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base, In such a case, the dividends shall be treated as business profits subject to the provisions of Article 8 (Business Profits) or income from the per­ formance of independent personal services subject to the provisions of