Article 23. RELIEF FROM DOUBLE TAXATION

In order to avoid double taxation, each Contracting Statt g:. •es in this Article to provide to Its citizens or residents a credit agair,., .'8 taxes for taxes paid by such persons to the other Contracting State.

The United States agrees to allow a United States citizen or resi­ dent as a credit against United States tax the appropriate amount of taxes pal'tl or accrued to the Philippines in accordance with the provisions and

subject to the limitations or the law or the United States (as it may be amended from time to time without changing the general principle of paragraph (1 )). In addition, in the case of a United States corporation

owning at least 10 percent or the voting stock of a Philippine corporation Crom which it receives dividends in any taxable year, the United States will allow credit for the appropriate amount or taxes paid or accrued to the Philippines by the Philippine corporation paying such dividends with respect to the profits out of which such dividends are paid. The appro­ priate amount will be based upon the amount or tax paid or accrued to the

Philippines but the credit ls not to exceed the limitations (for the purpose of limiting the credit to the United States tax on Income from sources within the Philippines or on income from sources outside of the United States) provided by United States law for the taxable year. This provision does not require the United States to provide a per-country or overall limitation in the future so long as the general principle of a foreign tax credit remains in effect. For the purpose of applying the United States credit In relation to taxes paid or accrued to the Philippines, the rules set forth in Article 4 (Source or Income) will be applied to determine

the source of income, and the taxes referred to In paragraphs (l )(b) and (2) or Article 1 (Taxes Covered) will be considered to be income taxes.

P:ragraph (2) provides the general rule that the Philippines will allow a Philippine citizen or resident as a credit against Philippine tax the appropriate amount of income taxes paid or accrued to the United States and, in the case of a Philippine corporation owning at least 50 per­ cent of the voting stock or a United States corporation from which it re• ceives dividends in any taxable year, will also allow credit for the appropriate amount or taxes paid or accrued to the United States by the United States corporation paying such dividends with respect to the profits out of which such dividends are paid, The appropriate amount will be based upon the amount of tax paid or accrued to the United States but will not exceed the limitations (for the purpose of limiting the credit to the Philippine tax on income from sources within the United States and on income from sources outside the Philippines) provided by Philippine law for the taxable year. Under section 30(c)(4) or the Philippine Code, the Philippine foreign tax credit is subject to both the per-country and overall limitations. Cf course, the Philippines are not obligated to retain such limitations as long as the principle of a foreign tax credit is retained. . For the purpose of applying the Philippine credit in relation to taxes

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paid or accrued to the United States, the rules set !orth in Article 4

(Source or Income) will be applied to determine the source of income and the taxes referred to In paragraphs (1 )(a) and (2) or Article 1 (Taxes Covered) will be considered to be income taxes.

The general rule of paragraph (2). that citizens of the Philippines will be given a credit against Philippine tax !or income taxes paid or accrued to the United States. is subject to an exception contained in an Exchange of Notes between the Governments of the Philippines and the United States dated November 24. 1976. In that Exchange o! Notes. it was agreed that so long as the Philippine Government taxes the worldwide income o! Philippine citizens residing outside the Philippines at reduced rates o! 1. 2. or 3 percent. the Philippine Government may give a deduction rather than a credit to those citizens !or U.S. taxes paid. It was also agreed that in the event that those ·rates are increased. Article 23 would require the Philippine Government to grant their nonresident citizens a foreign tax credit !or U.S. taxes.