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A parent company inquires whether dividends received directly from a subsidiary and indirectly through another company are exempt from Corporate Income Tax and whether withholding is required. The DGT responds that the exemption applies in both cases and that there is no obligation to perform withholding.
Question posed: Application of the exemption under Article 21 of the Corporate Income Tax Law to dividend income received by X from its subsidiary Y, and whether the same must be subject to withholding.
The exemption under Article 21.1 of the LIS applies to dividends received directly from entity Z, as the requirements regarding acquisition value and holding period are met. Likewise, the exemption applies to dividends from Z received indirectly through Y, as the parent company meets the requirements for direct participation in Z. Therefore, there is no obligation to withhold dividends that qualify for said exemption, pursuant to Article 128.4.d) of the LIS.
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