The Organic Act for the Department of Mindanao and Sulu

November 29, 2005 ITAD RULING NO. 148-05 Philippines-Japan Tax Treaty, Article 10 BIR Ruling No. DA-ITAD 034-05 Asian Transmission Corporation Carmelray Industrial Park Canlubang, Calamba City Laguna, Philippines Attention: Mr. Yoshihisa Hosaka SVP-Finance Gentlemen : This refers to your application for relief from double taxation dated September 15, 2005, requesting confirmation of your opinion that the dividends paid by Asian Transmission Corporation (ATC) to Mitsubishi Motors Corporation (MMC) and Sojitz Corporation (Sojitz) are subject to the preferential tax rate of 10% pursuant to Article 10(3) of the Philippines-Japan tax treaty. It is represented that MMC and Sojitz are nonresident foreign corporations organized and existing under the laws of Japan with addresses at 16-4, Konan 2-chome, Minato-ku, Tokyo, 108-8410, Japan and 1-20 Akasaka 6-chome Minato-ku, Tokyo, Japan respectively; that MMC and Sojitz are registered taxable persons of Japan as certified by Mr. Sumiaki Nomura; District Director of Shiba Tax Office on September 7, 2005 and Mr. Tsutomu Abe, District Director of Azabu Tax Office on August 26, 2005; that MMC and Sojitz are not registered either as a corporation or a partnership licensed to do business in the Philippines per certifications both dated August 30, 2005 issued by the Securities and Exchange Commission; that ATC is a corporation organized and existing under laws of the Philippines, with office address at Carmelray Industrial Park, Canlubang, Calamba City, Laguna, Philippines; that ATC is registered with the Board of Investments (BOI) on a preferred pioneer area of investment; that per certification issued by Mr. Roderick M. Tan, Corporate Secretary of ATC dated September 27, 2005, MMC and Sojitz's percentage of ownership of shares of stock in ATC as of June 16, 2005, are as follows: # of Shares Amount Mitsubishi Motors Corporation 185,000 P18,515,000.00 Sojitz Corporation 185,000 18,515,000.00 Mitsubishi Motors Philippines Corporation 2,779,700 277,970,000.00 ATC Retirement Plan Inc. 350,000 35,000,000.00 TOTAL 3,500,000 P350,000,000.00 and that on July 13, 2005, the Board of Directors of ATC approved and declared cash dividends in the total amount of One Hundred Twenty Million Pesos (Php120,000,000.00) to stockholders on record as of December 31, 2004 payable on or before December 15, 2005. DTAHEC In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides: "Article 10 1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State. 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent either of the voting shares of the company paying the dividends or of the total shares issued by that company during the period of six months immediately preceding the date of payment of the dividends; b) 25 per cent of the gross amount of the dividends in all other cases. The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. 3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the Philippines on the dividends paid by a company, being a resident of the Philippines, registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends, shall not exceed 10 per cent of the gross amount of the dividends . (Emphasis supplied) 4. The term 'dividends' as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation laws of the Contracting State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Japan at a rate not exceeding 10 percent if the last-mentioned company holds directly at least 25 percent of the voting shares or of the total shares of the first-mentioned company for a period of six months immediately preceding the date of payment of the dividends, or if the dividends are paid by a company who is registered with the Philippine Board of Investments and engaged in preferred pioneer areas of investment. aETASc In view thereof and considering that ATC is registered with the Philippine Board of Investments and engaged in preferred pioneer areas of investment, said. dividends to be paid by ATC to MMC and Sojitz are subject to the 10 percent preferential tax rate pursuant to Article 10(3) of the Philippines-Japan tax treaty. (BIR Ruling No. DA-ITAD 034-05 dated April 18, 2005) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service