BIR Ruling [DA-030-98]

February 2, 1998 BIR RULING [DA-030-98] SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: F . C . Tagao Tax Division Gentlemen : This refers to your letter dated June 27, 1996 requesting on behalf of your client, Clarion Manufacturing Corporation of the Philippines (Clarion-Philippines), confirmation of your opinion that royalty payments to be made by your client to Clarion Co., Ltd. of Japan is subject to the preferential tax rate of 25% Philippine income/withholding tax pursuant to Article 12 of the RP-Japan Tax Treaty. cdta Documents submitted by Clarion-Philippines show that it is a domestic corporation organized and existing under the laws of the Philippines and duly registered as a Zone Export Enterprise at the Cavite Export Processing Zone under Certificate of Registration No. 89-047 dated October 13, 1989; that Clarion Co., Ltd. is a corporation organized and existing under the laws of Japan and is not licensed to do business in the Philippines; that on January 17, 1996, a Technological Assistance Agreement was executed by and between Clarion-Philippines and Clarion Co., Ltd. concerning the manufacture of car audio products and their accessories which agreement was registered with the Technology Transfer Registry, Department of Trade and Industry under Certificate of Registration No. 1793; and that as consideration thereof, the Licensee (Clarion-Philippines) shall pay to the Licensor (Clarion Co., Ltd.) an amount equal to three percent (3%) of the ex-factory price of the licensed products manufactured and sold by the former during the term of the Agreement. In reply, please be informed that pursuant to Article 12, paragraphs (1) and (2) of the RP-Japan Tax Treaty reading: " Article 12 "(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting state. "(2) However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that contracting state, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed: xxx xxx xxx (b) 25 per cent of the gross amount of the royalties in all other cases." the royalty payments to be made by Clarion-Philippines to Clarion Co., Ltd. shall be subject to 25% Philippine income/withholding tax based on the gross amount of the royalties. (BIR Ruling No. UN-234-94; DA-435-96) This ruling is being 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 considered null and void. cdti Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group