BIR Ruling [DA-035-99]

January 20, 1999 BIR RULING [DA-035-99] Itabashi Seiki Philippines, Inc. Lot 1, 1A, 3 & 5, Blk. 16, Phase IV Cavite Export Processing Zone Attention: Ms . Cilda B . Puyod Finance & Adm . Manager Gentlemen : This refers to your letter dated January 27, 1998 requesting for a ruling on the correct withholding tax rate for the interest payment and remittance by Itabashi Seiki Philippines, Inc. (ISPI), a domestic corporation, to Itabashi Seiki Company, Ltd. (ISC), a non-resident Japanese Corporation. It appears that the interest payable by ISPI arose from the loan made by ISC as shown by the Loan Agreement executed by the parties on September 24, 1996 in the amount of Y170,000,000.00; that ISC is the beneficial owner of the loan to be remitted by ISPI; and that in support of your request, you submitted the following documents: 1. BIR Application Form No. TC-001 Application for relief from double taxation in favor of Itabashi Seiki Company, Ltd.; 2. Certified copy of PEZA Registration of Itabashi Seiki Philippines, Inc.; 3. Loan Agreement; and 4. Proof that applicant is a resident of a treaty country (Articles of Incorporation & SEC Registration). In reply, please be informed that under Article 11(2) of the RP-Japan Tax Treaty stating "ARTICLE 11 "1. . . . "2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the interest the tax so charge shall not exceed: "a. 10 per cent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; "b. 15 per cent of the gross amount of the interest in all other cases. "3. . . . "4. . . ." the applicable withholding tax rate shall be 15% of the total interest payment since the payee, ISC is the beneficial owner of the interest income received from ISPI and the interest income was not generated from government securities, bonds or debentures. (BIR Ruling No. 142-95 dated September 13, 1995) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. LLphil Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)