BIR Ruling [DA-301-97]

September 3, 1997 BIR RULING [DA-301-97] Itabashi Seiki Philippines, Inc. 5/F Unit No. 53, Legaspi Suites 178 Salcedo St., Legaspi Village Makati City Attention: Ms. Cilda B. Puyod Accounting Manager Gentlemen : This refers to your letter dated October 10, 1996 requesting for a ruling on the correct withholding tax rate for the interest payment and remittance by Itabashi Seiki Philippines, Inc., a domestic corporation, to Itabashi Seiki Company Ltd., a resident Japanese corporation. It is represented that the interest payable by Itabashi Seiki Company Ltd., as shown by the Loan Agreement executed by the parties on March 26, 1996, amounts to Y270,000,000.00; that Itabashi Seiki Company Ltd. is the beneficial owner of the loan to be remitted by Itabashi Seiki Philippines, Inc.; and that in support of your request you submitted the subject Loan Agreement. 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 charged shall not exceed: "(a) 10 percent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; "(b) 15 percent of the gross amount of the interest in all other cases; DcSACE "(3) . . . "(4) . . . the applicable withholding tax rate shall be 15% of the total interest payment since the payee, Itabashi Seiki Company Ltd., is the beneficial owner of the interest income received from Itabashi Seiki Philippines, Inc. 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV OIC, Assistant Commissioner (Legal Service)