BIR Ruling [DA-337-98]

July 22, 1998 BIR RULING [DA-337-98] SGV & Co. 3rd Floor, Insular Life Building Cor. Gorordo and Gen. Maxilom Avenues Cebu City Attention: Mr . Lauris L . dela Pena Tax Division Gentlemen : This refers to your letter dated May 13, 1998 requesting on behalf of your client, NKC Manufacturing Philippines Corporation (NKC), for our opinion as to whether or not the remittances of NKC of interest payments to Nakanishi Metal Works Co., Ltd. of Japan (NKC-J) is subject only to the 15% income/withholding tax. casia It is represented that NKC is a domestic corporation organized and existing under the laws of Republic of the Philippines with principal office at Mactan Economic Zone II, Lapu-lapu City; that it is a wholly owned subsidiary of NKC-J; that NKC is registered with the Philippine Economic Zone Authority (PEZA) under PEZA Board Resolution No. 97-062 dated March 17, 1997; that NKC-J is a non-resident foreign corporation organized and existing under the laws of Japan with principal office at 3-5, Tenmabashi 3-chome, Kita-ku, Osaka, Japan; that NKC-J is not engaged in business in the Philippines; and that NKC contracted several loan agreements with NKC-J, as follows: a) A loan contracted on October 14, 1997 in the amount of US$2,500,000 and payable until October 14, 2002; b) A loan contracted on December 1, 1997 in the amount of US$1,200,000 and payable until November 30, 1998; c) A loan contracted on January 14, 1998 in the amount of US$1,000,000 and payable until January 13, 1999; and d) A loan contracted on January 26, 1998 in the amount of US$1,500,000 and payable until January 25, 1999. In reply, please be informed that pertinent portion of Article 11, Section 2(b) of the RP-Japan Tax Treaty provides, viz: xxx xxx xxx "(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: xxx xxx xxx "(b) 15 per cent of the gross amount of the interest in all other cases." xxx xxx xxx Accordingly, this Office is of the opinion as it hereby holds, that your client, NKC, can avail of the reduced withholding tax rate of 15 per cent of the gross interest income in accordance with the aforecited provision of the RP-Japan Tax Treaty. (BIR Ruling No. 138-94 dated September 19, 1994) 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 Deputy Commissioner (Legal and Enforcement Group)