BIR Ruling [DA-371-99]

June 22, 1999 BIR RULING [DA-371-99] Sanno Philippines Manufacturing Corporation Special Export Processing Zone Gateway Business Park Javalera, General Trias Cavite Attention: Mr . Yasuhito Kokubo Vice President Gentlemen : This refers to your letter dated February 23, 1998 stating that Sanno Philippines Manufacturing Corporation (SPMC) is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) and a Philippine Economic Zone Authority (PEZA) registered enterprise with Certificate of Registration No. 96-003; that Sanno Co., Ltd., on the other hand, is a foreign corporation duly organized and existing under the laws of Japan with principal office address at 8-8 Higashi-5, Tsunashima, Kohoku-ku, Yokohoma, 223 Japan; that Sanno Co., Ltd has established SPMC as its subsidiary in the Philippines; that on February 18, 1998, a Long Term Loan Agreement was entered into by and between Sanno Co., Ltd. and SPMC whereby the former has granted the latter a financial loan in the amount of Six Hundred Million Japanese Yen (JY600,000,000.00) to finance its production operations and various needs at interest rate of 2.5% per annum; that on the same date, a Supplemental Agreement was entered into by the parties reducing the interest rate from 2.5% to 1.5% per annum; and that according to the stipulation of Article 11, Sec. 2(b) of the RP-Japan Tax Treaty, the amount of withholding tax rate could be reduced from 20% to 15%. Based on the foregoing representations, you now request for an availment of the lower preferential tax rate to be applied for your remittances. In reply, please be informed that pursuant to Article 11, Section 2(b) of the RP-Japan Tax Treaty, pertinent portion of which reads thus "ARTICLE 11 "1. Interest 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 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 in paid in respect of Government securities, or bonds or debentures; b) 15 percent 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 you can avail of the reduced withholding tax rate of 15 percent of the gross interest in accordance with the aforecited provisions 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)