BIR Ruling [DA-444-99]

August 4, 1999 BIR RULING [DA-444-99] Joaquin Cunanan & Co. 14th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Ms . Tomasa H . Lipana Managing Partner Tax and Corporate Services Gentleman : This refers to your letter dated November 16, 1998, on behalf of your client, United Technologies Automotive (Phils.), Inc., requesting for a confirmation of your opinion that the dividend to be paid and remitted by United Technologies Automotive (Phils.), Inc. (UTA Phils.) to United Technologies Automotive U.S. (UTA-U.S.) is subject to the preferential tax rate of 20% pursuant to Article 11(2)(b) of the RP-United States Tax Treaty. UTA Phils. is a corporation organized and existing under the laws of the Philippines and is engaged in the manufacturing, assembling, processing and exporting automotive wiring harness, electric wire assemblies, motors and switches and other automotive assemblies and fittings at the Mactan Export Processing Zone, Lapu-Lapu City, Philippines; that it is registered with the Philippine Economic Zone Authority and as such it is subject to the special tax rate of 5% of the gross income earned, after the expiration of its income tax holiday incentive; and that it is a wholly-owned subsidiary of UTA-US, a company organized and existing under the laws of the United States. In reply, please be informed that the pertinent portion of Article 11 of, paragraph 2(b) of the RP-US Tax Treaty reads thus "Article 11 "Dividends "(1) . . . "(2) The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed a) 25 percent of the gross amount of the dividend; or b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation." llcd Accordingly, the dividend to be paid and remitted by UTA Phils. to UTA-U.S. is subject to Philippine withholding tax at the preferential rate of 20% pursuant to Article 11(2)(b) of the RP-US Tax Treaty. 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 and Enforcement Group