BIR Ruling [DA-510-98]

November 19, 1998 BIR RULING [DA-510-98] Bengzon Narciso Cudala Jimenez Gonzales & Liwanag SOL Building, 112 Amorsolo Street Legaspi Village Makati City Attention: Atty . Hubert E . Molina Gentlemen : This refers to your letter dated July 24, 1998 requesting on behalf of your client, Philippine D-I, Inc. (PDI), for a ruling that the dividends to be paid to Dai-Ichi Seiko Co., Ltd. (Dai-Ichi), are subject to Philippine income tax at the rate of 10% on the gross amount thereof pursuant to Article 10 of the RP-Japan Tax Treaty. cdt It is represented that PDI is a corporation organized and existing under and by virtue of the laws of the Philippines with principal office address at Las Pias, Metro Manila; that Dai-Ichi, on the other hand, is a non-resident foreign corporation domiciled in Japan with business address at 12-14 Negoro Momoyama-cho Fushimi-ku, Kyoto, Japan; that Dai-Ichi is a shareholder of PDI and is the beneficial owner of 99.99% of the outstanding shares of the voting stock of PDI; that Dai-Ichi has been the owner of 99.99% of PDI's outstanding shares since 1994; that PDI is a wholly-owned subsidiary of Dai-Ichi considering that the other shareholders, registered owners for a total of five (5) shares, are actually nominees of Dai-Ichi and hold the shares under their name merely to qualify them as members of PDI's Board of Directors; and that on May 21, 1998, PDI's Board of Directors approved the declaration of cash dividends in favor of PDI shareholders in the amount of Eighty Million Pesos (P80,000,000.00), all of which, in effect, will go to Dai-Ichi. In reply, please be informed that Article 10(2)(a) & (b) of the RP-Japan Tax Treaty provides, viz: "ARTICLE 10 "(1) . . . "(2) However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: "(a) 10 percent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 percent either of the voting shares of the company paying the dividends or of the total shares issued by that company during the period of six months immediately preceding the date of payment of the dividends; "(b) 25 percent of the gross amount of the dividends in all other cases." Such being the case, and since Dai-Ichi, a non-resident foreign corporation not doing business in the Philippines which is the recipient of the said dividends declared by PDI is the beneficial owner and is holding more than 25% of the total shares issued by PDI during the period of six months immediately preceding the date of payment of the declaration of the dividends, this Office is of the opinion as it hereby holds that the dividends paid or to be paid by PDI to Dai-Ichi are subject to Philippine income tax at the rate of 10% of the gross amount thereof pursuant to Article 10(2)(a) of the RP-Japan Tax Treaty. (BIR Ruling No. 165-94 dated December 5, 1994) LLcd 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 Deputy Commissioner (Legal & Enforcement Group)