Applicable Withholding Tax on Royalty Fees to be Paid by Norkis Trading Co. to Its Japanese Suppliers

January 31, 1986 BIR RULING NO. 007-86 37-a-4 96-81 007-86 Gentlemen : This refers to your letter dated July 10, 1985 requesting information as to the applicable withholding tax on the royalty fees you will pay to your Japanese suppliers. It is represented that your company, Norkis Trading Co., Inc. is a company incorporated in the Philippines with a registered office at Mandaue City, Cebu; that you are engaged mainly in the manufacture, production, assembly, trading and distribution of all kinds of motor vehicles, and spare parts; that you entered into a Technical Collaboration Agreement with Yamaha Motor Co., Ltd. (YAMAHA) a company incorporated in Japan with a registered office at Skizuoka-ken, Japan whereby, Yamaha granted you an indivisible, non-transferable and exclusive license to manufacture, use and sell the Yamaha motorcycles and all the parts and accessories thereof, and that you shall pay royalty in an amount equivalent to three (3) percent calculated on the net wholesale price of the sold products less the landed cost of the component parts purchased by your company from Yamaha. cdt In reply, please be informed that Article 12 of the RP-Japan Tax Treaty provides: "(2) However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed: (a) 15 per cent of the gross amount of the royalties if the royalties are paid in respect of the use of or the right to use cinematograph films and films or tapes for radio or television broadcasting; (b) 25 per cent of the gross amount of the royalties in all other cases." Therefore the royalty fees which you will pay to your Japanese suppliers, Yamaha Motor Co., Inc. is subject to 25% withholding tax pursuant to Article 12 (2) (b) of the RP-Japan Tax Treaty. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner