Whether the Gross Amount of Dividend Remittance to Tomen Corporation of Japan (Tomen) Can be Allowed as a Credit Against the Japanese Tax Liability on Dividends Received

July 21, 1995 BIR RULING NO. 109-95 28 (b) (6) 000-00 109-95 Northern Mindanao Power Corporation Priscilla I Building 2278 Pasong Tamo Extension Makati, Metro Manila Attention: Mr . Danilo S . Infante Office Manager, Makati Gentlemen : This refers to your letters dated January 27, 1995 and August 8, 1994 requesting for a ruling on your tax treaty relief application and as to whether the gross amount of your dividend remittance to Tomen Corporation of Japan (Tomen) can be allowed as a credit against the Japanese tax liability on dividends received from you. It appears that you are a BOI-registered corporation as a new operation of a Bunker "C" Fired Diesel Power Generating Plant under the energy related project; and that Tomen is one of your stockholders owning 17.8% of the total voting shares of stock. In reply, please be informed that pursuant to Article 10 of the RP-Japan Tax Treaty, stating "Article 10 "(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Contracting State. "(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 the 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 per cent 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 dividends: "(b) 25 per cent of the gross amount of the dividends in all other cases. "The provisions of this paragraphs shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. "(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the Philippines on the dividends paid by a company , being a resident of the Philippines, registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines to a resident of Japan , who is the beneficial owner of the dividends, shall not exceed 10 per cent of the gross amount of the dividends. (Emphasis supplied) "(4) The term 'dividends' as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by taxation laws of the Contracting State of which the company making the distribution is resident. "xxx xxx xxx" the preferential tax rate of ten per cent (10%) which shall be withheld from your dividend remittances to Tomen can be allowed as a credit against the Japanese tax payable by the latter on its dividend income received from you, under Article 23(3) of the RP-Japan Tax Treaty: Provided, that the Philippine tax shall always be considered as having been paid at the rate of 20 per cent. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue