BIR Ruling No. 120-84

July 19, 1984 BIR RULING NO. 120-84 37-a-4-000-00-120-84 Gentlemen : This refers to your letter dated May 31, 1984 requesting for a ruling that the royalty payments of Electro Components, Inc. (ECI) to Murata Manufacturing Corporation (MURATA) are subject to 10% withholding tax under the RP-Japan Tax Treaty. It is represented that ECI is a Philippine corporation registered with the Board of Investments on a preferred pioneer status; that on October 21, 1979 it entered into an agreement with MURATA, a Japanese corporation whereby ECI is to manufacture and sell a certain kind of tuner developed by MURATA for use of TV-sets; that Murata shall furnish ECI the necessary technical information, equipment, materials, services and licenses; and that ECI shall pay MURATA royalties therefor. In reply thereto, please be informed that Art. 12 par. 3 of the RP-Japan Tax Treaty provides: "(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the Philippines on the royalties 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 royalties, shall not exceed 10 per cent of the gross amount of the royalties". Wherefore the royalties paid by Electro Components, Inc. to Murata Manufacturing Corporation pursuant to the aforementioned contract between them shall be subject to 10% withholding tax. atdc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner