10% Withholding Tax — Cash Dividends

July 12, 1981 BIR RULING NO. 156-81 024-b 000-00 156-81 Union Chemicals, Inc. Union-Ajinomoto Bldg. 331 Buendia Ave. Ext. Makati, Metro Manila Attention: Mr . Dionisio de Guzman Accounting Manager Gentlemen : This refers to your letter dated May 13, 1981 requesting confirmation of your opinion to the effect that dividends payable to your foreign beneficiary, Ajinomoto Co., Inc. Tokyo, Japan are subject to 10% withholding tax. cdt It is represented that Union Chemicals, Inc., is a domestic corporation organized and existing under Philippine Laws; that a Board Resolution declaring 20% cash dividends payable to all stockholders of record of that company as of April 21, 1981 was adopted and approved on April 20, 1981; that the List of Stockholders as of April 22, 1981 shows that Ajinomoto Co., Inc. of Tokyo, Japan is the owner of 189, 816 shares of stock; that the total cash dividends due in favor of Ajinomoto Co., Inc. amounts to P3,796,320.00; that the sum of P379,632.00 representing 10% of the gross amount of the cash dividends was deducted and withheld by Union Chemicals, Inc. In reply, I have the honor to inform you that Article 10 of the RP-Japan Tax Treaty effective January 1, 1981 provides as follows: "ARTICLE 10, (1) Dividends paid by a company which is a resident of the other Contracting State may be taxed in that Order 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 that contracting state, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed. "(a) 10 per cent 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 payments of the dividends ; "(b) 25 per cent of the gross amount of the dividends in all other cases. The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid." (Emphasis ours) In view thereof and since Ajinomoto Co., Inc. owns more than 25% of the total 474,552 shares of stocks of Union Chemicals, Inc., the cash dividends payable by Union Chemicals, Inc., to Ajinomoto Co., Inc. are subject to 10% withholding tax of the gross amount of the said cash dividends. Very truly yours, RUBEN B. ANCHETA Acting Commissioner