Applicable Withholding Tax Rate on Dividend Remittances to a Non-Resident foreign Corporation

December 5, 1994 BIR RULING NO. 165-94 RP-JAPAN Tax-Treaty 000-00 165-94 Cebu Mitsumi, Inc. Sabang, Danao Cebu Attention: Mr . Hector B . Taleon, Jr . Senior Supervisor (Manila Office) Gentlemen : This refers to your letter dated August 8, 1994, in effect, requesting a ruling as to the applicable withholding tax rate on dividend remittances to Mitsumi Electric Co., Ltd. of Japan (Mitsumi, Japan), a non-resident foreign corporation not registered as engaged in business in the Philippines. It appears that Cebu Mitsumi, Inc. (Mitsumi, Phil.) is a domestic corporation organized and existing under Philippine Laws and registered with the Securities and Exchange Commission (SEC) under Certificate of Registration No. 158717; and that it is also registered with the Board of Investments (BOI) and issued BOI Certificate of Registration No. EP89-940 as an export-oriented non-pioneer enterprise. Based on the foregoing representations, you now request confirmation of your opinion that the dividend remittances to Mitsumi (Japan), a non-resident foreign corporate stockholder, which holds a majority of the voting shares of Mitsumi (Phil.), are subject to withholding tax at the Tax Treaty rate of 10%. In reply, please be informed that pursuant to Article 10 of the RP-Japan Tax Treaty, pertinent portion of which reads "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. xxx xxx xxx "(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 the 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 percent of the gross amount of the dividends." your dividend remittances to Mitsumi (Japan) shall be subject only to the final withholding tax of 10% on the gross amount thereof. LLjur Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue