10% Withholding Tax — Cash Dividends

October 16, 1981 BIR RULING NO. 199-81 024-b 156-81 199-81 Union-Hikari Fertilizer Industries, Inc. E. Rodriguez, Jr. Avenue Barrio Ugong, Pasig Metro Manila Attention: Ms . Elfleda Abano Chief Accountant Gentlemen : This refers to your letter dated August 17, 1981 requesting confirmation of your opinion to the effect that dividends payable to your foreign beneficiary, Hikari Kogyo Co., Ltd., Tokyo, Japan are subject to 10% withholding tax. You have represented that Union-Hikari Fertilizer Industries, Inc., is a domestic corporation organized and existing under Philippine Laws; that a Board Resolution declaring 25% cash dividends payable to all stockholders of record of that company as of April 24, 1981 was adopted and approved on April 23, 1981; that the List of Stockholders as of December 31, 1980 shows that Hikari Kogyo Co, Ltd. of Tokyo, Japan is the owner of 1,047 shares of stock; that the total dividends due in favor of Hikari Koyo amounts to P26,175.00; and that the sum of P2,617.50 representing 10% of the gross amount of the said cash dividends was deducted and withheld by you. cdt 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: "Art. 10. "(1) Dividends paid by a company which is 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 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 supplied) In view thereof, and since Hikari Kogyo Co., Ltd. owns more than 25% of the total 3,500 shares of stocks of Union-Hikari Fertilizer Industries, Inc., the cash dividends payable by Union-Hikari Fertilizer Industries, Inc. to Hikari Kogyo Co., Ltd. are subject to 10% withholding tax of the gross amount of the said cash dividends. aisadc Very truly yours, ROMULO M. VILLA Acting Commissioner