BIR Ruling [UN-014-95]

January 9, 1995 BIR RULING [UN-014-95] Joaquin Cunanan & Co. 8th Floor, BA Lepanto Building 8747 Paseo de Roxas, Makati, Metro Manila Attention: Jose S . Tayag, Jr . Partner Gentlemen : This refers to your letter dated May 19, 1994 in effect requesting for a ruling on the correct withholding tax rate for the interest payment paid by Philippine Japan Active Carbon Corporation (PJACC), a domestic corporation, to your client, Futamura Chemical Industries Co., LTD (Futamura, Japan), a non-resident Japanese corporation. cdtech It is represented that the interest payable by PJACC arose from the loan made by PJACC from its Japanese stockholder, Futamura, which was entered into on January 17, 1994 in connection with the former's on-going expansion program as shown by the loan agreement executed by the parties; that the amount of the loan is equivalent to Ninety Million Yen (90,000,000.00); that Futamura is the beneficial owner of the interest to be remitted by PJACC; and that in support of your request, you submitted the following documents: 1) two copies of duly accomplished BIR Form No. TCC-001; 2) copy of PJACC's certificate of registration with BOI; 3) copy of Metro Bank and Trus Company's certification on the inward remittance of the proceeds of the foreign loan; and 4) copy of the loan agreement between PJACC and Futamura. In reply, please be informed that under Article XI(2) of the RP-Japan Tax Treaty, stating "2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed: a. 10% of the gross amount of the interest if the interest is paid in respect of Government Securities or bonds or debentures; b. 15 per cent (%) of the gross amount of the interest in all other cases." Since Futamura is the beneficial owner of the interest income received from PJACC and the interest income was not generated from government securities, bonds, or debentures, the applicable withholding tax rate shall be 15% of the total interest payment. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)