DA ITAD BIR Ruling No. 052-07

April 18, 2007 DA ITAD BIR RULING NO. 052-07 Article 10 (2) (a), Philippines-Japan Tax Treaty; BIR Ruling No. DA-ITAD-24-06 Isla Lipana & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas 1226 Makati City, Philippines Attention: George J. Lavadia Principal Tax Services Gentlemen : This refers to your application for relief from double taxation dated April 18, 2006, on behalf of your client, Totoku Philippines, Inc. (Totoku Philippines), requesting confirmation of your opinion that the dividends paid to Totoku Electric Company Ltd. (Totoku Japan) by Totoku Philippines are subject to the 10% preferential tax rate, pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty. It is represented that Totoku Japan with office address at 3-21 Okubo, 1-Chome, Shinjuku-ku, Tokyo, Japan 169-8543, is a resident of Japan for the purpose of Japan taxation and registered as a taxable person under Tax Reference Number 382019, per Certification issued by the Chief of Shinjuku District Taxation Office, dated November 16, 2005, and issued for application for tax privileges available under the Philippines-Japan tax treaty; that it is not registered either as a corporation or a partnership in the Philippines per Certification dated February 2, 2005 issued by the Securities and Exchange Commission; that Totoku Philippines is a corporation duly organized and existing under the laws of the Philippines, with principal office and place of business at Lot B1-3 Road 6, Carmelray Industrial Park II, Barangay Tulo, Calamba City, Philippines. It is further represented that out of the Two Million Two Hundred Thousand (2,200,000) common shares of the total shares of Totoku Philippines, Two Million One Hundred Ninety Nine Thousand Nine Hundred Ninety Five (2,199,995) shares or 99.99% and amounting to Two Hundred Nineteen Million Nine Hundred Ninety Nine Thousand Five Hundred Pesos (PhP219,999,500.00), are registered in the name of Totoku Japan while the remaining five (5) shares are held by the nominees of Totoku Japan; that on March 25, 2002, the Board of Directors of Totoku Philippines approved the payment of dividends to Totoku Japan in an amount equivalent to 28% of the total capital stocks of Two Hundred Twenty Million Pesos (PhP220,000,000.00); that Totoku Philippines was authorized to release the funds necessary for the payment of dividends to Totoku Japan by March 25, 2002 in accordance with the existing rules of Totoku Philippines relating thereto; that dividends were paid on March 25, 2005 to Totoku Japan; that as of this date of payment of dividends, Totoku Japan is the beneficial owner of One Hundred Percent (100%) of the outstanding and issued shares of Totoku Philippines; and that the issue/s or transaction subject of the above request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s involved. CDaTAI In reply, please be informed that Article 10(2)(a) of the Philippines-Japan treaty provides as follows, viz: "Article 10 (1) Dividends paid by a company which is a resident of a Contracting State to 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 payment of the dividends; (b) 25 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx (4) The term 'dividends' as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation laws of the Contracting State of which the company making the distribution is a resident. xxx xxx xxx" Based on the aforequoted provisions, the Philippines may tax the dividends paid by company which is a resident thereof to a company which is a resident of Japan at a rate not exceeding 10 percent if the last-mentioned company holds directly at least 25 percent of the voting shares or of the total shares of the first-mentioned company for a period of six months immediately preceding the date of payment of the dividends. In view thereof and considering that Totoku Japan is the beneficial owner of 100% of the total outstanding shares of stock of Totoku Philippines and the registered owner of 99.99% of such shares, for a period of six months immediately preceding the date of payment of dividends by Totoku Philippines, such dividends are subject to 10 percent preferential tax rate, pursuant to the Philippines-Japan tax treaty. (BIR Ruling No. DA-ITAD-24-06 dated March 16, 2006) This ruling is issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service