DA ITAD BIR Ruling No. 052-08

July 9, 2008 DA ITAD BIR RULING NO. 052-08 Article 10, Philippines-Japan tax treaty; BIR Ruling No. 156-81 Nagase Philippines Corporation 18-B Trafalgar Plaza H.V. Dela Costa Street Salcedo Village Makati City, Philippines Attention: Masanao Furuse President Gentlemen : This refers to your letter dated 6 July 2006 requesting for the application of the 10% tax treaty rate on the withholding tax on the payment of cash dividend by Nagase Philippines Corporation (Nagase Phil.) to Nagase & Co. Ltd. (Nagase Japan), pursuant to Article 10 (2) (a) of the Philippines-Japan tax treaty. It is represented that Nagase Japan is a nonresident foreign corporation duly organized and existing under the laws of Japan with business address at 1-17, Shinmachi 1-Chome, Nishi-ku, Osaka, 550-8668, Japan and is a resident of Japan within the meaning of the Philippines-Japan tax treaty per Residence Certificate dated 25 May 2006 issued by the District Director of the Nishi Tax Office, Osaka, Japan; that it was licensed to establish its regional or area headquarters in the Philippines on July 31, 1981, and that the said license was cancelled per Certificate of Cancellation of License of a Multinational Company to Establish a Regional or Area headquarters on February 15, 1984 per Certification issued by the Securities and Exchange Commission (SEC) dated 31 May 2006; that Nagase Phil. is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines under SEC Certificate of Registration No. A1997-6279 with principal office address at 18-B Trafalgar Plaza, H.V. Dela Costa Street, Salcedo Village, Makati City, Philippines. It is further represented that on 4 May 2006, the Board of Directors of Nagase Phil. approved the declaration of cash dividends in the amount of One Hundred Three Thousand Dollars (US$103,000.00) payable on or about 30 April 2006 to the stockholders of record as of 31 December 2005; that the payment of the said dividends to Nagase Japan was made only on 30 June 2006 (instead of 30 April 2006) for the reason that Nagase Phil's. fund was only made available at such later date; that as of 31 December 2005 and 30 June 2006, Nagase Japan has Four Hundred Fifty Eight Thousand Three Hundred Eighty Five (458,385) shares with a par value of PhP100.00 per share or an aggregate value of Forty Five Million Eight Hundred Thirty Eight Thousand Five Hundred Pesos (PhP45,838,500.00), representing 99.99% of the outstanding shares of Nagase Phil. as shown in the certification issued by the Corporate Secretary of Nagase Phil. dated 5 July 2006; 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. In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows: "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; LLjur (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. 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 a 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, or if the dividends are paid to by a company who is registered with the Philippine Board of Investments and engaged in preferred pioneer areas of investment. Such being the case, and considering that during the six-month period prior to the actual date of payment of the dividends ( i.e. , 30 June 2006), Nagase Japan held 99.99% percent of the total shares of stock of Nagase Phil., this Office is of the opinion and so holds that the dividend payments by Nagase Phil. to Nagase Japan shall be subject to the preferential tax rate of 10 percent, based on the gross amount thereof, pursuant to Article 10 (2) (a) of the Philippines-Japan tax treaty. (BIR Ruling No. 156-81 dated July 12, 1981) CSTHca 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.) GREGORIO V. CABANTAC Deputy Commissioner