DA ITAD BIR Ruling No. 053-07

April 20, 2007 DA ITAD BIR RULING NO. 053-07 Article 10, Philippines-Japan Tax Treaty; BIR Ruling No. DA ITAD-024-06 AFC Fertilizer and Chemicals, Inc. 5/F P & L Building, 116 Legaspi Street Legaspi Village, Makati City Philippines Attention: Rolando A. Basco, Jr. Vice President Chief Financial Officer Gentlemen : This refers to your application for relief from double taxation dated 12 April 2007, requesting confirmation of your opinion that the dividends paid to SOJITZ Corporation (SOJITZ) by AFC Fertilizer & Chemicals, Inc. (AFC) are subject to the 10% preferential tax rate, pursuant to Article 10 of the Philippines-Japan tax treaty. It is represented that SOJITZ is a corporation incorporated under the laws of Japan with office address at 1-20 Akasaka, 6-Chome, Minato-ku, Tokyo 107-8655, Japan; that it is not registered either as a corporation or a partnership in the Philippines per Certification issued by the Securities and Exchange Commission dated 16 April 2007; that AFC is a corporation duly organized and existing under the laws of the Philippines, with principal office and place of business at 5/F P & L Building, 116 Legaspi Street, Legaspi Village, Makati City, Philippines. ASTcaE It is further represented that from 22 August 2003, SOJITZ owns Four Hundred Sixty-Five Million Thirty-Four Thousand Nine Hundred Forty-One (465,034,941) fully paid shares with a par value of PhP1.00 per share out of Four Hundred Sixty-Five Million Thirty-Four Thousand Nine Hundred Forty-Eight (465,034,948) subscribed shares or 99.99% of the total subscribed and paid-up capital of AFC; that AFC shall pay cash dividends to all stockholders of record as of March 31, 2007 pursuant to the adoption of the resolution by the Board of Directors; 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(2)(a) of the Philippines-Japan tax 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 SOJITZ is the registered owner of 99.99% of such shares, for a period of six months immediately preceding the date of payment of dividends by AFC, 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 actual 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. ACETIa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service