DA ITAD BIR Ruling No. 108-06

September 19, 2006 DA ITAD BIR RULING NO. 108-06 Article 10, Philippines-Japan tax treaty; BIR Ruling No. DA-ITAD 063-01 MIYASAKA Polymer (Phils.), Inc. 20 Ampere Street, Light Industry & Science Park of the Philippines (LISPPI) Brgy. Diezmo, Cabuyao, Laguna Philippines Attention: Mr. Hiroki Itoh Gentlemen : This refers to your application for relief from double taxation dated April 17, 2006, on behalf of Miyasaka Polymer (Phils.), Inc. (Miyasaka Phils), requesting for a preferential tax rate of ten percent (10%) to be withheld on dividend remittances to Miyasaka Robber Co., Ltd. (Miyasaka Japan), pursuant to the Philippines-Japan tax treaty. It is represented that Miyasaka Japan with office address at 5350 Toyohira Chino-shi, Nagano-ken, Japan and whose nature of business is the manufacture and sales of industrial rubber parts, is a resident of Japan for tax purposes under Tax Reference Number 0621269 per Certificate of Status of Taxable Person issued by the District Director of the Suwa Tax Office, Japan dated March 24, 2006; that it is not registered either as a corporation or as a partnership per certification dated April 6, 2006 issued by the Securities and Exchange Commission; that Miyasaka Phils is a corporation organized and existing under the laws of the Philippines with office address at 20 Ampere Street, Light Industry & Science Park of the Philippines (LISPPI), Brgy. Diezmo, Cabuyao, Laguna, Philippines. It is further represented that Miyasaka Japan is the registered and the legal owner of One Million Seven Hundred Forty Nine Thousand Nine Hundred Ninety Five (1,749,995) shares of stock representing 99.99% percent of the outstanding capital stock of Miyasaka Phils; that during the special meeting of the stockholders of Miyasaka Phils held on March 10, 2006 it was resolved that Miyasaka be authorized to declare a cash dividend for the period covering the fiscal year ending December 31, 2005 in the amount of Eight Million Seven Hundred Fifty Thousand Pesos (P8,750,000.00) to be distributed in favor of all its stockholders of record on July 1, 2006 in proportion to their respective equity holdings in the Corporation as evidenced by its Corporate Secretary's Certificate dated March 16, 2006; and that Miyasaka Japan has been holding the said shares of stock as of December 31, 2005. HSDaTC In reply, please be informed that Article 10 of the Philippines-Japan Tax Treaty provides, 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. 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" It is clear under paragraph 2 above that a resident of Japan may avail of the preferential tax rate of 10% if such resident, which is the beneficial owner of the dividends, is a company holding at least 25% either of the voting shares or of the total shares of the payor of the dividends during the period of six months immediately preceding the date of the payment of the dividends. In view thereof and since Miyasaka Japan holds directly 99.99% of the voting shares of Miyasaka Phils for a period of six months before the latter declared dividends, said dividends to be paid by Miyasaka Phils to Miyasaka Japan are subject to the 10% preferential withholding tax rate pursuant to the Philippines-Japan tax treaty. (BIR ITAD Ruling No. 063-01 dated July 31, 2001) This ruling is issued based on the foregoing 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. TcEaAS (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service