Office of the Board of Directors of the Fertilizer and Pesticide Authority Adopted by Referendum

June 14, 2013 ITAD BIR RULING NO. 163-13 Article 10 (2) (a), Philippines-Japan tax treaty, as amended Taikisha Philippines, Inc. 5th Floor Golden Rock Building 168 Salcedo Street, Legaspi Village Makati City Attention: Enrico R. Concepcion President Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on June 4, 2012, requesting confirmation that the dividends paid by Taikisha Philippines, Inc. ("Taikisha-Phil") to Taikisha Ltd. ("Taikisha-Japan") are subject to preferential rate of 10 percent pursuant to Article 10 (2) (a) of the amended Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Japan tax treaty, as amended") . AcHCED It is represented that Taikisha-Japan , with address at Shinjuku Sumitomo Building 6-1, 2-chome, Nishi-Shinjuku, Shinjuku-ku, Tokyo, Japan, is a corporation organized and existing under the laws of Japan, and is a resident of Japan per the Residence Certificate issued on April 27, 2012 by the District Director of Shinjuku Tax Office; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated June 4, 2012; and that, on the other hand, Taikisha-Phil is a corporation, organized and existing under the laws of the Philippines, with principal address at 5th Floor Golden Rock Building, 168 Salcedo Street, Legaspi Village Makati City. It is further represented, that during the special meeting of the Board of Directors of Taikisha-Phil held on May 8, 2012, the Board of Directors approved the declaration of dividends in the aggregate amount of Forty-Three Million Two Hundred Twenty-Five Thousand and Nine Hundred Fifty Pesos (PhP43,225,950.00) computed at Four Hundred Seventy Five Pesos (PhP475.00) per share to stockholders of record as of the close of business on May 8, 2012, payable on or before June 30, 2012; that out of the aggregate amount of PhP43,225,950.00 to be paid as dividends, Taikisha-Japan , a stockholder of record of Taikisha-Phil, is entitled to receive PhP43,224,050.00 thereof, computed at PhP475.00 per share; that beginning April 12, 1995 up to the record date and until the date of payment of the subject dividends, Taikisha-Japan holds 39.9999% of the paid-up capital of Taikisha-Phil; and that, per the bank's telegraphic transfer issued by RCBC-Head Office, such dividends were remitted by Taikisha-Phil to Taikisha-Japan on June 19, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: "Section 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Nonresident Foreign Corporation . (1) In General. Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interest, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments, or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph 5(c): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." TAcSCH However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: "Section 32. Gross Income . xxx xxx xxx (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty . Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. xxx xxx xxx" Thus, Article 10 of the Philippines-Japan tax treaty, as amended, which you invoke, may apply to the instant case. It provides: "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 10 percent 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) 15 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." ASEcHI Based on the aforequoted provisions, dividends arising in the Philippines and paid to a resident of Japan may be taxed in the Philippines at a rate not to exceed (a) 10 percent of the gross amount of the dividends if (i) the beneficial owner is a company which holds directly at least 10 percent 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, or (ii) the dividends are paid by a company, being a resident of the Philippines, which is registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines; and (b) 15 percent of the gross amount of the dividends, in all other cases. In view thereof, and considering that Taikisha-Japan holds 39.9999% ownership in Taikisha-Phil, and that Taikisha-Japan maintains these shareholdings six months immediately preceding the date of payment of the dividends or since April 12, 1995, such dividends to be paid by Taikisha-Phil to Taikisha-Japan are subject to the preferential tax rate of 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Japan tax treaty, as amended. This ruling is issued on the basis of 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue