ITAD BIR Ruling No. 004-13

January 15, 2013 ITAD BIR RULING NO. 004-13 Article 10, Philippines-Japan tax treaty, as amended Sanyo Plastic Phil., Inc. 110 East Main Avenue, SEPZ LTI, Bian, Laguna Attention: Maria Modesta E. Quilantang Finance Assistant Manager Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on August 23, 2011 requesting confirmation that the dividends paid by Sanyo Plastic Phils., Inc. ("Sanyo Phil") to Sanyo Plastic Industrial Co. Ltd. ("Sanyo") are subject to the preferential tax treaty rate of 10 percent pursuant to 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") . It is represented that Sanyo is a foreign corporation organized and existing under the laws of Japan with principal office at 1-8-7, Noge, Setagaya-ku, Tokyo, Japan based on the Residence Certificate issued by the District Director of Tamagawa Tax Office dated August 18, 2011; that Sanyo is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on August 26, 2011; that, on the other hand, Sanyo Phil is a corporation duly organized and existing under the laws of the Philippines with office address at 110 East Main Avenue, SEPZ, LTI, Bian, Laguna, Philippines. It is further represented that on June 27, 2011, the Board of Directors of Sanyo Phil approved the declaration of dividends in the amount of Php22,000,000.00 in favor of the stockholders of record as of June 30, 2011 payable on July 20, 2011; that Sanyo holds 38,747 shares constituting 43.713 percent of the issued and outstanding shares of Sanyo Phil; that Sanyo acquired its shares from Sanyo Phil on March 10, 2005 per Secretary's Certificate issued by the Corporate Secretary of Sanyo Phil on October 27, 2011. EHSIcT In reply, please be informed that Sections 14 and 13 of Revenue Memorandum Order ("RMO") No. 72-2010 1 which was published in the Manila Bulletin on October 20, 2010, and effective November 4, 2010, provides that: "SEC. 14. When and Where to File the TTRA . All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Divisions (ITAD). If the forms of any necessary documents are submitted to any other BIR office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO. " (Emphasis supplied) The Board of Directors of Sanyo Phil approved the declaration of dividends in favor of all its stockholders on record, including Sanyo , on June 27, 2011, payable on July 20, 2011. Nonetheless, the TTRA filed for and on behalf of Sanyo was filed only on August 23, 2011 in violation of the foregoing provisions of RMO 72-2010, which categorically mandate the filing of the TTRA before the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. In this case, the first taxable event is payment of dividends by Sanyo Phil to Sanyo on July 20, 2011. In view of the foregoing, the TTRA for the preferential tax rate of 10 percent on the dividend payments made by Sanyo Phil to Sanyo is hereby denied for having been filed beyond the period prescribed by the RMO. Accordingly, the dividends shall be subject to regular income tax rate of 30 percent pursuant to Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended. ETAICc 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 Footnotes 1. Guidelines on the Processing of Tax Treaty Relief Applications ("TTRA") pursuant to existing Philippines Tax Treaties dated August 25, 2010.