ITAD BIR Ruling No. 033-14

April 14, 2014 ITAD BIR RULING NO. 033-14 Article 10, Philippines-Japan tax treaty, as amended Toshiba Logistics (Philippines) Corporation 103 East Main Avenue Extension Special Export Processing Zone Laguna Technopark, Bian 4024 Attention: Mr. Masanori Ichihara President Gentlemen : This refers to your tax treaty relief application filed on September 27, 2012, on behalf of Toshiba Logistics Corporation ("TLC") , requesting confirmation that dividend payments made by Toshiba Logistics (Philippines) Corporation ("TLPC") to TLC are subject to 10 percent preferential tax rate 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 TLC, with address at 1-14, Nisshin-cho, Kawasaki-ku, Kawasaki, Kanagawa, 210-0024, Japan, is a resident of Japan per Certificate of Status of Taxable Person issued by the District Director of Kawasaki Minami Tax Office on August 21, 2012; that TLC is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated November 24, 2011; and that TLPC, on the other hand, is a domestic corporation duly organized and existing under the laws of the Philippines with office address located at 103 East Main Avenue Extension, Special Export Processing Zone, Laguna Technopark, Bian; and that it is registered with the Philippine Economic Zone Authority (PEZA) under Certificate of Registration No. 96-014. It is also represented, per Secretary's Certificate dated September 20, 2012, that TLC owns 109,995 of the shareholdings in TLPC, constitutes 99.9% of the entire stockholdings of TLPC; and that these shares were acquired by TLC thru initial capital on October 15, 1996 and increase in authorized capital on September 19, 2001. It is further represented, that at the special teleconference meeting of the Board of Directors of TLPC on September 19, 2012, the Board declared cash dividends amounting to Fourteen Million Two Hundred Nineteen Thousand Five Hundred Pesos (Php14,219,500.00) in favor of all the stockholders of record in proportion to their respective equity holdings in TLPC; and that said dividends were debited from the BPI dollar account of TLPC and credited to the account of TLC in Sumitomo Mitsui Banking Corporation on September 28, 2012 per sworn letter of debit issued by TLPC dated September 28, 2012. It is finally represented, based on the Certification issued by TLPC on September 20, 2012, that the transaction subject of the 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 judicial appeal of the taxpayer/s involved. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (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 . . . dividends, rents, royalties . . .: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" 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" In relation thereto, Article 10 of the Philippines-Japan tax treaty, as amended, 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 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) 15 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 foregoing, 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 10 percent of the voting shares of the company paying the dividends 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 all other cases, the 15 percent rate shall apply. This being the case, inasmuch as TLC holds directly 99.9% of the outstanding capital stock of TLPC (which in fact exceeds the minimum required percentage of holding of 10 percent), and since TLC has maintained such shareholdings since 1996, and, in effect, more than six months immediately preceding the date of payment of the dividends, such dividends paid by TLPC to TLC are subject to income tax at the 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