ITAD BIR Ruling No. 041-11

February 9, 2011 ITAD BIR RULING NO. 041-11 Article 10, Philippines-Japan tax treaty, as amended; BIR Ruling No. ITAD 59-10; BIR Ruling No. ITAD 57-10; BIR Ruling No. ITAD 35-10 Agan & Montenegro Law Offices Unit J-3, 7th Floor, Electra House Building 115-117 Esteban Street, Legaspi Village Makati City Attention: Atty. J. Carlito M. Montenegro Gentlemen : This refers to your application for tax treaty relief dated April 29, 2010 requesting confirmation that dividends to be paid by Isuzu Philippines Corporation ("Isuzu Philippines") to Isuzu Motors Ltd. ("Isuzu") are subject to income tax at the rate of 10 percent pursuant to the 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 by a Protocol 1 effective January 1, 2009. Basic Facts It is represented that Isuzu is a foreign corporation organized and existing under the laws of Japan, based on the Certificate of Status of Taxable Person issued by the Shinagawa Tax Office in Japan on January 27, 2010; that Isuzu is situated at 26-1, Minami-oi 6-chome, Shinagawa-ku, Tokyo, Japan; that Isuzu is not registered as a corporation or as a partnership in the Philippines, based on the Certification of Non-Registration issued by the Securities and Exchange Commission on April 28, 2010; and that, on the other hand, Isuzu Philippines is a domestic corporation, situated at 114 Technology Avenue, Laguna Technopark, Bian, Laguna, Philippines. It is also represented that on March 26, 2009, the Board of Directors of Isuzu Philippines, at its regular meeting, approved a resolution declaring cash dividends of PHP100,000,000.00 in favor of the stockholders of record of Isuzu Philippines as of December 31, 2008, based on the Certificates issued by the Assistant Corporate Secretary of Isuzu Philippines on August 17 and April 14, 2010; that Isuzu is the legal and beneficial owner of 350,000 voting stocks of Isuzu Philippines (including three shares in the name of individual nominee shareholders of Isuzu ), which is equivalent to 35 percent of the total outstanding capital stock of Isuzu Philippines ; and that these shares are fully paid and are held by Isuzu since September 27, 1996; and that the dividends were paid on September 24, 2009. IcDCaT It is finally represented that the dividends subject of the request for ruling are not subject of investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the same Certificates of Isuzu Philippines . Ruling In reply, please be informed that paragraphs 1, 2 and 3, Article 10 of the Philippines-Japan tax treaty, as amended, provide as follows: "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. 3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the Philippines on the dividends paid by a company, being a resident of the Philippines, registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends, shall not exceed 10 per cent of the gross amount of the dividends." Under paragraphs 2 and 3 of Article 10, dividends arising in the Philippines and paid to a resident of Japan may be taxed in the Philippines, but the rate of income tax that may be imposed thereon shall not exceed, beginning January 1, 2009 (a) 10 percent of the gross amount of the dividends if 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, (b) 10 percent of the gross amount of the dividends if the dividends are paid by a domestic company registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines, and (c) 15 percent of the gross amount of the dividends in all other cases. Accordingly, inasmuch as Isuzu holds directly at least 10 percent of the voting shares of Isuzu Philippines during the period of six months immediately preceding the date of payment of the dividends on September 24, 2009 (in fact, Isuzu holds 35 percent of the voting stocks of Isuzu Philippines since September 27, 1996, to present), such dividends to be paid by Isuzu Philippines to Isuzu are subject to income tax at the rate of 10 percent of the gross amount thereof. (BIR Ruling No. ITAD 59-10 dated November 3, 2010; BIR Ruling No. ITAD 57-10 dated October 22, 2010; BIR Ruling No. ITAD 35-10 dated September 14, 2010 ) This ruling is issued on the basis of the 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. DHEaTS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Protocol Amending the 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.