ITAD BIR Ruling No. 085-14

June 17, 2014 ITAD BIR RULING NO. 085-14 Article 10 (2) (b), Philippines-Japan tax treaty, as amended Punongbayan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Ayala Avenue 1200 Makati City Attention: Atty. Eleonor L. Roque Tax Agent/Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on August 17, 2011, on behalf of SIIX Corporation ("SIIX") requesting confirmation that the dividend payments of Integrated Micro-Electronics, Inc. ("IMI") to SIIX are subject to 15 percent preferential withholding tax rate pursuant of the Article 10 (2) (b) 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") . It is represented that SIIX, with address at 1-4-9, Bingo-machi, chou-ku, Osaka 541-0051, Japan, is a corporation organized and existing under the laws of Japan, and is a resident of Japan within the meaning of the Philippines-Japan tax treaty per the Certification by the Tax Authorities of the Country of Residence issued by the District Director of Higashi Tax Office dated June 17, 2011; that it is not registered either as a corporation or as a partnership in the Philippines per certification issued by the Securities and Exchange Commission dated August 11, 2011; and that, on the other hand, IMI is a corporation organized and existing under the laws of the Philippines, with principal address at North Science Avenue, Special Export Processing Zone, Laguna Technopark, Bian, Laguna. It is further represented that during the regular meeting of the Board of Directors of IMI which was held on February 23, 2011, a resolution was unanimously approved on the declaration and payment of the regular cash dividend to all outstanding preferred shares of IMI as follows: HTIEaS Rate per share Record Date Payment Date 8.25% per annum May 9, 2011 May 20, 2011 8.25% per annum August 17, 2011 August 23, 2011 8.25% per annum November 9, 2011 November 22, 2011 That per the August 11, 2011 Corporate Secretary's Certificate issued by IMI, as of May 9, 2011, SIIX is the legal and beneficial owner of a total of 6,047,392 preferred IMI shares representing 0.2212% ownership of the total issued and outstanding shares in IMI; and that, based on the certification of payments issued by Standard Chartered, IMI made telegraphic transfer of payments of dividend (for the Preferred Shares) to SIIX in the amount of USD2,636.55 on August 23, 2011 and the amount of USD2,490.04 on November 22, 2011. It is finally represented, per Sworn Statement dated August 16, 2011 issued by IMI, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. 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%)." CDHSac 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: aAcHCT 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. 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." 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. EcIaTA In view thereof and considering that SIIX holds 0.2212% of the preferred shares in IMI, dividend paid by SIIX to IMI is subject to the preferential tax rate of 15 percent of the gross amount thereof pursuant to Article 10 (2) (b) 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