ITAD BIR Ruling No. 140-14

July 31, 2014 ITAD BIR RULING NO. 140-14 Article 10 (Dividends), Philippines-Japan tax treaty Reyes Tacondong & Co. PHINMA Plaza, 39 Plaza Drive, Rockwell Center, Makati City 1200 Attention: Rafael Ma. C. Vinzon Authorized Representative Gentlemen : This refers to your application for tax treaty relief dated 27 July 2013 requesting confirmation that dividends paid by Bridgestone Precision Molding Philippines, Inc. ("Bridgestone-Philippines") to Bridgestone Corporation ("Bridgestone-Japan") are subject to final withholding tax at the preferential rate of ten percent (10%) 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. 1 It is represented that Bridgestone-Japan is a non-resident foreign corporation organized and existing under the laws of Japan, with office address at 10-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104-8340, Japan and is a company engaged in the business of planning, manufacturing, selling, installing leasing, repairing, and maintaining of tires and tubes for automobiles and general rubber products, among others based on the notarized and consularized Residence Certificate issued by the Kurume Tax Office of Japan and Articles of Incorporation of Bridgestone-Japan . The company Bridgestone-Japan was issued a Certificate of Withdrawal of License of a Foreign Corporation on 27 February 2009 from the Securities and Exchange Commission (SEC) based on the Certificate of Corporate Filing/Information issued by the SEC on 02 May 2013. Bridgestone-Philippines , on the other hand, is a domestic corporation with office address at Lot 1, Block 15, Phase 3, Cavite Export Processing Zone, Rosario, Cavite. SaIHDA It is further represented that Bridgestone-Japan owns 99.99% of the authorized capital stock of Bridgestone-Philippines amounting to Forty Nine Thousand Nine Hundred Ninety Five (49,995) common shares valued at Forty Nine Million Nine Hundred Ninety Five Thousand Pesos (Php49,995,000.00) as of 20 May 2013; that Bridgestone-Japan owns Forty Four Thousand Nine Hundred Ninety Eight (44,998) common shares of Bridgestone-Philippines since 07 May 2001 and purchased Four Thousand Nine Hundred Ninety Seven (4,997) common shares from Newton Co., Ltd. at the price of Fourteen Million Two Hundred Sixty Four Thousand Four Hundred Sixteen Pesos and Sixty Eight Centavos (Php14,264,416.68), based on the notarized Corporate Secretary's Certificate of Bridgestone-Philippines. On 17 May 2013, Bridgestone-Philippines declared cash dividends in the total amount of Eighty Thousand Nine Hundred Ninety Five US Dollars (US$80,995.00) to be distributed among the stockholders of record as of 20 May 2013 to be payable on 28 June 2013 based on the notarized Minutes of the Special Meeting of the Board of Directors of Bridgestone-Philippines. Further, on 05 July 2013, Bridgestone-Philippines remitted the amount of Seventy Two thousand Eight Hundred Ninety Five US Dollars (US$72,895.00) based on a duly notarized Certificate of Remittance issued by bank of Tokyo-Mitsubishi UFJ, Manila, Branch as proof of remittance. It is finally represented that the dividends subject of this ruling are not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, judicial or administrative protest, collection proceedings or judicial appeal based on the Certificate of No Pending Case of Bridgestone-Philippines President Takeshi Hasegawa. In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997 (" NIRC of 1997 "), as amended, dividends paid to Bridgestone-Japan are subject to income tax at the rate of 30 percent, thus: "SEC. 28. Rates of Income Tax on Foreign Corporations. TICDSc 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 interests, 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) and (d) above: * Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, these dividends may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "SEC. 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." DEcTCa For this purpose, you invoke the Philippines-Japan tax treaty. Paragraphs 1 and 2 of Article 10 on Dividends thereof provide: "Article 10 Dividends 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 the 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 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." STaHIC Based on the above-quoted 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% if the company recipient of the dividends holds directly at least 10% of the voting shares or the total shares of the company paying the dividends, during the period of 6 months immediately preceding the date of payment of the dividends, or if the latter company is registered with the Board of Investments and engaged in preferred areas of investment under the investment incentive laws of the Philippines, and (b) 15% in all other cases. Considering that more than six (6) months immediately preceding the date of payment of cash dividend or since 30 March 2005, Bridgestone-Japan owns 99.99% or 49,995 common shares in Bridgestone-Philippines , which is more than the 10 percent shareholding requirement to avail of the 10 percent rate, this Office is of the opinion and so holds that the dividends paid by Bridgestone-Philippines to Bridgestone-Japan are subject to the preferential tax rate of 10 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Japan tax treaty, as amended. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Protocol Amending the PH-Japan tax treaty.