ITAD BIR Ruling No. 152-11

May 19, 2011 ITAD BIR RULING NO. 152-11 Article 10, Philippines-Japan tax treaty; BIR Ruling No. ITAD-008-99; BIR Ruling No. ITAD-020-99; BIR Ruling No. 087-83; BIR Ruling No. ITAD-041-99; BIR Ruling No. ITAD-047-99 Fujitsu Computer Products Corporation of the Philippines P.O. Box 4037 Makati Central Post Office, Makati City Special Export Processing Zone Carmelray Industrial Park, Canlubang, Calamba City Laguna Attention: Mr. Hiroshi Nakamura Chairman/CEO Gentlemen : This refers to your tax treaty relief application dated August 11, 2008 requesting confirmation that the applicable final withholding tax rate on dividend remittances of FUJITSU COMPUTER PRODUCTS CORPORATION OF THE PHILS. ("Fujitsu-Phil") to FUJITSU LIMITED ("Fujitsu-Japan") is 10 percent, pursuant to Article 10 (2) (a) of 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") . It is represented that Fujitsu-Japan is a corporation organized and existing under the laws of Japan with principal address at 4-1-1, Kamikodanaka, Nakahara-ku, Kawasaki-shi, Kanagawa 211-8588, Japan per the Certificate of Status of Taxable Person issued by the District Director of Kawasaki-kita Tax Office on May 23, 2008; that it is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission dated August 1, 2008; and that, on the other hand, Fujitsu-Phil is a corporation organized and existing under the laws of the Philippines and is registered with the Export Processing Zone Authority (EPZA, now Philippine Economic Zone Authority) with principal address at Road 3A SEPZ II, CIP 1, Canlubang, Calamba City 4027. It is further represented that at the organizational meeting of Fujitsu-Phil's Board of Directors on July 11, 2008, a resolution was approved declaring cash dividends amounting to Four Hundred Forty-four Million Five Hundred Eighty-three Thousand Six Hundred Two and 16/100 (P444,583,602.16) Philippine currency out of the unappropriated retained earnings of Fujitsu-Phil of One Billion Two Hundred Twenty-four Million Eight Hundred Ninety-Three Thousand Nine Hundred Thirty-one and 42/100 (P1,224,893,931.42) Philippine currency as of March 31, 2008 payable on or before September 30, 2008 to all stockholders of record as of March 31, 2008 at the rate of P1.16 per share; that, as certified by the Corporate Secretary of Fujitsu-Phil on July 28, 2008 and on March 1, 2011, Fujitsu-Phil, as of March 31, 2008, has an authorized capital stock of P3,832,617,260.00 divided into 383,261,726 common shares, with a par value of P10.00 per share; that the said authorized capital stock of Fujitsu-Phil has been fully subscribed and fully paid-up of which Fujitsu-Japan has 383,261,721 shares valued at P3,832,617,260.00 constituting 99.99% shares in Fujitsu-Phil; that Fujitsu-Japan owns the said shares six (6) months immediately preceding the date of payment of dividends. AcDHCS It is finally represented that the issue or transaction subject of this 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 as certified by the President & Chief officer of Fujitsu-Phil on August 12, 2008. 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. (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%)." However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: "Section 32. Gross Income. (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: (5) Income Exempt under Treaty . Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines." Thus, the provisions of Article 10 of the Philippines-Japan tax treaty, which you invoked, may apply to the instant case. It states: "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 25 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) 25 per cent of the gross amount of the dividends in all other cases. CIAHaT 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 aforequoted provisions, 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 25 percent of the voting shares or of the total shares of the first-mentioned company for a period of six (6) months immediately preceding the date of payment of the dividends. In view thereof and considering that Fujitsu-Japan owns 99.99% of the capital stockholdings of Fujitsu-Phil during the period of 6 months immediately preceding the date of payment, said dividends paid by Fujitsu-Phil to Fujitsu-Japan are subject to 10 percent preferential tax rate, pursuant to Article 10 (2) (a) of the Philippines-Japan tax treaty. (BIR Ruling No. ITAD-008-99 dated July 20, 1999; BIR Ruling No. ITAD-020-99 dated August 18, 1999; BIR Ruling No. 087-83 dated May 17, 1983; BIR Ruling No. ITAD-041-99 dated November 3, 1999; BIR Ruling No. ITAD-047-99 dated December 9, 1999) 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