Sanyo Plastic Philippines, Inc.

September 14, 2011 ITAD BIR RULING NO. 228-11 Article 10 (2) (a) of the Philippines-Japan tax treaty, as amended; BIR Ruling No. ITAD-07-10; BIR Ruling No. ITAD-08-10; BIR Ruling No. ITAD-11-10; BIR Ruling No. ITAD-35-10; BIR Ruling No. ITAD-107-00 Sanyo Plastic Philippines, Inc. 110 East Main Avenue SEPZ, LTI, Bian, Laguna Attention: Maria Modesta E. Quilantang Finance Assistant Manager Gentlemen : This refers to your letter dated February 12, 2010, on behalf of Mr. Masami Ishii and Sanyo Plastic Industrial Co.,Ltd. ("Sanyo-Japan") ,requesting confirmation that the dividends received by Mr. Ishii and Sanyo-Japan from their stock investments in Sanyo Plastic Philippines, Inc. ("Sanyo-Phil") are subject to a preferential withholding tax rate of 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") , 1 as amended by a Protocol effective January 1, 2009. aEcSIH It is represented that Mr. Masami Ishii is a nonresident Japanese national with address at 8-7, 1-chome, Noge, Setagaya-ku, Tokyo, Japan based on Residence Certificate issued on May 20, 2010 by Motoyuki Tsunoda, District Director of Tamagawa Tax Office; that Mr. Ishii is not registered to do business in the Philippines per Negative Certification issued by Department of Trade and Industry dated February 2, 2010; that Sanyo-Japan is a corporation organized and existing under the laws of Japan with principal address at 9-9, 2-chome, Chidori, Ota-ku, Tokyo, Japan per Residence Certificate issued on May 20, 2010 by Hiroshi Ueoka, District Director of Yukigaya Tax Office; 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 February 9, 2010; and that Sanyo-Phil, on the other hand, is a corporation duly organized and existing under Philippine laws with office address at 110 East Main Avenue, Special Export Processing Zone, Laguna Technopark, Bian, Laguna. It is further represented that on October 19, 2009, the Board of Directors of Sanyo-Phil resolved to declare a dividend in the total amount of Thirty-Nine Million Yen (JP39,000,000.00) equivalent to Nineteen Million Nine Hundred Forty Thousand Seven Hundred Pesos (PhP19,940,700.00),to all stockholders of record as of October 31, 2009, in proportion to their respective stockholdings; that per Secretary's Certificate issued by Sanyo-Phil dated June 11, 2010, Mr. Ishii and Sanyo-Japan respectively hold 16% and 43.713% of the shares of Sanyo-Phil, six months prior to the date of payment of the dividends which was on February 1, 2010; that per Sworn Statement issued by Sanyo-Phil dated February 8, 2010, 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 proceeding, or judicial appeal. In reply, please be informed that Section 25 (B) (1) of the National Internal Revenue Code ("Tax Code") of 1997, as amended, applies in general to dividends received by a nonresident alien not engaged in trade or business, thus: "Section 25. Tax on Nonresident Alien Individual . (B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines. There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every nonresident alien individual not engaged in trade or business within the Philippines as interest, cash and/or property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income, and capital gains, a tax equal to twenty-five percent (25%) of such income. ... On the other hand, Section 28 (B) (1) of the Tax Code of 1997, as amended, applies in general to dividends received by a nonresident foreign corporation, thus: "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%)." SECcIH 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, as amended by Article III of its Protocol, 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: 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. 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." (emphasis supplied) Based on the above, 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 or of the total shares of the first-mentioned company for a period of 6 months immediately preceding the date of payment of the dividends; and 15 percent of the gross amount of the dividends in all other cases. In view thereof, as to the individual beneficial owner, Mr. Ishii, the dividend payment by Sanyo-Phil to him is subject to 15 percent preferential tax rate pursuant to Article 10 (2) (b) of the Philippines-Japan tax treaty, as amended. (BIR Ruling No. ITAD-107-00 dated August 9, 2000) However, as to the company beneficial owner, Sanyo-Japan, considering that it holds directly more than 10 percent shareholdings in Sanyo-Phil within the 6 months period immediately preceding the date of payment of dividends on February 1, 2010, the dividends paid by Sanyo-Phil to Sanyo-Japan are subject to 10 percent preferential tax rate, pursuant to Article 10 (2) (a) of the Philippines-Japan tax treaty, as amended. (BIR Ruling No. ITAD-07-10 dated May 20, 2010; BIR Ruling No. ITAD-08-10 dated June 3, 2010; BIR Ruling No. ITAD-11-10 dated June 16, 2010; BIR Ruling No. ITAD-35-10 dated September 14, 2010) 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 Footnotes 1. Signed on February 13, 1980, and effective January 1, 1980.