ITAD BIR Ruling No. 247-12

June 7, 2012 ITAD BIR RULING NO. 247-12 Article 10, Philippines-Japan tax treaty, as amended San Miguel Yamamura Asia Corporation Km. 27, Aguinaldo Highway Anabu II, Imus, Cavite Attention: Mr. Rito Bimobo L. Baliwag Representative Gentlemen : This refers to your tax Treaty Relief Application ("TTRA") filed on January 16, 2012, on behalf of Nihon Yamamura Glass Co. Ltd. ("Nihon") ,requesting confirmation that dividend payments made by San Miguel Yamamura Asia Corporation ("San Miguel") to Nihon are subject to 10 percent preferential tax rate pursuant to 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 Nihon, with address at 15-1, Nishimukojima-cho, Amagasaki, Hyogo, Japan, is a resident of Japan under the provisions of the Philippines-Japan tax treaty per the Residence Certificate issued by the District Director of Amagasaki Tax Office on January 13, 2012; that Nihon is not registered as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated January 17, 2012; and that San Miguel, on the other hand, is a domestic corporation duly organized and existing under the laws of the Philippines with office address located at Km. 27, Aguinaldo Highway, Anabu II, Imus, Cavite. It is also represented, per Corporate Secretary's Certificate issued by San Miguel dated January 16, 2012, that the Board of Directors of San Miguel passed and approved the declaration of cash dividends on December 2, 2011 amounting to Forty-three Million Six Hundred Fifty-six Thousand Eight Hundred Fifty Pesos (Php43,656,850.00) in favor of the preferred stockholders of record of San Miguel as of December 2, 2011, paid on December 29, 2011; that based on the records of San Miguel, Nihon owns an aggregate of 4,000,000 preferred shares with a total par value of Php400,000,000.00 consisting of 40% of the outstanding capital stock of San Miguel. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (Tax Code of 1997), as amended, applies, in general, to dividends derived in the Philippines by a nonresident foreign corporation. It provides: cIECTH "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 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%). xxx xxx xxx" 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" In relation thereto, Article 10 of the Philippines-Japan tax treaty, as amended, may apply to the instant case. It provides that: "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. TaCDcE 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. 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 foregoing, 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 of the company paying the dividends 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; and in all other cases, 15 percent rate shall apply. Relative thereto, however, please be informed that Section 14 of Revenue Memorandum Order ("RMO") No. 72-2010, published in the Manila Bulletin on October 20, 2010, and effective November 4, 2010, provides, as follows: "Section 14. When and Where to File the TTRA. All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms of any necessary documents are submitted to any other BIR office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO ." (Emphasis supplied) SEHACI Considering that the TTRA on the dividends declared on December 2, 2011 and paid on December 29, 2011 was filed only January 16, 2012, the said having been filed beyond the period prescribed under RMO 72-2010, and is therefore disqualified under the same then, such dividends paid by San Miguel to Nihon will be subject to the regular income tax rate of 30 percent of the gross amount thereof, under Section 28 (B) (1) of the National Internal Revenue Code of 1997, 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