ITAD BIR Ruling No. 267-13

September 16, 2013 ITAD BIR RULING NO. 267-13 Article 10, Philippines-Japan tax treaty Fernandez Aguja Law Firm CPA-Lawyers Suite 5F JL Bldg., Don Jose Avila, Cor. Don Gil Garcia Streets, Cebu City 6000, Philippines Attention: Atty. Luna Mae F. Aguja Partner Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on May 31, 2013 requesting confirmation that the dividends paid by Kyocera Crystal Device Philippines, Inc. ("Kyocera Philippines") to Kyocera Crystal Device Corporation ("Kyocera") 1 (formerly Kyocera Ltd.) are subject to income tax at the rate of 10 percent 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") . 2 Kyocera is a foreign corporation and a resident of Japan based on its amended Articles of Incorporation and Certificate of Residence issued by the Mushashinofucyu Revenue in Japan on July 13, 2012. Kyocera is located at 8-1, 1 Izumi-honcho, Komae-shi, Tokyo, Japan. It is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Company issued by the Securities and Exchange Commission on February 26, 2013. On the other hand, Kyocera Philippines is a domestic corporation located at NCTO-Special Economic Zone, Barangay Cantao-an, Naga, Cebu, Philippines. On May 17, 2013, the Board of Directors of Kyocera Philippines approved a resolution declaring cash dividends of P37,299,629.92 in favor of its stockholders of record of the corporation as of June 30, 2012, and payable not earlier than June 22, 2013. Based on the Corporate Secretary's Certificate issued on May 20, 2013, Kyocera ,as of June 30, 2012, holds 99.99 percent of the shares of stock of Kyocera Philippines ,each share with a par value of P1,000.00, as described below: IaECcH Stockholder Mode of Number of Percentage Value Acquisition Shares Kyocera Original Purchase 499,994 99.99 percent 499,994,000.00 5 nominees Original Purchase 6 0.01 percent 6,000.00 Total 500,000,000.00 ============ These shares were acquired by Kyocera at the time of incorporation of Kyocera Philippines on January 27, 1997. Based on the Certification issued by the Bank of the Philippine Islands 3 on June 24, 2013, the dividends amounting to 79,775,824.00 were remitted by Kyocera Philippines to Kyocera on June 24, 2013. Ruling In reply, please be informed that since the TTRA was filed on May 31, 2013 and the dividends subject thereof were paid afterwards on June 24, 2013 ,such dividends shall be subject to relief (exemption from income tax or reduction of tax) pursuant to Section 14 of Revenue Memorandum Order No. 72-2010 (Guidelines on the Processing of Tax Treaty Relief Applications (TTRA) Pursuant to Existing Philippine Tax Treaties) ,to wit: " 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 the Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms or any necessary documents are submitted to any other BIR Office, the application shall be considered as improperly filed. DCaEAS 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 ." (Emphasis ours) Article 10 of the Philippines-Japan tax treaty provides relief to dividends as follows: "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." Under this article, 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 if the company recipient of the dividends 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, and (b) 15 percent in all other cases. Accordingly, since Kyocera holds directly at least 10 percent of the total shares of Kyocera Philippines during the period of six months immediately preceding the date of payment of the dividends on June 24, 2013, where Kyocera holds 99.99 percent of the total shares of Kyocera Philippines since January 27, 1997 ,such dividends paid by Kyocera Philippines to Kyocera shall be subject to income tax at the rate of 10 percent, pursuant to paragraph 3 (a), Article 10 of the Philippines-Japan tax treaty. IDETCA 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. Originally Kinseki Ltd. ,then Kyocera Kinseki Corporation . 2. As amended by the Protocol Amending 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 effective January 1, 2009 . 3. Located at 6768 Ayala Avenue, Makati City, Philippines.