ITAD BIR Ruling No. 278-12

July 9, 2012 ITAD BIR RULING NO. 278-12 Article 10 (2) (a), Philippines-Japan Tax treaty; BIR Ruling No. ITAD-32-11 Sumidenso Automotive Technologies Asia Corporation N2835 J. Abad Santos Avenue corner Bayanihan Street Clark Freeport Zone, Pampanga Attention: Kazuhiko Mori President Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on July 22, 2011, requesting confirmation that the dividend payments of Sumidenso Automotive Technologies Asia Corporation ("Sumidenso") to Sumitomo Wiring Systems, Ltd. ("Sumitomo") are subject to 10 percent preferential withholding tax rate pursuant of the Article 10 (2) (a) of 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"). It is represented that Sumitomo, with address at 1-14 Nishisuehiro-cho, Yokkaichi, Mie, 510-8503, Japan, is a corporation organized and existing under the laws of Japan, and is a resident of Japan within the meaning of the Philippines-Japan tax treaty per the Residence Certificate issued by the District Director of Yokkaichi Tax Office dated September 14, 2011; 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 July 21, 2011; and that, on the other hand, Sumidenso is a corporation organized and existing under the laws of the Philippines, with principal address at N2835 J. Abad Santos Avenue corner Bayanihan Street Clark Freeport Zone, Pampanga. It is further represented, based on a Certification issued by the Director/Treasurer of Sumidenso dated November 8, 2011, that a cash dividend in the amount of Two Hundred Sixty-Nine Thousand Three Hundred Ninety Nine 43/100 US Dollars (US$269,399.43) in favor of all stockholders as of July 6, 2011 was authorized to be transferred from the unrestricted earnings of Sumidenso, to be paid in full on or before July 31, 2011; that the net cash dividend in the amount of Two Hundred Forty-Two Thousand Four Hundred Fifty-Nine 49/100 US Dollars (US$242,459.49) was remitted to Sumitomo on July 28, 2011 via Bank of Tokyo Mitsubishi UFJ; that per the Corporate Secretary's Certificate issued by Sumidenso dated July 22, 2011, Sumitomo owns 100% of the issued common shares of Sumidenso including the 5 shares issued to its nominees to the Board of Directors of the latter which were acquired on various dates from June 1999 to October 2001. EaCDAT It is finally represented, per Certification dated July 20, 2011 issued by Sumidenso, that the issue or transaction subject of this request for ruling is not under investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. 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. 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 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. 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" Thus, Article 10 of the Philippines-Japan tax treaty, as amended, which you invoke, may apply to the instant case. It provides: HAEDIS "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 percent 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." Based on the aforequoted 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 percent of the gross amount of the dividends if (i) the beneficial owner is a company which 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, or (ii) the dividends are paid by a company, being a resident of the Philippines, which is registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines; and (b) 15 percent of the gross amount of the dividends, in all other cases. DCaEAS In view thereof, considering that Sumitomo holds 100 percent ownership in Sumidenso, and that Sumitomo held these shareholdings for more than six months immediately preceding the date of payment of the dividends, such dividends to be paid by Sumidenso to Sumitomo are subject to the preferential tax rate of not exceeding 10 percent of the gross amount thereof, pursuant to paragraph 2 (a), Article 10 of the Philippines-Japan tax treaty, as amended. (BIR Ruling No. ITAD-32-11 dated January 28, 2011) 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