ITAD BIR Ruling No. 290-12

July 17, 2012 ITAD BIR RULING NO. 290-12 Article 10, Philippines-Japan tax treaty, as amended Ingasco, Incorporated 23rd Floor, One Corporate Center Doa Julia Vargas corner Meralco Avenue Ortigas Center, Pasig City Attention: Masahiko Kitabatake President Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on December 09, 2011 requesting confirmation that the dividends paid by INGASCO, INCORPORATED ("INGASCO") to TAIYO NIPPON SANCO CORPORATION ("TNSC") are subject to the preferential tax rate of 10 percent 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 1 ("Philippines-Japan tax treaty, as amended") . It is represented that TNSC, with address at Toyo Bldg. 1-3-26 Koyama, Shinagawa-ku, Tokyo 142-8558, Japan, is a corporation organized and existing under the laws of Japan and is a resident thereof based on the Certificate of registration as taxpayer issued by the District Director of Ebara District Tax Office dated December 21, 2011; that TNSC 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 dated June 16, 2011; that, on the other hand, INGASCO is a corporation duly organized and existing under the laws of the Philippines with office address at 8th Floor West Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City, Manila. It is also represented, based on the March 29, 2012 Secretary's Certificate, that as of December 15, 2010 and December 31, 2011, TNSC is the registered owner of 6,082,729 common shares of stock of INGASCO with a total par value of PhP608,272,900.00, which is equivalent to 69.81% of the total issued and outstanding capital stock of INGASCO, acquired through subscription in various years beginning 1996. It is further represented that at the Special Meeting of INGASCO's Board of Directors on October 20, 2011, resolutions were approved declaring cash dividends as follows: 1) Sixty Million Pesos (PhP60,000,000.00),for the year 2010, to stockholders on record as of December 15, 2010, payable on or before December 31, 2011; and 2) Sixty Million Pesos (PhP60,000,000.00),based on unrestricted retained earnings of INGASCO for the year 2011, for stockholders on record as of December 31, 2011, payable on or before March 31, 2012; that on December 14, 2011, however, at a meeting of the same Board of Directors, a resolution to revise the October 20, 2011 resolution was approved such that the cash dividends for the year 2011 shall be payable after April 01, 2012; and that the submitted proof of payment of dividends shows that INGASCO remitted cash dividends to TNSC in the amounts of JPY66,135,739.47 on January 05, 2012, and JPY71,551,076.19 on April 12, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code of 1997 (Tax Code), as amended, provides as follows: "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%). ADTCaI xxx xxx xxx" However, under Section 32 (B) (5) of the Tax Code, as amended, such income derived by a nonresident foreign corporation in the Philippines may be exempt from income tax or partially exempt, if subject to reduced rate only, pursuant to a treaty obligation binding upon the Philippine government. It states: "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" Hence, the provisions of Article 10 of the Philippines-Japan tax treaty, as amended, which you invoked, may apply. It provides: "Article 10 DIVIDENDS 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. 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. 3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the Philippines on the dividends paid by a company, being a resident of the Philippines, registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends, shall not exceed 10 per cent of the gross amount of the dividends. 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 above-quoted 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 if the company recipient of the dividends holds directly at least 10 percent of the voting shares or the total shares of the company paying the dividends, during the period of six months immediately preceding the date of payment of the dividends, or if the latter company is registered with the Board of Investments and engaged in preferred areas of investment under the investment incentive laws of the Philippines, and (b) 15 percent in all other cases. Accordingly, since TNSC holds directly 69.81 percent of the total shares of stock of INGASCO during the period of six months immediately preceding the date of payment of the dividends, such dividends paid by INGASCO to TNSC are subject to income tax at the rate of 10 percent of the gross amount thereof pursuant to Article 10 (2) (a) of the Philippines-Japan tax treaty, as amended. 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. DEHaAS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The Protocol amending the Philippines-Japan tax treaty took effect on January 01, 2009.