ITAD BIR Ruling No. 407-12

December 20, 2012 ITAD BIR RULING NO. 407-12 Article 10, Philippines-Japan Tax Treaty, as amended Angara Abello Concepcion Regala & Cruz 22/F ACCRALAW Tower 2nd Avenue corner 30th Street Crescent Park, West Bonifacio Global City 0339 Taguig, Metro Manila Attention: Atty. Ruby Rose J. Yusi Authorized Representative Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on July 13, 2011, on behalf of Ajinomoto Co.,Inc. ("ACI") ,requesting confirmation that dividend payments made by Ajinomoto Philippines Corporation ("APC") to ACI are subject to 10 percent preferential tax rate pursuant to the Philippines-Japan tax treaty, as amended. 1 It is represented that ACI, with principal office address at 15-1, Kyobashi 1-chome, Chuo-ku, Tokyo, 104-8315, Japan, is a corporation organized and existing under the laws of Japan and is a resident of Japan per Certification of Domicile issued by the District Director of Kyobashi Tax Office on May 11, 2011; that ACI is not registered either 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 on July 4, 2011; and that APC, on the other hand, is a domestic corporation duly organized and existing under the laws of the Philippines with principal address located at Ajinomoto Building, 331 Sen. Gil Puyat Avenue, Makati City. It is also represented, per Secretary's Certificate dated July 11, 2011, that as of July 11, 2011, ACI owns 6,321,718 common shares with total par value of Php632,171,800.00, representing 95% of the outstanding capital stock of APC; and that these shares were acquired on various dates from December 29, 1967 to July 31, 2007 by purchase from stockholders, original issuance and stock dividends by ACI. ATEHDc It is further represented that at the Organizational Meeting of the Board of Directors of APC on July 4, 2011, the Board authorized the declaration of a cash dividend in the amount of Fourteen Million Nine Hundred Ninety Thousand Four Hundred Seventy-Seven Pesos (Php14,990,477.00) out of the unrestricted retained earnings of the APC as of March 31, 2011; that the dividend was remitted to ACI on July 15, 2011 as evidenced by a sworn certification issued by APC of the telegraphic transfer of the dividend through the RCBC. It is finally represented, based on the Sworn Statement by the same Corporate Secretary on November 9, 2011, that the transaction subject of the request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal of the taxpayer/s involved. 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: "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 . . . dividends, rents, royalties . . .: 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 . ESCTaA 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: "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. 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. TIAEac 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 months immediately preceding the date of payment of the dividends. In all other cases, the 15 percent rate shall apply. Considering that since July 31, 1997, which is more than the period of six (6) months immediately preceding the date of payment of the cash dividend, ACI owns 40,279 common shares, constituting 95% stock in APC, which is more than the 10 percent shareholding requirement of the total shares issued by that company, as shown in the certification issued by the Corporate Secretary of APC dated July 11, 2011, then the dividends paid by APC to ACI are subject to 10 percent of the gross amount of dividends, pursuant to Article 10 (2) (a) of the Philippines-Japan tax treaty, 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. HSIADc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. 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.