ITAD Ruling No. 002-04

January 14, 2004 ITAD RULING NO. 002-04 Art. 10, Philippines-Korea tax treaty BIR Ruling No. DA-ITAD-138-03 Samsung Electro-Mechanics Philippines Corp. Blk. 5 Calamba Premiere International Park Brgy: Batino, Prinza, Calamba Laguna Attention: Mr. Dae Sik Choi General Manager Gentlemen : This refers to your letter dated July 29, 2003, requesting that the preferential tax rate of 10% be applied on the dividend payments of Samsung Electro-Mechanics Philippines Corp. (Samsung-Phil) to Samsung Electro-Mechanics Co., Ltd (Samsung-Korea) pursuant to Article 10 of the Philippines-Korea tax treaty. It is represented that Samsung-Korea is a corporation organized and existing under the laws of Korea with principal address at 314 Maetan 3-Dong, Paldal-Gu, Suwon-Si, Kyunggi-Do, Korea; that it is not registered either as a corporation or as a partnership per certification issued by the Securities and Exchange Commission dated August 18, 2003; that Samsung-Phil is a PEZA registered corporation organized and existing under the laws of the Philippines with principal address at Blk. 5, CPIP Batino, Prinza, Calamba Laguna, that Samsung-Korea is the registered owner of Four Million Forty Six Thousand Seven Hundred Six (4,046,706) shares with a par value of P2,023,353,000 with the percentage ownership of 93.67% of the outstanding capital of Samsung-Phil; and that at the meeting of the Board of Directors of Samsung-Phil held on May 10, 2002, it was resolved that the amount of US$ 9 Million or its equivalent, based on the exchange rate prevailing at the time of payment, is declared as cash dividend to be shared according to individual shareholdings of stockholders of record as of the date of the said meeting payable on or before May 31, 2002. In reply please be informed that Article 10 of the Philippines-Korea tax treaty provides as follows: "Article "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 State. 2. However, such dividends may also be taxed in Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the recipient is the beneficial owner of the dividends the tax so charged not exceed; "(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends; and "(b) 25 per cent of the gross amount of the dividends in all other cases. "This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. "3. . . . "4. The term 'dividends' as used in this Article means income from shares 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. "xxx xxx xxx" In view of the foregoing, and since Samsung-Korea is a beneficial owner which holds directly more than 25% of the total shares of Samsung-Phil, the case dividends payable by Samsung-Phil to Samsung-Korea are subject to the preferential tax rate of 10% of the gross amount of the dividends. (BIR Ruling No. 138-03 dated September 15, 2003) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. ETaHCD Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service