ITAD Ruling No. 005-01

February 12, 2001 ITAD RULING NO. 005-01 RP-Japan Article 10 ITAD 44-99 Sycip Gorres Velayo & Co . 3rd Floor, Insular Life Building Cor. Gorordo & Gen. Maxilom Avenues Cebu City Attention: Lauris L . dela Pea Tax Division Gentlemen : This refers to your letter dated June 05,2000, requesting confirmation of your opinion that the dividend to be remitted by FAS Cebu Corporation (FAS) to Nissan Altia Co., Ltd. (NISSAN) is subject to 10% withholding tax and the remittance of dividends to Sanki Kogyo Co., Ltd. (SANKI) and Fujii Sangyo Co., Ltd. (FUJII) shall be subject to 25% withholding tax pursuant to the RP-Japan Tax Treaty. It is represented that FAS is a corporation organized and existing under the laws of the Philippines with business address at Mactan Economic Zone, Lapu-lapu City, Cebu; that during the regular meeting of FAS' Board of Directors held on April 03,2000, it was resolved that the portion of the 1999 unrestricted retained earnings amounting to three million pesos (P3,000,000.00) be declared as cash dividends to all stockholders of record as of March 31, 2000; that NISSAN, SANKI and FUJII are stockholders of FAS from September 20, 1995, the date of incorporation, up to March 31, 2000, and their respective percentage of ownership are as follows: 60%, 20%, 20%; that NISSAN, SANKI and FUJII are non-resident foreign corporations, organized and existing under the laws of Japan with principal offices at Minato-ku Tokyo Japan, Ota-ku Tokyo Japan and Fukuoka Japan, respectively; and that NISSAN, SANKI and FUJII have no permanent establishment in the Philippines as per certification issued by the Securities and Exchange Commission. In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides 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 percent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 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; CITcSH b) 25 percent of the gross amount of the dividends in all other cases The provisions of this paragraph shall not affect the taxation of company in respect of the profits out of which the dividends are paid. 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. 5. To be entitled to the application of the 10% preferential tax rate on dividends, the recipient, who is the beneficial owner of the shares of stocks shall hold directly at least 25% of the voting shares or the total shares issued by the company issuing the dividend and such shares must be held for the period of at least six (6) months immediately preceding the date of payment of the dividend." The 10% preferential tax rate on dividend applies whenever the beneficial owner/recipient of the dividends owns at least 25% of the outstanding voting shares of the paying company and has been holding the said shares six months immediately preceding the date of payment of the dividends. Since NISSAN, SANKI and FUJII, respectively owns 60%, 20% and 20% of the total outstanding stocks of FAS as of record date and having been the holder of which from September 20, 1995 to March 31, 2000, the cash dividends to be remitted by FAS to NISSAN are entitled to the 10% preferential tax rate under Article 10(2)(a) of the RP-Japan Tax Treaty and the remittances of dividends to SANKI and FUJII are subject to 25% preferential tax rate under Article 10(2)(b) of the same tax treaty.(ITAD 44-99) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. AETcSa Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group