ITAD Ruling No. 005-99

June 16, 1999 ITAD RULING NO. 005-99 RP-Japan Article 11 Mr. Yoshimi Muto President Imasen Philippines Manufacturing Corporation 101 East Main Ave., Laguna Technopark Bian, Laguna PHILIPPINES S i r : This refers to your letter dated 8 March 1999 requesting for a ruling to the effect that the interest payments to be made by Imasen Philippines Manufacturing Corporation (IPMC) to Imasen Electric Industrial Co., Ltd. (Imasen Japan) shall be subject to 15% pursuant to the RP-Japan Tax treaty. It is represented that Imasen Japan is a non-resident foreign corporation organized and existing under the laws of Japan with principal address at No. 1 Aza-Kakihata, Inuyama, Aichi Pref., Japan; that it has no permanent establishment in the Philippines as evidenced by its Certificate of Non-Registration from the Securities and Exchange Commission dated 6 April 1999; that a Loan Agreement was entered into by and between Imasen Japan and its subsidiary, IPMC, with principal address at No. 101 East Main Ave., Laguna Technopark, Bian, Laguna in the amount of One Hundred and Twenty Million Japanese Yen (JPY 120,000,000); that the loan has a life of eight (8) years and six (6) months effective from 9 December 1997 to June 2006 inclusive of 4 years grace period; that the rate of interest shall be two and one-half percent (2.5%) per annum payable semi-annually without need of demand; and that the principal shall be paid in ten (10) semi-annual installments in Japanese currency at the end of June and at the end of December with the first payment to be made at the end of December 2001; and that the proceeds of the loan shall be used by IPMC to acquire machineries and equipment for its operations. In reply thereto, please be informed that Article 11 of the RP-Japan Tax Treaty provides, viz: "Article 11 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. 2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed: a) 10 per cent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; llcd b) 15 per cent of the gross amount of the interest in all other cases." 3. . . . 4. . . . 5. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtors profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures". Such being the case, interest payments to be made by IPMC to Imasen Japan shall be subject to 15% income tax based on the gross amount of the interest pursuant to Article 11(2)(b) of the RP-Japan Tax Treaty. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling is considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue