ITAD Ruling No. 006-99

July 20, 1999 ITAD RULING NO. 006-99 RP-Japan-Art. 11 142-95 Juntec Corporation Block 5, Lot 7, LIIP-PEZA Bo. Mamplasan, Bian, Laguna Attention: Nilo A . Alinsangan Managing Director Gentlemen : This refers to your letter dated 22 March 1999 requesting a ruling to the effect that the interest income to be remitted by JUNTEC CORPORATION (JUNTEC) to HONKO SEIKOSHO CO., LTD. (HONKO) shall be subject to fifteen per cent (15%) pursuant to the RP-Japan Tax Treaty. It is represented that HONKO is a non-resident foreign corporation, duly organized and existing under the laws of Japan; that it is not registered either as a corporation/partnership in the Philippines as per certification dated 22 March 1999 issued by the Securities and Exchange Commission; that JUNTEC is a corporation duly organized and existing under the laws of the Philippines; that on 21 March 1997, a Loan Agreement was entered into by and between HONKO and JUNTEC whereby the former made a loan to the latter in the amount of JPY173,067,424.00 or P42,159,225.00 payable within a period of seven (7) years at an interest rate of 5.883% per annum on the outstanding balance of the principal. LexLib In reply, please be informed that Article 11 of the RP-Japan Tax Treaty provides as follows: "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; b) 15 per cent of the gross amount of the interest in all other cases. xxx xxx xxx "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. llcd xxx xxx xxx" Such being the case, the interest income to be remitted by JUNTEC CORPORATION to HONKO SEIKOSHO CO., LTD. relative to the aforementioned loan shall be subject to the preferential tax rate of 15% (as per BIR Ruling No. 142-95, dated 13 September 1995). 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 null and void. LexLib Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group