ITAD Ruling No. 009-00

January 13, 2000 ITAD RULING NO. 009-00 RP-Japan Art. 10 DA-055-2-2-96 Filplas Company Inc. Rm. 411 Solmac Building 34 Banaue cor. Dapitan Sts., Quezon City Attention: Mr . Enrique John Tan President Gentlemen : This refers to your letter dated August 11, 1999 requesting for a ruling on the correct amount of tax to be withheld by Filplas Company Inc. (Filplas) on its dividend remittances to Itochu Corporation of Tokyo, Japan (Itochu-Japan). llcd It is represented that Itochu-Japan is organized and existing under the laws of Japan; that it was duly licensed to engage in trade or business in the Philippines through its Manila branch under Securities and Exchange Commission License No. 507 dated May 19, 1967; that Filplas is a local company with business address at Solmac Bldg. 34 Banaue cor. Dapitan Sts. in Quezon City; that Itochu-Japan holds 40% of Filplas outstanding capital; that investments to Filplas came directly from Tokyo, Japan; and that Filplas is planning to declare dividends to its stockholders as of March 31, 1999. In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides as follows: " Article 10 (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 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 percent 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; llcd (b) . . . In view of the foregoing, and since Itochu-Japan holds forty percent (40%) of the outstanding capital of Filplas, the dividend remittance to Itochu-Japan is subject to the preferential tax treaty rate of ten percent (10%) notwithstanding the fact that Itochu has a Philippine branch. This proceeds from the fact that the investment in Filplas was made independently by Itochu-Japan and not by the Philippine branch. This being the case, the dividend income cannot be attributed as an ordinary consequence of Itochu's trade or business in the Philippines (Marubeni Corporation vs. Commissioner of Internal Revenue and Court of Tax Appeals, G.R. No. 76573, September 14, 1989, 177 SCRA, 500). 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group