ITAD Ruling No. 019-00

January 28, 2000 ITAD RULING NO. 019-00 RP-Japan, Art. 11 DA-359-98 UN-014-1-9-95 Joaquin Cunanan & Co. 14TH Floor, Multinational Bancorporation Centre 6805 Ayala Avenue, 1226 Makati City Attention: Atty . George J . Lavadia Principal Tax Services Department Gentlemen : This refers to your application for the availment of the preferential tax treaty rate of 15% final withholding tax relative to the interest payments on the loan obtained by your client TDK Philippines Corporation (TDK-Phils.) from TDK Corporation of Japan (TDK- Japan). LibLex It is represented that TDK-Japan is a nonresident foreign corporation organized and existing under the laws of Japan with office address at 1-31-1 Nihonbashi, Chuo-ku, 103 Tokyo, Japan, while TDK-Phils. is a domestic corporation organized and existing under Philippine laws with business address at 119 East Service Ave., Special Export Processing Zone, Laguna Technopark, Bian, 4024 Laguna; that on July 24, 1998, TDK-Phils obtained a loan of THIRTEEN MILLION U.S. DOLLARS (US$13,000,000.00) from TDK-Japan to be used as operating funds; that the loan is payable on July 23, 1999; that the interest rate on the said loan will be the Floating Rate as defined in the Agreement plus 0.20 percent/annum on each interest payment date; that the interest payment date shall be on January 25, 1999 and July 23, 1999. In reply, please be informed that Art. 11 of the RP-Japan Tax Treaty states that: "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 percent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; (b) 15 percent of the gross amount of the interest in all other cases." Accordingly, the interest payments on the loan obtained by TDK-Phils. from TDK-Japan are subject only to 15% preferential tax rate pursuant to the above-quoted provision of the RP-Japan Tax Treaty considering that the recipient-payee is the beneficial owner of the interest and the interest income was not generated from Government securities, bonds or debentures.(BIR Rulings No. DA-359-98 and UN-014-1-9-95). This ruling is being issued on the basis of the foregoing representation. However, if upon investigation, it will be discovered or disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group