ITAD Ruling No. 021-00

January 28, 2000 ITAD RULING NO. 021-00 RP-Japan Article 12 UN-234-8-2-94 Itabashi Seiki Philippines, Inc. Lot 1,1A 3 Block 16 Phase IV Cavite Export Processing Zone Rosario, Cavite Attention: Ms . Cilda B . Puyod Finance and Administrative Manager Gentlemen : This refers to your application for relief from double taxation on behalf of ITABASHI SEIKI CO., LTD (ISCL) requesting for a preferential tax treaty rate of 25% on royalty payments made by ITABASHI SEIKI PHILIPPINES, INC. (ISPI) pursuant to the RP-Japan Tax Treaty. It is represented that ISCL is a non-resident foreign corporation duly organized and existing under the laws of Japan with principal office at 45-17 Ikebukuro Honcho 4-Chome, Toshima-Ku, Tokyo, Japan; that ISCL has no permanent establishment here in the Philippines as per certification dated June 8, 1999 issued by the Securities and Exchange Commission; that ISPI is a domestic corporation with office address at Lot 1, 1A 3 Block 16, Phase IV, Cavite Export Processing Zone, Rosario, Cavite and registered as a Zone Export Enterprise with Certificate of Registration No. 95-06 at Export Processing Zone Authority (EPZA) on January 2, 1995; that on October 18, 1998, ISCL entered into Technological Transfer Agreement and Assistance Agreement with ISPI which shall be valid and effective for three (3) years from its execution, whereby ISCL granted the right to use the technical information and know-how pertaining to the manufacture and assembly of printed wiring boards, improvement of sales and management of the ISPI business; that in consideration of the said services, ISPI shall pay ISCL a basic fee rate equivalent to single-sided product sales unit price x 2% plus single-sided product sales quantity at US$0.4 from October 1998 to September 1999. In reply, please be informed that Article 12 of the RP-Japan Tax Treaty provides, viz: "Article 12 1. Royalties 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 royalties may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed: a) 15 per cent of the gross amount of the royalties if the royalties are paid in respect of the use of or the right to use cinematograph films and films or tapes for radio or television broadcasting; llcd b) 25 per cent of the gross amount of the royalties in all other cases. 3. . . . 4. The term "royalties" as used in this Article means payment of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. xxx xxx xxx" Such being the case, the royalty payments paid by ISPI to ISCL shall be subject to 25% withholding tax based on the gross amount of royalties. This ruling is issued based on the 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group