ITAD Ruling No. 022-00

January 28, 2000 ITAD RULING NO. 022-00 RP-Japan Article 12 UN-234-8-2-94 Joaquin Cunanan & Co. 14TH Floor Multinational Bancorporation Center Building 6785 Ayala Avenue, Makati City Attention: Mr . Alexander B . Cabrera Partner Gentlemen : This is in connection with your application for relief from double taxation dated May 11, 1999, requesting for a preferential tax rate of 25% to be withheld on royalty remittances by your client, DAIHO (PHILS.) INCORPORATED (DPI) to DAIHO INDUSTRIAL CO., LTD (DIC), pursuant to the RP-Japan Tax Treaty. prcd It is represented that DIC is a non-resident foreign corporation duly organized and existing under the laws of Japan, with principal office at 1-3-7, Dainichi-cho, Moriguchi, Osaka, Japan; that DIC has no permanent establishment in the Philippines as evidenced by its Certificate of Non-Registration from the Securities and Exchange Commission (SEC) dated March 16, 1999; that DPI is registered in the Philippine Economic Zone Authority (PEZA) with Certificate of Registration No. 98-033; that DPI is a domestic corporation duly registered with the SEC with office address at 102 North Science Avenue, Laguna Technopark, Bian, Laguna; that on November 1, 1998 DPI entered into a Technical Service Agreement with DIC whereby DIC granted DPI the license to use the professional techniques and know-how relative to consumer's electric and electronic products, automobiles and office information devices; that in consideration of the said services, DPI shall pay DIC an amount equivalent to 5% on the ex-factory price of the products manufactured and sold or used by DPI. 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; cdll 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 DPI to DIC shall be subject to 10% withholding tax based on the gross amount of royalties. (BIR Ruling UN-23-8-2-94) 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. cdlex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group