ITAD Ruling No. 023-01

March 12, 2001 ITAD RULING NO. 023-01 Article 10 RP-Japan Treaty BIR Ruling No. ITAD-156-00 Prince Eagle Garments, Inc . Lot 1-B Blk. 2, Ampere St., LISP, PEZA Bo. Diezmo, Cabuyao, Laguna Attention: Mr . Nobuyuki Sakamoto General Manager Gentlemen : This refers to your letter dated October 16, 2000, for confirmation of your opinion that your dividend payments to Mitsui & Co., Ltd. (Tokyo/Osaka) (Mitsui) are subject to a preferential withholding tax rate of ten (10%) percent pursuant to Article 10 of the RP-Japan Treaty. It is represented that Mitsui is a non-resident foreign corporation organized and existing under the laws of Japan, with head office at 2-1, Ohtemachi 1-chome, Chiyoda-Ku, Tokyo, Japan; that it is not registered as a corporation or partnership licensed to do business in the Philippines as per certification dated October 20, 2000 issued by the Securities and Exchange Commission; that Prince Eagle Garments, Inc. (PEGI) is a domestic corporation organized and existing under the laws of the Philippines, with principal office address at Lot 1-B, Blk. 2, Ampere St., LISP, PEZA, Bo. Diezmo, Cabuyao, Laguna; that Mitsui directly holds 31.8% of the total shares of Prince Eagle Garments, Inc. amounting to Four Million Nine Hundred Ninety-Two Thousand Seven Hundred Ninety-Three Pesos and Thirty Centavos (PhP4,992,793.30); that Mitsui acquired its shares in Prince Eagle Garments, Inc. on September 22, 1995 and has been holding them up to October 14, 2000 as per Certification of Atty. Rodolfo Bausa PEGI's Corporate Secretary, in compliance with required six (6) months holding period of the shares of stock prior to declaration of dividends; that on September 27, 2000, Prince Eagle Garments' Board of Directors declared cash dividends in the amount of Fifteen Million Seven Hundred Thousand Six Hundred Seven Pesos and Ninety-One Centavos (PhP15,700,607.91); and that on September 29, 2000, said cash dividends were paid to their various stockholders including Mitsui as evidenced by the Secretary's Certificate dated October 13, 2000 and Board Resolution dated January 3, 2000. In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides as follows: "ARTICLE 10 "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 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent either of the voting shares of the company paying the dividends or of the shares issued by that company during the period of six months immediately preceding the date of payment of the dividends; "b) 25 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx "4. The term "dividends" as used in this Article means income from shares or other rights not being debt-claims participating in profits as well as income from other corporate rights assimilated to income from shares by the taxation laws of the Contracting State of which the company making the distribution is a resident. "xxx xxx xxx" Based on the above the Philippines may tax the dividends paid by a Philippine company to a Japanese company at a rate not exceeding 10% if the latter holds directly at least 25% either of the voting shares or of the total shares of the former for a period of six (6) months immediately preceding the date of payment of the dividends. ASTDCH Considering that Mitsui & Co. Ltd. (Tokyo/Osaka) owns directly 31.8% of the total shares of Prince Eagle Garments, Inc. for a period of six (6) months immediately preceding the date of payment of the dividends which was on September 29, 2000 the dividend remittances of the Prince Eagle Garments, Inc. to Mitsui & Co. Ltd. are subject to 10% withholding tax. (BIR Ruling No. ITAD 156-00) This ruling is 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 considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group