ITAD Ruling No. 024-03

January 30, 2003 ITAD RULING NO. 024-03 Article 10, RP-Singapore BIR Ruling No. DA-ITAD-98-02 Murata Electronics Philippines Inc. GRM Building 124 East Science Avenue Laguna Technopark, ZEPZ Bian, Laguna Attention: Kohei Miyao President Gentlemen : This refers to your letter dated October 22, 2002, applying for a preferential tax treaty rate of 15% on the dividend payments of Murata Electronics Phils., Inc. (Murata-Phils.) to Murata Electronics Singapore (Pte.) Ltd. (Murata-Singapore) pursuant to paragraph 2(a), Article 10 of the RP-Singapore tax treaty. DSTCIa It is represented that Murata-Singapore is a non-resident foreign corporation with business address at 200 Yishun Avenue 7, Singapore 768927; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated October 28, 2002; that Murata-Phils. is a domestic corporation with principal office at 124 GRM Building East Science Avenue, Laguna Technopark, ZEPZ Bian, Laguna; that as of August 12, 2001, Murata-Phils. has an authorized capital stock of P84,000,000.00, divided into 84,000 shares with a par value of P1,000.00 each share; that the entire authorized capital stock of Murata-Phils. has been subscribed and paid up in full and are owned by Murata-Singapore; that on June 28, 2002 the Board of Directors of Murata-Phils. declared a cash dividend in the amount of Five Hundred Fifty Seven (P557.00) per share on the outstanding capital stock of Murata-Phils. or a total cash dividend of P46,788,000.00 in favor of all stockholders of record as of the close of business on June 28, 2002, which cash dividend shall be payable on or before December 31, 2002. In reply, please be informed that Article 10 of the RP-Singapore 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 State. "2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 15 per cent of the gross amount of the dividends if the recipient is a company (including partnership) and during the part of the paying company's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 15 per cent of the outstanding shares of the voting stock of the paying company was owned by the recipient company; and b) in all other cases, 25 per cent of the gross amount of the dividends. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. "3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. "4. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founder's shares or other rights, not being debt-claims, participating in profits, as well as income assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident. "xxx xxx xxx" Based on the foregoing provisions, the 15 percent preferential tax rate on dividends applies whenever the beneficial owner/recipient of the dividends owns at least 15 percent of the outstanding voting shares of the paying company and such shareholdings should have existed during the part of the taxable year immediately preceding the date of payment and during the whole of its prior taxable year, if any. Since Murata-Singapore has been holding the entire capital stock of Murata-Phils. from April 12, 2001 to the present, the dividends received by Murata-Singapore shall be subject to the preferential tax rate of 15 percent pursuant to Article 10(2)(a) of the RP-Singapore tax treaty. ( BIR Ruling DA-ITAD-98-02 dated May 22, 2002 ) HCSEIT This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. SICaDA Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service