ITAD Ruling No. 026-00

January 31, 2000 ITAD RULING NO. 026-00 RP-Japan Article 11 142-95 SJC Land Service Corporation Lot 11-Carmelry Industrial Park, Canlubang Calamba, Laguna Attention: Ms . Andrea V . Suelto General Affairs Managers M a d a m : This refers to your letter dated August 11, 1999, requesting a ruling to the effect that the interest income to be remitted by SJC Land Service Corporation (SJC-LSC) to Sekisui Jushi Corporation (SJC) shall be subject to preferential tax rate of fifteen percent (15%) withhold pursuant to the RP-Japan Tax Treaty. It is represented that SJC is a non-resident foreign corporation duly organized and existing under the laws of Japan; that it is not registered either as a corporation/partnership in the Philippines as per certification dated September 28, 1999 issued by the Securities and Exchange Commission; that SJC-LSC is a corporation duly organized and existing under the laws of the Philippines; that SJC is the stockholder of record of forty per cent of the outstanding capital stock of SJC-LSC equivalent to Seventy Nine Thousand Nine Hundred Ninety Nine (79,999) shares of stock, with aggregate par value of Thirty Two Million and Three Hundred Ninety Eight Thousand Seven Hundred Eighty Five Pesos (32,398,785.00); that on 20th day of December 1998, a Loan Agreement was entered into by and between SJC and SJC-LSC whereby the former made a loan to the latter in the amount of JP164,220,402 payable within a period of one (1) year at an interest rate of 1.25% per annum on the outstanding balance of the principal and that payment shall be made by capital increase or long term loan. In reply, please be informed that Article 11 of the RP-Japan Tax Treaty provides as follows: "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 per cent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; "b) 15 per cent of the gross amount of the interest in all other cases. xxx xxx xxx" Such being the case, the interest to be remitted by SJC-LSC to SJC relative to the aforementioned loan shall be subject to the preferential tax rate of 15% Philippine income/withholding tax in accordance with the aforequoted provision in the RP-Japan Tax Treaty.(BIR Ruling No. 142-95 dated 13 September 1995). This ruling is being 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 null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group