ITAD Ruling No. 028-01

March 12, 2001 ITAD RULING NO. 028-01 Art. 10, RP-Japan ITAD- 49-99 Philippine Koyo Bearing Corporation Suite 504 Comfoods Building Cor. Gil Puyat Ave. and Pasong Tamo Sts. Makati City Attention: Mr . Domingo D . de Vera President/General Manager Gentlemen : This refers to your application for 10% preferential tax rate on dividends to be remitted by your company to Koyo Seiko Co., Ltd. (Koyo-Japan) pursuant to the RP-Japan Tax Treaty. It is represented that Philippine Koyo Bearing Corporation (Koyo-Phil) is a domestic corporation organized and existing under Philippine laws with office address at Rm. 504 Comfoods Building cor. Gil Puyat and Pasong Tamo Sts., Makati City; that Koyo-Japan is a nonresident foreign corporation organized and existing under the laws of Japan with office address at No. 5-8 Minamisemba 3-Chome, Chuo-ku, Osaka 542 Japan; that on May 20, 2000, Koyo-Phil declared cash dividends amounting One Million Fifty Seven Thousand Three Hundred Seventy Five Pesos (PHP1,057,375.00) to all holders of common stock payable on June 30, 2000; that as of even date, Koyo-Japan is the holder of record of 126,825 shares out of a total 422,950 issued and outstanding shares of Koyo-Phil or 29.98% thereof; that the total cash dividends received by Koyo-Japan is PHP317,212.50. In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides: "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 total 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. The provisions of this paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. "3 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 The above-quoted provision of the RP-Japan Tax Treaty allows the Philippines to tax the dividends received by a resident of Japan from a company which is a resident of the Philippines at the rate of 10% of the gross amount of the dividends if the beneficial owner of such dividends holds at least 25% of the voting shares of the paying company or of the total shares issued by that company within six (6) months immediately preceding the date of payment of the dividends and at the rate of 25% of the gross amount of the dividends in all other cases. In view of the foregoing, and since Koyo-Japan is a holder of more than 25% of the capital stock of Koyo-Phil, i.e., 29.98% from the date of its incorporation (July 10, 1975) up to the date of declaration of dividends (May 20, 2000) as evidenced by the Secretary's Certificate dated August 23, 2000, the cash dividends payable by Koyo-Phil to Koyo-Japan are subject to 10% withholding tax. (BIR Ruling No. ITAD-49-99) This ruling is issued on the basis of the foregoing facts as represented and will be considered null and void if upon investigation it will be disclosed that the facts are different. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group