ITAD Ruling No. 036-99

November 3, 1999 ITAD RULING NO. 036-99 RP-Japan, Art. 12 Sec. 108, NIRC 095-99 MITSUBA Philippines Corporation Lot 1, Block 14, Phase II First Cavite Industrial Estate Brgy. Langkaan, Dasmarias, Cavite Attention: Ms . Marlene Lingat-Besa Accounting Officer Gentlemen : This is in connection with your application for relief from double taxation dated January 25, 1999, requesting for a preferential tax rate of twenty five percent (25%) to be withheld on the remittances of royalty fee by Mitsuba Philippines Corporation (MPC) to Mitsuba Corporation-Japan (MITSUBA), pursuant to the RP-Japan Tax Treaty. It is represented that MITSUBA is a corporation organized and existing under the laws of Japan with no permanent establishment in the Philippines, as per certification dated August 20, 1998 issued by the Securities and Exchange Commission; that MPC is duly registered as an Ecozone Export Enterprise pursuant to R.A. 7916 at the Cavite Ecozone; that on March 31, 1998 MPC and MITSUBA entered into a Consultation Agreement, whereby MITSUBA will provide services to MPC relating to advises of managing for personnel department, advises for accounting/settlement/funds raising, control department and any advises for managing the company related on proceedings; that in consideration for the said services, MPC shall pay MITSUBA consultation fee amounting to US$14,000.00 for every month; and that the Consultation Agreement is duly registered with the Intellectual Property Office of the Department of Trade and Industry under Certificate of Compliance No. 5-1998-00067 dated March 31, 1998. In reply, please be informed that Article 12, paragraphs 1, 2 and 4 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, that 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; LibLex b) 25 per cent of the gross amount of the royalties in all other cases. xxx xxx xxx "(4) The term "royalties" as used in this Article means payments 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. (Emphasis supplied)" Inasmuch as the Consultation Agreement between MPC and MITSUBA has been approved by the Intellectual Property Office of the Department of Trade and Industry, this Office hereby confirms your opinion that the royalty fee arising in the Philippines and payable by MPC to MITSUBA is subject to a tax rate of 25% on the gross amount of the royalty as prescribed under Article 12 (2)(b) of the RP-Japan Tax Treaty. [BIR Ruling No. 095-99 dated September 14, 1999] 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 considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group