ITAD Ruling No. 040-99

November 3, 1999 ITAD RULING NO. 040-99 RP-JAPAN Article 11 142-95 Sankou Seiki Co., Ltd. Inc. Lot 8 Blk 14 Phase 3 Cavite Economic Zone (CEZ) Rosario, Cavite Attention: Mr . Tsutomu Seki President and CEO Gentlemen : This refers to your letter dated May 19, 1999, requesting in behalf of your parent company, Sansui Seiki Co., Ltd. (SANSUI) for the availment of the preferential tax rate of 15% on its interest income pursuant to the provisions of the RP-Japan Tax Treaty. It is represented that SANSUI is a limited company duly organized and existing under the laws of Japan; that it is not registered as a corporation/partnership in the Philippines as per certification dated May 7, 1999 issued by the Securities and Exchange Commission; that Sankou Seiki Co., Ltd. (SANKOU) is a domestic company organized and existing under Philippine laws; that by virtue of the Loan Agreements made by and between SANSUI and SANKOU dated April 15, 1996, April 30, 1996 and November 15, 1998, the latter in effect borrowed from the former the amounts of JPY70,000,000 and JPY171,897,239 both for plant and machinery acquisition and the amount of JPY50,000,000 as a working fund; that all of the aforementioned loans are subject to the payment of interest. prcd In reply, please be informed that paragraph 2, 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 percent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; "(b) 15 percent of the gross amount of the interest in all other cases." xxx xxx xxx "(5) The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtors profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. xxx xxx xxx" Such being the case, the interest income to be remitted by Sankou Seiki Co., Ltd. to Sansui Seiki Co., Ltd. relative to the aforementioned loan shall be subject to the preferential tax rate of 15% Philippine income tax based on the gross amount of the interest ( as per BIR Ruling No. 142-95, dated 13 September 1995). This ruling is being issued on the basis of the 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