ITAD Ruling No. 046-99

December 6, 1999 ITAD RULING NO. 046-99 RP-Japan Art. 10 037-95 Mitsuwa Philippines, Inc. (MPI) Lot 4,6 & 8 Blk 22 Phase IV Philippine Economic Zone Rosario, Cavite Attention: Ms . Josefina H . Maravillas Asst . Department Manager Accounting/Finance M a d a m : This refers to your letter dated August 2, 1999, requesting in behalf of Shonan Modeling Co. Ltd. (SHONAN) for the availment of the preferential tax rate of 25% to be withheld on its dividend, pursuant to the provisions of the RP Japan Tax Treaty. It is represented that SHONAN is a corporation duly organized and existing under the laws of Japan; that it is not registered either as a corporation/partnership nor licensed to do business in the Philippines as per certification dated July 8, 1999 issued by the Securities and Exchange Commission; that it holds 20% of the voting shares of Mitsuwa Philippines, Inc. (MPI) , a domestic company organized and existing under Philippine laws; that on June 18, 1999 the Board of Directors of MPI passed and adopted a resolution declaring cash dividends equivalent to ten percent (10%) of the retained earnings to be paid to its stockholders. In reply, please be informed that Article 10 (Dividends) of the RP-Japan Tax Treaty provides, to wit; "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; llcd "(b) 25 per cent of the gross amount of the dividends in all other cases. "The provisions of this paragraphs shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. "3. . . . "4. The term "dividends" as used in the Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate right 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 Accordingly, since Shonan holds only 20% of the voting shares of MPI , your application for a preferential tax rate of 25% to be withheld on your dividend remittance to Shonan is hereby approved. ( BIR ruling No. 037-95 dated February 16, 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, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group