ITAD Ruling No. 049-04

May 7, 2004 ITAD RULING NO. 049-04 Article 10, Philippines-Singapore BIR Ruling No. ITAD-98-02 Sycip Gorres Velayo & Co. 6760 Ayala Avenue, 1226 Makati City Attention: W.U. Villanueva Principal, Tax Services Gentlemen : This refers to your letter dated January 28, 2004, requesting on behalf of your client, EPSON PHILIPPINES CORPORATION (EPSON PHILS), confirmation of your opinion that the gross amount of cash dividends to be paid by EPSON PHILS to EPSON SINGAPORE PTE. LTD. (EPSON SING) are subject to withholding tax at the preferential tax rate of fifteen (15%) percent pursuant to Article 10(2)(a) of the Philippines-Singapore tax treaty. It is represented that Epson Sing is a nonresident foreign corporation duly organized and existing under and by virtue of the laws of Singapore with principal address at No. 1 Temasek Avenue, #36-00 Millenia Tower, Singapore 039192; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines as evidenced by the Certificate of Non-Registration issued by the Securities and Exchange Commission dated December 22, 2003; that Epson Phils is a domestic corporation organized and existing under the laws of the Philippines with office address at 36th Floor, Rufino Pacific Tower, 6784 Ayala Ave., Makati City; that from February 2, 2002 until the present, Epson Sing is the duly registered stockholder of record and owns 100 per cent (100%) of the outstanding voting capital stock of Epson Phils, equivalent to 28,553,542 shares, amounting to Twenty Eight Million Five Hundred Fifty Three Thousand Five Hundred Forty Two Pesos (Php28,553,542.00) at Php1.00 per share; that prior to February 2, 2002, 100 per cent (100%) of Epson Phils was owned by Seiko Epson Corporation (Epson Seiko), a non-resident foreign corporation organized and existing under the laws of Japan; that on March 1, 2004, the Board of Directors of Epson Phils. declared a Php1.50 cash dividends in favor of its stockholders of record as of March 1, 2004 payable on or before May 28, 2004. In reply, please be informed that Article 10 of the Philippines-Singapore tax treaty provides, viz : "Article 10 DIVIDENDS 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 State. 2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 15 per cent of the gross amount of the dividends if the recipient is a company (including partnership) and during the part of the paying company's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 15 per cent of the outstanding shares of the voting stock of the paying company was owned by the recipient company; and (Emphasis supplied) b) in all other cases, 25 per cent of the gross amounts of the dividends. "xxx xxx xxx" Based on the foregoing provisions, the 15 percent preferential tax rate on dividends apply whenever the beneficial owner/recipient of the dividends owns at least 15 percent of the outstanding voting shares of the paying company and such shareholdings should have existed during the part of the taxable year immediately preceding the date of payment and during the whole of its prior taxable year. Since Epson Sing is the recipient and the beneficial owner of the dividends and directly owns 100% of the outstanding shares of the voting stock of the paying company, Epson Phils from February 2, 2002 up to the present as evidenced by the Secretary's Certificate dated January 22, 2004, the said cash dividends are subject to the 15% final withholding tax rate pursuant to Article 10(2)(a) of the Philippines-Singapore tax treaty. ( BIR Ruling No. 98-02 dated May 22, 2002 ) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. HCDaAS Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service