ITAD Ruling No. 049-99

December 15, 1999 ITAD RULING NO. 049-99 RP-Japan Article 10 199-81 Precision Springs Cebu, Inc. PEZA-Mactan, Pusok, Lapu-Lapu City Mactan Island, Cebu Philippines Attention: Edna L . Flores Accounting Manager Gentlemen : This refers to your letter dated June 24, 1999 applying for a tax treaty relief on dividend payment pursuant to Article 10 of the RP-Japan Tax Treaty. It is represented that your company, Precision Springs Cebu, Inc. (Precision Cebu) is a non-pioneer PEZA-registered enterprise operating in Mactan, Lapu-lapu City, Cebu; that Precision Spring Co., Ltd. (Precision Japan), is a non-resident foreign corporation organized and existing under the laws of Japan, with head office at Ichikawa City, Chiba Prefecture, Japan; that as of March 31, 1999 Precision Japan owns 99.9% of the shares of Precision Cebu; that Precision Cebus Board of Directors declared cash dividends as of March 31, 1999 amounting to Fifteen Million One Hundred Sixty Six Thousand Six Hundred Sixty Six & 66/100 Pesos (PhP15,166,666.66) as evidenced by the Secretarys Certificate dated April 06, 1999 and Board Resolution (Resolution No. 01-99) signed in March 1999. 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) . . . "(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" In view of the foregoing, and since Precision Japan owns more than 25% of the stocks of Precision Cebu, the cash dividends payable by Precision Cebu to Precision Japan are subject to 10% withholding tax. This ruling is being 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, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group