ITAD Ruling No. 055-00

March 8, 2000 ITAD RULING NO. 055-00 RP-Japan Art. 10 ITAD 49-99 Precision Springs Manila, Inc. LISP 2, Bo. Real, Calamba, Laguna Attention: Ms . Era M . Dela Cerna Accounting Manager Gentlemen : This refers to your letter dated January 20, 2000 applying for a tax treaty relief on dividend payment pursuant to Article 10 of the RP-Japan Tax Treaty. LexLib It is represented that your company, Precision Springs Manila, Inc. (Precision Manila) is a non-pioneer PEZA-registered enterprise operating in Bo. Real, Calamba, Laguna; that Precision Springs Co., Ltd. (Precision Japan), is a non-resident foreign corporation organized and existing under the laws of Japan, with head office address at 15, 3-Chome, Shiohama, Ichikawa City, Chiba Prefecture, Japan; that as of March 31, 1999, Precision Japan owns 57,999,995 shares of stock (with a par value of P1.00 per share) which represents approximately 99.9% of the total capital stock of Precision Manila; that on January 10, 2000, Precision Manila's Board of Directors declared cash dividends amounting to Eight Million Seven Hundred Fifty One Thousand One Hundred Eleven & 11/100 Pesos (Ph8,751,111.11) as evidenced by Secretary's Certificate dated January 25, 2000. cdll In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides: "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 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. In view of the foregoing, and since Precision Japan owns 99.9% of the total outstanding stocks of Precision Manila as of record date, the cash dividends payable by Precision Manila to Precision Japan are subject to the 10% preferential withholding tax under Article 10 (2) (a) of the RP-Japan Tax Treaty. 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. LexLib Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group