ITAD Ruling No. 061-05

June 22, 2005 ITAD RULING NO. 061-05 Article 10, Philippines-Japan tax treaty; BIR Ruling No. DA ITAD 31-04 Nagano-Seiko Co., Ltd. Manila Representative Office Blk 3, Lot 15 & 16 People's Technology Complex Carmona, Cavite Philippines 1200 Attention: Mr. Torao Kitahara General Manager Gentlemen : This refers to your letter dated April 6, 2005 requesting approval of your application for relief from double taxation on the dividend payments of Philippine Nagano Seiko, Inc. (PNSI) to Nagano Seiko Co. Ltd. (NSCL) pursuant to Article 10 of the Philippines-Japan tax treaty. CDHcaS It is represented that NSCL is a nonresident foreign corporation organized and existing under the laws of Japan with office address at 698 Kanazawa, Chino City, Nagano Prefecture, Japan; that it was licensed to transact business in the Philippines on May 3, 1994 as evidenced by the Certificate of Corporate Filing/Information dated March 3, 2005 issued by the Securities and Exchange Commission; that PNSI is a domestic corporation organized and existing under laws of the Philippines, with office address at Blk 3, Lot 15 & 16, People's Technology Complex, Carmona, Cavite, Philippines 1200; that as of October 31, 2004, NSCL owns 88,605 shares with par value of One Thousand Pesos (Php1,000.00) per share amounting to Eighty-Eight Million Six Hundred Five Thousand Pesos (Php88,605,000.00), equivalent to 99.93% ownership of the total shares in PNSI; that at the special meeting of the Board of Directors of PNSI held on March 16, 2005, it was resolved that a 28% cash dividend be declared to its stockholders of record as of March 31, 2005; that the payment date of said dividends shall not be later than May 30, 2005; and that Mr. Torao Kitahara, General Manager of Nagano Seiko Co., Ltd.-Manila Representative Office, is hereby authorized to sign, execute and deliver any all documents and papers as may be necessary to effect the above transaction. In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows: "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 percent 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 percent of the gross amount of the dividends in all other cases. "xxx xxx xxx" "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" Based on the above-cited provisions, the 10 percent preferential tax rate on dividends applies whenever the beneficial owner/recipient of the dividend owns directly at least 25 percent of the capital of the paying company or of the total shares issued by that company during the period of six months immediately preceding the date of payment of the dividends. In all other cases, the 25 percent preferential tax rate applies. Such being the case, and considering that NCSL holds 99.93% percent of the total shares of PNSI during the period of six (6) months immediately preceding the date of payment of the dividends, this Office is of the opinion and so holds that the dividend payments by PNSI to NSCL shall be subject to the preferential tax rate of 10 percent, based on the gross amount thereof, pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty. (BIR Ruling No. DA ITAD 31-04 dated April 2, 2004) IESTcD 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service