ITAD Ruling No. 062-03

April 15, 2003 ITAD RULING NO. 062-03 Article 10, RP-Japan BIR Ruling No. DA-ITAD-05-03 Sycip Gorres Velayo & Co. 6F Ayala Life-FGU Center Mindanao Avenue corner Biliran Road Cebu Business Park, Cebu City 6000 Cebu Attention: Lauris L. Dela Pea Tax and Business Advisory Gentlemen : This refers to your letter dated January 30, 2003, requesting for a preferential tax treaty rate of ten percent (10%) pursuant to, Article 10(2)(a) of the RP-Japan tax treaty on the dividend payments by Toyoflex Cebu (Toyoflex Cebu) to Toyoflex Corporation (Toyoflex Japan). It is represented that Toyoflex Japan is a non-resident foreign corporation with business address at 1-25-19 Fuchu-Cho, Fuchu-Shi, Tokyo, Japan; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated January 17, 2003; that Toyoflex Cebu is a domestic corporation with principal office at Mactan Economic Zone I, Lapu-lapu City, Cebu; that the following are the number and corresponding value of shares and percentage of ownership of stockholdings of Toyoflex Cebu as of December 19, 2002: Stockholders No. of Amount of Shares Percentage of Shares Subscribed and Ownership Subscribed Paid-up Toyoflex Corporation 571,976 P57,197,600 99.99910% Takashi Tanaka 1 100 0.00018% Minoru Hirota 1 100 0.00018% Tsugio Fujisawa 1 100 0.00018% Akihiro Yamaguchi 1 100 0.00018% Takashi Suzuki 1 100 0.00018% Total 571,981 P57,198,100 100% ======= ======== ======= that on October 24, 2002, the Board of Directors of Toyoflex Cebu declared cash dividends in the amount of P5,502,067.20 in favor of all stockholders of record as of October 15, 2002. In reply, please be informed that Article 10 of the RP-Japan tax treaty provides as follows: "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. "xxx xxx xxx "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" Based on the abovequoted provisions, the Philippines may tax the dividends paid by a Philippine company to a Japanese company at a rate not exceeding 10 per cent if the latter holds directly at least 25 percent either of the voting shares or of the total shares of the former for a period of six (6) months immediately preceding the date of payment of the dividends. (BIR Ruling No. DA-ITAD 05-03 dated January 16, 2003) Such being the case, and since Toyoflex Japan holds ninety nine and 99910/10000 (99.99910%) per cent of the capital stock of Toyoflex Cebu during the period of six months immediately preceding the date of payment of the dividends, the dividends to be paid and remitted by Toyoflex Cebu to Toyoflex Japan are subject to the ten per cent (10%) preferential tax rate pursuant to Article 10(2)(a) of the RP-Japan tax treaty. 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. THADEI Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service