ITAD Ruling No. 071-05

July 19, 2005 ITAD RULING NO. 071-05 Philippines-Japan Tax Treaty, Article 10; BIR Ruling No. ITAD-89-04 Miyasaka Polymer, (Phils.) Inc . 20 Ampere Street Light & Science Park of the Phils. Bo. Diezmo, Cabuyao, Laguna Attention: Hiroki Itoh Representative Gentlemen : This refers to your letter dated April 6, 2005 requesting for the availment of a preferential tax rate of ten percent (10%) on the dividend payments to Miyasaka Rubber Co., Ltd. (Miyasaka Rubber) by Miyasaka Polymer (Philippines), Inc. under the Philippines-Japan tax treaty. It is represented that Miyasaka Rubber is a nonresident foreign corporation organized and existing under the laws of Japan with business address at 5350 Toyohira Chino-shi, Nagano-ken, Japan; that it is not registered either as a corporation or a partnership licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated April 14, 2005; that Miyasaka Polymer is a corporation organized and existing under the laws of the Philippines with its place of business at 20 Ampere Street, Light Industry & Science Park of the Phils., Bo. Diezmo, Cabuyao, Laguna; that as of December 1, 2004, Miyasaka Rubber is the registered and legal owner of One Million Seven Hundred Forty Nine Thousand Nine Hundred Ninety Five (1,749,995) shares valued at One Million Seven Hundred Forty Nine Thousand Nine Hundred Ninety Five Pesos (P1,749,995.00) comprising of 99.99% of the total shares of stock of Miyasaka Polymer; and that on March 22, 2005, during a special meeting of its Board of Directors, Miyasaka Polymer declared cash dividends in the total amount of Thirty Five Million Pesos (P35,000,000.00) to be distributed on June 1, 2005 to all its stockholders on record. CHDAEc In reply, please be informed that Article 10 of the Philippines-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 ; (Emphasis supplied) 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. "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 abovequoted provisions, the Philippines may tax the dividends paid by a Philippine company to a Japanese company at a rate not exceeding ten percent (10%) if the latter holds directly at least twenty five percent (25%) 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. Considering that Miyasaka Rubber directly holds 99.99% of Miyasaka Polymer's shares of stock for the period of six (6) months immediately preceding the date of payment of the dividends, per Certification issued by Miyasaka Polymer's Corporate Secretary dated March 31, 2005, this Office is of the opinion and hereby holds that the dividend payments of Miyasaka Polymer to Miyasaka Rubber are subject to the ten percent (10%) preferential tax rate pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty. (BIR Ruling No. 22-99 dated August 18, 1999) TAaHIE This ruling is issued based on 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