ITAD Ruling No. 075-00

June 16, 2000 ITAD RULING NO. 075-00 Article 10 RP-Japan Tax Treaty ITAD 9-00 Quiason Makalintal Barot Torres & Ibarra 21ST Floor, Robinsons PCIBank Tower ADB Ave. Corner Pedro Poveda Road 1605 Ortigas Center, Pasig City Attention: Atty . Ruelito Q . Soriano Gentlemen : This refers to your letter dated February 21, 2000 requesting for a confirmation of your opinion that the applicable tax treaty rate on the dividends received by Sumitomo Tokyo from First Philippine Industrial Park, Inc. (FPIP) is 10% pursuant to the RP-Japan Tax Treaty. It is represented that Sumitomo Tokyo is a foreign corporation organized and existing under the laws of Japan; that Sumitomo Tokyo has a branch office in the Philippines, Sumitomo Manila, which is engaged in trading activities; that Sumitomo Tokyo holds 30% of the total subscribed shares of FPIP; that investments to FPIP came directly from Tokyo, Japan; that on October 25, 1999, FPIP declared cash dividends to all stockholders of record as of June 30, 1999, payable on November 29, 1999; that the total dividends allocated to Sumitomo Tokyo amounted to P27,360,000.00; and that 15% of the dividends received amounting to P4,104,000.00 was deducted and withheld by FPIP. LibLex In reply, I have the honor to inform you 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 payments of the dividends; b) 25 per cent of the gross amount of the dividends in all other cases." In view of the foregoing, and since Sumitomo Tokyo holds thirty percent (30%) of the total subscribed shares of FPIP, the dividend remittance to Sumitomo Tokyo is subject to the preferential tax treaty rate of ten per cent (10%) notwithstanding the fact that Sumitomo Tokyo has a branch in the Philippines since the investment in FPIP was made independently by Sumitomo Tokyo and not through the Philippine branch. This being the case, the dividend income cannot be attributed as an ordinary consequence of Sumitomo Tokyos trade or business in the Philippines (Marubeni Corporation vs. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 76573, September 14, 1989, 177 SCRA, 500; ITAD Ruling 9-00 dated January 13, 2000). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be discovered that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LILIAN B. HEFTI OIC, Deputy Commissioner Legal and Inspection Group