ITAD Ruling No. 080-02

May 2, 2002 ITAD RULING NO. 080-02 Article 10, RP-Japan DA-ITAD 99-01 KDK International (Phils.) Corporation 11-A Harmony St. cor. Eleven Road, Grace Village, Balintawak, Quezon City Attention: Ng Siong Chi Vice-President Gentlemen : This refers to your application for relief from double taxation dated September 15, 2001 requesting for a preferential withholding tax rate of ten percent (10%) on your dividend remittances to Matsushita Seiko Co. Ltd (Matsushita), pursuant to the RP-Japan tax treaty. It is represented that Matsushita is a non-resident foreign corporation duly organized and existing under the laws of Japan; that it is not registered either as a corporation or partnership in the Philippines as per certification dated March 4, 1999 issued by the Securities and Exchange Commission; that KDK is a corporation duly organized and existing under the laws of the Philippines; that Matsushita holds seventy nine thousand nine hundred ninety six (79,996) shares equivalent to Seven Million Nine Hundred Ninety Nine Thousand Six Hundred Pesos (P7,999,600) representing forty percent (40%) of the capital stock of KDK from January to June 30, 2001; that on June 30, 2001, the Board of Directors of KDK passed and approved the declaration of cash dividend in the amount of One Hundred Forty Five Thousand Three Hundred Eighty Pesos (P145,380.00), payable to the stockholders of record as of August 31, 2001. 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." "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, the Philippines may tax the dividends paid by a Philippine company to a Japanese company at a rate not exceeding 10 percent 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 months immediately preceding the date of payment of the dividends. ( DA-ITAD 99-01 dated October 25, 2001 ) Considering that Matsushita holds forty per cent (40%) of the capital stock of KDK during the period of six months immediately preceding the date of payment of dividends, the dividends to be paid and remitted by KDK to Matsushita are subject to the 10 per cent preferential tax rate pursuant to Article 10(2)(a) of the RP-Japan Tax Treaty. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service