ITAD Ruling No. 089-04

August 20, 2004 ITAD RULING NO. 089-04 Article 10, Philippines-Japan tax treaty BIR Ruling No. ITAD-20-99 Miyasaka Polymer (Phils.), Inc. 20 Ampere Street Light Industry & Science Park of the Phils. Bo. Diezmo, Cabuyao, Laguna Attention: Hiroki Itoh VP-Treasurer Gentlemen : This refers to your letter dated April 23, 2004 requesting for the approval of a preferential tax treaty rate of ten (10%) percent on the dividend payments by Miyasaka Polymer (Philippines), Inc. (Miyasaka Polymer) to Miyasaka Rubber Co. Ltd. (Miyasaka Rubber) under the Philippines-Japan tax treaty. It is represented that Miyasaka Rubber is a nonresident foreign corporation 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 May 5, 2004; that Miyasaka Polymer is a corporation organized and existing under the laws of the Philippines with its place of business at 20 Ampere St., Light Industry and Science Park of the Philippines, Bo. Diezmo, Cabuyao, Laguna; that as of December 1, 2003, 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 Hundred Seventy Four Million Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P174,999,500.00), consisting of 99.99% of the total voting shares of Miyasaka Polymer; that on April 19, 2004, Miyasaka Polymer declared cash dividends in the total amount of P26,250,000.00 to be distributed in favor of all its stockholders of record in proportion to their respective equity holdings in the corporation on June 1, 2004; that the cash dividends of Miyasaka Rubber shall be paid in Japanese Yen through offsetting from the accounts receivable of Miyasaka Rubber. In reply, please be informed that Article 10 of the Philippines-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. CADacT 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 company which is a resident of Japan at a rate not exceeding 10 % of the gross amount of dividends if the latter holds directly at least 25 percent either of the voting shares or of the total shares of the during the period of six (6) months immediately preceding the date of payment of the dividends. Considering that during the period from December 1, 2003 up to June 1, 2004, which is 6 months from date of payment per Board Resolution dated April 19, 2004, Miyasaka Rubber directly holds 99.99% of the voting shares of Miyasaka Polymer, this Office is of the opinion as it hereby holds that the dividend payments of Miyasaka Polymer to Miyasaka Rubber are subject to the 10 % preferential tax rate pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty. ( BIR Ruling No. ITAD-20-99 dated August 18, 1999 ) 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service