ITAD Ruling No. 090-00

August 1, 2000 ITAD RULING NO. 090-00 RP-Japan Art. 10 ITAD 49-99 Precision Springs Cebu, Inc. PEZA-Mactan, Pusok, Lapu-lapu City Mactan Island, Cebu Attention: Ms . Edna L . Flores Accounting Manager Gentlemen : This refers to your letter dated February 10, 2000, requesting for a ruling: on the application of 10% preferential tax rate to be withheld from the dividend remittances of Precision Springs Cebu, Inc. ("Precision Cebu") to Precision Springs Co Ltd. ("Precision Japan) pursuant to Article 10 of the RP-Japan Tax Treaty. It is represented that Precision Cebu is a domestic corporation organized and existing under the laws of the Philippines; that Precision Cebu is a non-pioneer PEZA-registered enterprise operating in Mactan, Lapu-lapu City, Cebu; that Precision Japan is a non-resident foreign corporation organized and existing under the laws of Japan with business address at Ichikawa City, Chiba Prefecture, Japan; that as of January 31, 2000, Precision Japan owns 23,999,995 shares of stock with a par value of Php1.00 per share which represents approximately 99.9 % of the outstanding shares of stock of Precision Cebu; and that Precision Cebu's Board of Directors approved the declaration of cash dividends from its accumulated retained earnings as of March 31, 1999 in favor of Precision Japan in the amount of Six Million Five Hundred Thousand Pesos (Php6,500,000.00) as evidenced by Secretary's Certificate dated February 16, 2000 and Board Resolution dated January 21, 2000. In reply, please be informed that Article 10 of the RP-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 percent 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. 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. "(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 share by the taxation laws of the Contracting State of which the company making the distribution is a resident. In view of the foregoing, and since Precision Japan owns 99.9% of the outstanding shares of stock of Precision Cebu, the cash dividends payable by Precision Cebu to Precision Japan are subject to 10% withholding tax. (ITAD 49-99 dated December 15, 1999) cdlex This ruling is being issued on the basis of the foregoing facts as represented and will be considered null and void if upon investigation it will be disclosed that the facts are different. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group