ITAD Ruling No. 094-01

October 19, 2001 ITAD RULING NO. 094-01 Article 11 RP-Japan Tax Treaty BIR Ruling Nos. ITAD-40-99 & 122-00 Sanritsu Great International Corp. Lot 6, Block 14, Phase III, Cavite Economic Zone Rosario, Cavite Attention: Masahiro Hirano General Manager Gentlemen : This refers to your letter dated February 14, 2001 requesting for relief from double taxation on your interest payments to your parent companies SANRITSU DENKI COMPANY, LTD. (" Sanritsu Denki ") and SANRITSU COMPANY, LTD. (" Sanritsu Co .") pursuant to the RP-Japan Tax Treaty. Documents submitted show that both Sanritsu Denki and Sanritsu Co are nonresident foreign corporations duly organized and existing under and by virtue of the laws of Japan; that both corporations are not licensed to engage in business in the Philippines per Securities and Exchange Commission (SEC) certificates dated February 09, 2001 and February 05, 2001, respectively; that SANRITSU GREAT INTERNATIONAL CORPORATION (" Sanritsu Great International ") is a corporation duly organized and existing under Philippine laws; that on October 09, 2000, Sanritsu Great International entered into two (2) memoranda of agreement whereby it acknowledges and agrees to pay the principal amount of its indebtedness or outstanding obligations to the following: a) Sanritsu Denki, amounting to One Hundred Forty Six Million Six Hundred Twenty Four Thousand Four Hundred Sixty Five Yen (JPY146,624,465) as of June 30, 2000 at six (6%) percent interest per annum; and b) Sanritsu Co ., amounting to One Hundred Six Million Three Hundred Sixty Seven Thousand Eight Hundred Seventy Six Yen (JPY106,367,876) as of June 30, 2000 at six (6 %) percent interest per annum. In reply, please be informed that Article 11 of the RP-Japan Tax Treaty provides, viz : "Article 11 "(1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. "(2) However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed: "(a) 10 per cent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; "(b) 15 per cent of the gross amount of the interest in all other cases. (Emphasis supplied) "(3) Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the Philippines on the interest paid by a company, being a resident of the Philippines, registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the interest, shall not exceed 10 per cent of the gross amount of the interest. "xxx xxx xxx "(5) The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. "xxx xxx xxx Based on the foregoing, the interest payments will be taxed at a preferential rate of not exceeding ten per cent (10%), if the interest is paid in respect of government securities, or bonds or debentures, or if the company paying the interest, being a resident of the Philippines, is registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines, and in all other cases, fifteen per cent (15%) of the gross amount of the interest. Such being the case, the interest income to be remitted by Sanritsu Great International to Sanritsu Denki and Sanritsu Co . relative to the aforementioned agreements shall be subject to the preferential tax rate of 15% based on the gross amount of the interest pursuant to Article 11(2)(b) of the RP-Japan Tax Treaty. (BIR Ruling Nos. ITAD-40-99 & ITAD 122-00) Moreover, the Loan Agreement executed by and between them shall be subject to the documentary stamp tax under Section 180 of the Tax Code of 1997. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be discovered that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group