ITAD Ruling No. 095-02

May 16, 2002 ITAD RULING NO. 095-02 Article 10, RP-Japan BIR Ruling No. ITAD-63-01 Miyasaka Polymer (Phils.), Inc. 20 Ampere St., LISPP 1, Bo. Diezmo, Cabuyao, Laguna Attention: Noboru Nagashima Representative of Miyasaka Rubber Co., Ltd. Gentlemen : This refers to your letter dated March 26, 2002 requesting confirmation of your opinion that the dividends to be remitted by MIYASAKA POLYMER PHILS., INC. ("Miyasaka Polymer") to MIYASAKA RUBBER CO., LTD. ("Miyasaka Rubber"), are subject to the 10% tax rate pursuant to the RP-Japan tax treaty. It is represented that Miyasaka Rubber is a corporation duly organized and existing under the laws of Japan, with business address at 5350 Toyohira Chino-shi, Nagano-ken, Japan; that it is not licensed to engage in business in the Philippines per Securities and Exchange Commission certificate dated March 20, 2002; that Miyasaka Polymer, on the other hand, is a corporation duly organized and existing under the laws of the Philippines; that as of March 15, 2002, Miyasaka Rubber holds One Million Two Hundred Forty Nine Thousand Nine Hundred Ninety Five (1,249,995) shares valued at One Hundred Twenty Four Million Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P124,999,500.00) and constituting 99.99% of ownership in Miyasaka Polymer ; that on March 15, 2002, the Board of Directors of Miyasaka Polymer passed and approved the declaration of cash dividends equivalent to Eighteen Million Seven Hundred Fifty Thousand Pesos (P18,750,000.00), to be distributed among all its stockholders of record of which Miyasaka Polymer will receive an amount equivalent to Eighteen Million Seven Hundred Forty Nine Thousand Nine Hundred Twenty Five Pesos (P18,749,925.00). In reply, please be informed that Article 10 of the RP-Japan tax treaty provides, viz : "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. 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 aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Japan at a rate not exceeding 10 percent if the last-mentioned company holds directly at least 25 percent either of the voting shares or of the total shares of the first-mentioned company for a period of six months immediately preceding the date of payment of the dividends. In view thereof, since Miyasaka Rubber directly holds 99.99% of the voting shares of Miyasaka Polymer for a period of six months before the latter declared dividends, said dividends to be paid by Miyasaka Polymer Phils., Inc. to Miyasaka Rubber Co., Ltd . are subject to the 10 percent preferential tax rate pursuant to the RP-Japan tax treaty. (BIR Ruling No. ITAD-63-01 dated July 31, 2001) This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be rendered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service