ITAD Ruling No. 110-02

May 30, 2002 ITAD RULING NO. 110-02 RP-Japan Article 10 BIR Ruling No. ITAD 44-99 FUTABA Corporation Of The Phils. 120 North Science Avenue Laguna Technopark, Bian, Laguna Attention: Mr. Shoji Arai Vice President Gentlemen : This refers to your letter dated August 27, 2001 relative to your request for a ruling that the dividend to be remitted by Futaba Corporation of the Philippines (Futaba-Phil) to Futaba Corporation (Futaba-Japan) is subject to 10% withholding tax pursuant to the RP-Japan tax treaty. It is represented that Futaba-Japan is a corporation organized and existing under the laws of Japan with principal office address at 629 Oshiba Mobara City, Chiba 297 Japan; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per certification dated August 22, 2001 issued by the Securities and Exchange Commission; that Futaba-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 120 North Science Avenue, Laguna Technopark, Bian, Laguna; that Futaba-Phil is a wholly-owned subsidiary of Futaba-Japan; that as of April 10, 2000 Futaba-Japan owns 99.99% of the shares of Futaba-Phil; that during the regular meeting of the Board of Directors of Futaba-Phil held on April 27, 2001, it was resolved that thirty percent (30%) of the earned surplus as of March 31, 2001 be declared as dividends to all stockholders of record as of March 31, 2001, payable on or before July 5, 2001 as evidenced by the Secretary's Certificate dated June 7, 2001. In reply, please be informed that Article 10 of the RP-Japan tax treaty provides as follows: "Article 10 "DIVIDENDS "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 percent 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" The preferential tax rate on dividend applies whenever the beneficial owner/recipient of the dividends owns at least 25% of the outstanding voting shares of the paying company and has been holding the said shares six months immediately preceding the date of payment of dividends. Since Futaba-Japan owns 99.99% of the total outstanding stocks of Futaba-Phil as of record date and having been the holder thereof from September 13, 1999 to April 10, 2000, the cash dividend remitted by Futaba-Phil to Futaba-Japan is entitled to the 10% 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 shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service