ITAD Ruling No. 112-04

October 26, 2004 ITAD RULING NO. 112-04 Art. 10, Philippines-Japan tax treaty BIR Ruling No. DA-ITAD-31-04 Joaquin Cunanan & Co . Unit 306, Keppel Center Samar Loop corner Cardinal Avenue Cebu Business Park 6000 Cebu City Attention: Mr . Virgilio L. Manguilimotan Partner-VISMIN Operations Assurance Services Gentlemen : This refers to your letter dated April 30, 2004, applying for a tax treaty relief, on behalf of your client, Taiheiyo Cement Corporation (Taiheiyo-Japan), for the dividend income earned as the major stockholder of Taiheiyo Cement Philippines, Inc. (Taiheiyo-Phil), formerly Grand Cement Manufacturing Corporation, pursuant to the Philippines-Japan tax treaty. It is represented that Taiheiyo-Japan is a nonresident foreign corporation organized and existing under the laws of Japan with principal address at 8-I Akashi-cho, Chuo-ku, Tokyo, Japan; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated April 14, 2004; that Taiheiyo-Phil is a corporation organized and existing under the laws of the Philippines with principal address at 6th Flr., Insular Life Building, Gen. Maxilom corner Gorordo Avenues, Cebu City; that Taiheiyo-Japan is the registered owner of Five Million Eight Hundred Three Thousand One Hundred Eighty-Nine shares in Taiheiyo-Phil, with a total value of PhP580,318,900, constituting more than 99% percentage ownership of the outstanding capital of Taiheiyo-Phil; that at the meeting of the Board of Directors of Taiheiyo-Phil held on January 16, 2004, it was resolved that cash dividends in the amount of PhP100,000,000.00 be declared in favor of stockholders of record of Taiheiyo-Phil as of the close of business hours on March 2, 2004; and that the said dividends are payable on March 10, 2004. In reply, please be informed that Article 10 of the Philippines-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 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 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. IEHSDA "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 shares by the taxation laws of the Contracting State of which the company making the distribution is a resident. "xxx xxx xxx" In view of the foregoing, and since Taiheiyo-Japan is the beneficial owner which holds directly more than 99% of the total shares of Taiheiyo-Phil, the cash dividends payable by Taiheiyo-Phil to Taiheiyo-Japan are subject to the preferential tax rate of 10% of the gross amount of the dividends. (BIR Ruling No. DA-ITAD-31-04 dated April 2, 2004) This ruling is issued on the basis of 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