ITAD Ruling No. 120-01

December 6, 2001 ITAD RULING NO. 120-01 RP-JAPAN Protocol par. 5 BIR Ruling No. ITAD-158-00 BIR Ruling No. 138-89 Sumitomo Corporation 35th Floor Philamlife Tower 8767 Paseo de Roxas, Makati City Attention: Mr. Kenichi Onitsuka Senior Deputy General Manager Gentlemen : This refers to your letter dated June 20, 2001, seeking confirmation of your opinion that the profits to be remitted by your office, SUMITOMO CORPORATION, MANILA (Sumitomo Manila), to your head office, SUMITOMO CORPORATION, JAPAN (Sumitomo Japan) is subject to the preferential tax rate of ten (10%) percent pursuant to paragraph 5 of the Protocol of the RP-Japan Tax Treaty. It is represented that Sumitomo Japan is a corporation duly organized and existing under and by virtue of the laws of Japan with business address at 8-11, Harumi, 1-Chome, Chuo-ku, Tokyo 104-8610, Japan; that as per License No. 492 dated March 20, 1967 issued by the Philippine Securities and Exchange Commission (SEC), said corporation is licensed to engage in the importation, exportation and sale of all kinds of commodities and to act as commission and commercial brokers, etc. in the Philippines thru its branch office, Sumitomo Manila. In reply, please be informed that paragraph 5 of the Protocol of the RP-Japan Tax Treaty provides, viz : "Protocol xxx xxx xxx "5. Nothing in the Convention shall be construed as preventing the Republic of the Philippines from imposing on the earnings (other than those derived from the operation of ships or aircraft in international traffic) of a company being a resident of Japan attributable to a permanent establishment which it has in the Republic of the Philippines, a tax in addition to the tax which would be chargeable on the income of a company being a resident of the Republic of the Philippines, provided that any additional tax so imposed shall not exceed 10 per cent of the amount of the part of such earnings which is remitted abroad . For the purposes of this paragraph, the term "earnings" means the amount remaining after deducting from the profits attributable to a permanent establishment in the Republic of the Philippines in a year and years preceding that year all taxes other than the additional tax referred to in this paragraph, imposed on such profits by the Republic of the Philippines. (emphasis supplied) Based on the afore-quoted provisions, this Office is of the opinion and so holds that the profits to be remitted by Sumitomo Manila to its head office Sumitomo Japan are subject to the preferential tax rate of 10% of such profits remitted abroad. The fifteen (15%) percent tax rate prescribed under Section 28(A)(5) of the National Internal Revenue Code of 1997 imposed on the profits remitted by a branch to its head office abroad does not, therefore, apply in the instant case. (BIR Ruling No. ITAD-158-00, BIR Ruling No. 138-89) This ruling is issued on the basis of the foregoing representations. However, if upon investigation it shall be disclosed or discovered that the facts are different, then this ruling shall be considered null and void. ETCcSa Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue