ITAD Ruling No. 126-00

September 1, 2000 ITAD RULING NO. 126-00 RP-Japan, Article 10 ITAD 49-99 Mr. Yoichi Muramoto President, MAPLE Muramoto Audio-Visual Philippines, Inc. Mactan Export Processing Zone Lapu-Lapu City, Cebu, Philippines S i r : This refers to your application for relief from double taxation dated February 18, 2000, on behalf of Muramoto Industry Co. Ltd. of Japan (MIC), requesting for a preferential tax rate of ten percent (10%) to be withheld on your dividend remittances, pursuant to the RP-Japan Tax Treaty. It is represented that MIC is a corporation organized and existing under the laws of Japan with no permanent establishment in the Philippines, as per certification dated December 14, 1999 issued by the Securities and Exchange Commission; that Muramoto Audio-Visual Philippines, Inc. (MAPLE) is a corporation organized and existing under the laws of the Philippines located at Mactan Economic Zone; that MAPLE is a PEZA-registered Ecozone Export Enterprise with Registration Certificate No. 90-08; that MAPLE is a wholly owned subsidiary of MIC; that during the annual meeting of MAPLE's Board of Directors held on January 21, 2000, it was resolved that an amount of P132,000,000 be declared as cash dividends to be taken out of the unrestricted surplus profits or retained earnings as of September 30, 1999 in favor of the stockholders of record as of September 30, 1999; that the actual date of payment of the cash dividends is on March 27, 2000; that as of January 31, 2000, MIC holds 329,000 shares of the 330,000 outstanding shares of MAPLE; and that MIC has been holding the said shares of stock since the date of incorporation of MAPLE, i.e., March 19, 1990. CIcTAE 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 dividend 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" It is clear under paragraph 2 above that a resident of Japan may avail of the preferential tax rate of 10% if such resident is the beneficial owner of the dividends, it is a company holding at least 25% of the total shares of the payor of the dividends, and has been holding the said shares six months immediately preceding the date of payment of the dividends. STcHEI Considering that MIC owns more than 25% of the total outstanding shares of MAPLE as of record date and has been holding the said shares for more than six months, the cash dividends payable by MAPLE to MIC are subject to the 10% preferential withholding tax rate under Article 10 (2)(a) of the RP-Japan Tax Treaty. This ruling is issued based on the foregoing facts as represented. If upon investigation, it will be disclosed that the said facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group