ITAD Ruling No. 130-04

November 10, 2004 ITAD RULING NO. 130-04 Philippines-Japan Tax Treaty, Article 10 BIR Ruling No. ITAD-20-99 Kyocera Kinseki Philippines, Inc . New Cebu Township One Special Ecozone Barangay Cantao-an, Naga, Cebu Attention: Tadaaki Hoshikawa General Manager Administration & Finance Gentlemen : This refers to your letter dated June 15, 2004 requesting for the availment of a preferential tax rate of ten percent (10%) on the dividend payments by Kyocera Kinseki Philippines, Inc. (Kyocera Phil) to Kyocera Kinseki Corporation (Kyocera) under the Philippines-Japan tax treaty. It is represented that Kyocera (formerly Kinseki Limited, per Company Registration dated April 20, 2004) is a nonresident foreign corporation organized and existing under the laws of Japan with business address at 5350 No. 8-1, 1-chome, Izumi Moto-cho, Komae-shi, Tokyo, Japan; that it is not registered either as a corporation or a partnership licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated June 7, 2004; that Kyocera Phil, formerly KSS Philippines, Inc., is a corporation organized and existing under the laws of the Philippines with its place of business at New Cebu Township One Special Ecozone, Barangay Cantao-an, Naga, Cebu; that Kyocera Phil is a Japanese-owned domestic corporation duly registered with the Philippine Economic Zone Authority (PEZA) per Amended Certificate of Registration No. 97-016; that Kyocera Phil is engaged in the manufacture of SMD quartz crystals and exports 100% of its products in Japan and in other countries; that Kyocera is the registered legal owner of Four Hundred Ninety-nine Thousand, Nine Hundred Ninety-four (499,994) common shares as of January 27, 1997 and Seven Hundred Seventy-eight (778) preferred shares as of September 1, 2003 up to the present, comprising a total of 99.99% of the total shares of stock of Kyocera Phil; that on June 28, 2004, Kyocera Phil declared cash dividends in the total amount of Fifty-three Million Nine Hundred Ninety Thousand, Four Hundred Ten Pesos and Four Centavos (P53,990,410.04) to be distributed on June 28, 2004 to all its stockholders on record. In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides: "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 ; (Emphasis supplied) b) 25 per cent of the gross amount of the dividends in all other cases. EaHDcS 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 abovequoted provisions, the Philippines may tax the dividends paid by a Philippine company to a Japanese company at a rate not exceeding ten percent (10%) if the latter holds directly at least twenty five percent (25%) either of the voting shares or of the total shares of the former for a period of six (6) months immediately preceding the date of payment of the dividends. Considering that Kyocera directly holds 99.99% of Kyocera Phil's shares of stock for the period of six (6) months immediately preceding the date of payment of the dividends, per Certification issued by Kyocera Phil's Corporate Secretary dated September 10, 2004, this Office is of the opinion and hereby holds that the dividend payments of Kyocera Phil to Kyocera are subject to the ten percent (10%) preferential tax rate pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty. (BIR Ruling No. 22-99 dated August 18, 1999) This ruling is issued based on 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