ITAD Ruling No. 143-00

September 28, 2000 ITAD RULING NO. 143-00 RP-Japan Article 10 ITAD 90-0 BIR Ruling No. ITAD 143-00 Precision Springs Cebu, Inc. PEZA-Mactan, Pusok, Lapu-Lapu City Mactan Island, Cebu Philippines Attention: Edna L . Flores Accounting Manager Gentlemen : This refers to your application for relief from double taxation dated June 27, 2000 on dividend payment pursuant to Article 10 of the RP-Japan Tax Treaty. It is represented that Precision Spring Co., Ltd. (Precision Japan), is a non-resident foreign corporation organized and existing under the laws of Japan, with head office at Ichikawa City, Chiba Prefecture, Japan; that it is not licensed to do business in the Philippines as per certification dated May 25, 1999 issued by the Securities and Exchange Commission; that Precision Springs Cebu, Inc. (Precision Cebu) is a non-pioneer PEZA-registered enterprise operating in Mactan, Lapu-Lapu City, Cebu; that as of March 31, 1999 to March 31, 2000 Precision Japan owns 99.99% of the shares of Precision Cebu amounting to Twenty Three Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Five Pesos (23,999,995.00); that on March 20, 2000 Precision Cebu's Board of Directors declared cash dividends to be taken from retained earning as of March 31, 1999 amounting to Thirteen Million Pesos (PhP13,000,000.00) as evidenced by the Secretary's Certificate dated June 26, 2000 and Board Resolution dated March 21, 2000. In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides: "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 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. 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. TcSCEa xxx xxx xxx" Based on the above, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Japan at a rate not exceeding 10 percent if the last-mentioned company holds directly at least 25 percent either of the voting shares or of the total shares of the first-mentioned company for a period of six months immediately preceding the date of payment of the dividends. In view of the foregoing, since Precision Japan owns more than 25% of the stocks of Precision Cebu, the cash dividends payable by Precision Cebu to Precision Japan are subject to 10% withholding tax. (BIR Ruling No. ITAD 90-00) This ruling is being issued on the basis of the foregoing facts as represented and will be considered null and void if upon investigation it will be disclosed that the facts are different. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group