ITAD Ruling No. 146-03

October 2, 2003 ITAD RULING NO. 146-03 Article 10, RP-Japan BIR Ruling No. DA-ITAD-75-03 Miyasaka Polymer (Phils.) Inc . 20 Ampere Street Light Industry & Science Park of the Phils. Bo. Diezmo, Cabuyao, Laguna Attention: Noboru Nagashima Representative Gentlemen : This refers to your letter dated July 29, 2003, requesting on behalf of Miyasaka Rubber Co., Ltd. (Miyasaka Rubber) confirmation that the dividends paid by Miyasaka Polymer Phils., Inc. (Miyasaka Polymer) to Miyasaka Rubber are subject to a preferential tax rate of ten percent (10%) pursuant to Article 10(2)(a) of the RP-Japan tax treaty. It is represented that Miyasaka Rubber is a non-resident foreign corporation with business address at 5350 Toyohira Chino-shi, Nagano-ken, Japan; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated April 23, 2003; that Miyasaka Polymer is a corporation organized and existing under the laws of the Philippines with its place of business at 20 Ampere St., Light Industry and Science Park of the Philippines, Bo. Diezmo, Cabuyao, Laguna; that as of September 2002, Miyasaka Rubber is the registered and legal owner of One Million Two Hundred Forty Nine Thousand Nine Hundred Ninety Five (1,249,995) shares valued at One Hundred Twenty Four Million Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P124,999,500.00), constituting 99.99% of the total voting shares of Miyasaka Polymer; that on July 29, 2003, Miyasaka Polymer declared a stock dividend in the total amount of Fifty Million Pesos (P50,000,000.00) to be distributed in favor of all its stockholders of record in proportion to their respective equity holding. In reply, please be informed that Article 10 of the RP-Japan tax treaty provides as follows: "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; 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" 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 10 per cent if the latter holds directly at least 25 percent 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. In view thereof, and since Miyasaka Rubber directly holds 99.99% of the voting shares of Miyasaka Polymer for a period of six months before the declaration of dividends, said dividends to be paid by Miyasaka Polymer to Miyasaka Rubber are subject to the 10 per cent preferential tax rate pursuant to Article 10(2)(a) of the RP-Japan tax treaty. (BIR Ruling No. DA-ITAD-75-03 dated June 3, 2003) 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