ITAD Ruling No. 154-00

October 23, 2000 ITAD RULING NO. 154-00 RP-Japan Article 11 ITAD 5-99 R.S. Bernaldo & Associates Unit 1810 Cityland Condominium 10 Tower 1 6815 Ayala Avenue cor. H.V. dela Costa Ext. 1220 Makati City Attention: Perfecto E . Mirador, Jr . Partner Gentlemen : This refers to your letter dated March 8, 2000 requesting confirmation of your opinion that the interest payments of Tottori Sanyo Electric (Philippines) Corporation (TSP) to Tottori Sanyo Electric Co. Ltd. (TORISAN) are subject to Philippine final withholding tax of 15 per cent pursuant to the RP-Japan Tax Treaty. It is represented that TORISAN is a non-resident foreign corporation duly organized and existing under the laws of Japan with principal office at 5-318 Tachikawa-cho, Tottori City, 680 Japan; that it is not registered as a corporation/partnership in the Philippines as per Securities and Exchange Commission certification issued May 4, 2000; that TSP is a corporation duly organized and existing under Philippine Laws; that on May 26, 1997, a Loan Agreement was entered into by and between TORISAN and TSP; that under the Loan Agreement, TORISAN agrees to lend TSP in United States Dollars an amount equivalent to 1,400 Million in Japanese Yen payable within a period of ten (10) years at an interest rate of five and one half percent (5.5%) per annum; and that the proceeds of the loan shall be used by TSP in building a factory at Lot 1A, Phase 2, Gateway Business Park, General Trias, Cavite, Philippines. In reply, please be informed that Article 11 of the RP-Japan Tax Treaty provides: "Article 11 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. "2. However, such interest may also be taxed in the Contracting State in which it arises; and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed: a) 10 per cent of the gross amount of the interest if the interest is paid in respect of Government securities, or bonds or debentures; EcDTIH b) 15 per cent of the gross amount of the interest in all other cases . (emphasis supplied) "xxx xxx xxx "5. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. "xxx xxx xxx" Based on the foregoing, the interest payments will be taxed at the preferential tax rate not exceeding ten per cent (10%) of the gross amount of the interest paid in respect of Government securities, or bonds or debentures, and in all other cases, fifteen per cent (15 %) of the gross amount of interest. Such being the case, your opinion is hereby confirmed. The interest payments of Tottori Sanyo Electric (Philippines) Corporation (TSP) to Tottori Sanyo Electric Co. Ltd. (TORISAN) is subject to Philippine final withholding tax of 15 per cent of the gross amount of interest pursuant to the RP-Japan Tax Treaty. Moreover, the Loan Agreement entered into by and between TORISAN and TSP dated May 26, 1997 is subject to the documentary stamp tax imposed under Section 180 of the National Internal Revenue Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the 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