ITAD Ruling No. 156-00

October 23, 2000 ITAD RULING NO. 156-00 RP-Japan Art. 10 8-99 Sakamoto Orient Chemicals Corporation Unit 5D, Palaza Royal 120 Alfaro St., Salcedo Village Makati City Attention: Mr . Cesar F . Cabaas Accounting Manager Gentlemen : This refers to your letter dated March 28, 2000 on behalf of Sakamoto Orient Chemicals Corporation (Sakamoto), applying for a tax treaty relief on its dividend payments to Sakamoto Yakuhin Kogyo Co., Ltd. (SYKCL) and Tomen Corporation (Tomen) pursuant to the RP-Japan Tax Treaty. It is represented that Sakamoto is a corporation organized and existing under the laws of the Philippines, and is registered with the Board of Investment as per Certification of Registration No. EP 88-872 dated December 27, 1988; that SYKCL and Tomen, both based in Japan, respectively hold 75% and 25% of the outstanding shares of Sakamoto; that per Securities and Exchange Commission's certificate dated April 10, 2000, SYKCL and Tomen are not licensed to do business in the Philippines; and that in the annual meeting of Sakamoto's Board of Directors held on December 14, 1999, it was resolved that out of its unrestricted retained earnings, a cash dividend of P0.52 per share is declared to all stockholders of record as of November 15, 1999. cIHDaE 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 shares issued by the 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. 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. . . ." Based on the above, the Philippines may tax the dividends paid by a Philippine economy to a Japanese company at a rate not exceeding 25% if the latter holds directly at least 25% either of the voting shares or of the total shares of the former for a period of six months immediately preceding the date of payment of the dividends. Considering that SYKCL and Tomen own at least 25% of the stocks of the Sakamoto, the dividend remittances of Sakamoto to SYKCL and Tomen are subject to the 10% final withholding tax. (BIR Ruling No. ITAD 8-99) 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. IHCSET Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group