ITAD Ruling No. 183-02

October 17, 2002 ITAD RULING NO. 183-02 RP-Japan Article 10 BIR Ruling No. DA-ITAD-137-02 Philippine Japan Active Carbon Corporation Malagamot, Panacan Banawan Davao Attention: Mr. Uichiro Kawamura EVP and General Manager Gentlemen : This refers to your application for relief from double taxation dated April 4, 2002 requesting for a ruling that the dividends to be remitted by the Philippine Japan Active Carbon Corp. (PJACC) to Futamura Chemicals Industries Co., Ltd. (FCICL) are subject to the preferential tax rate of 10% pursuant to the RP-Japan tax treaty. It is represented that PJACC is a corporation organized and existing under the laws of the Philippines with business address at Malagamot, Panacan Bunawan Davao; that, on the other hand, FCICL is a non-resident foreign corporation organized and existing under the laws of Japan with principal office at 29-16, Meieki 2 Chome, Nagoya Japan; that FCICL is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification dated March 22, 2002 issued by the Securities and Exchange Commission; that during the regular meeting of PJACC Board of Directors on December 28, 2001, it was resolved that a P5.00 per share cash dividend be declared to the stockholders on record as of December 31, 2001, payable on or before March 30, 2002; and that FCICL is a stockholder of PJACC beginning 1972 and owns Five Hundred Thirty Five Thousand Nine Hundred Fifty (535,950) shares valued at Fifty Three Million Five Hundred Ninety Five Thousand Pesos (P53,595,000) representing 49.95% of the PJACC's outstanding capital stock since August 7, 2000; In reply, please be informed that Article 10 of the RP-Japan tax treaty provides as follows: "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. "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." ETHSAI Based on the foregoing, the ten percent (10%) preferential tax rate on dividend applies whenever the beneficial owner/recipient of the dividends owns at least twenty five percent (25%) of the outstanding voting shares of the paying company or of the total shares issued by that company and has been holding the said shares six months immediately preceding the date of payment of the dividends. Such being the case and since FCICL holds 49.95% of the capital stock of PJACC during the period of six months immediately preceding the date of payment of the dividends, the dividends to be paid by PJACC to FCICL are subject to the ten percent (10%) preferential tax rate pursuant to Article 10(a) of the RP-Japan tax treaty. ( BIR Ruling No. ITAD 137-02 dated May 16, 2002 ) This ruling is issued on the basis of the foregoing representations. However, if upon investigation it will be disclosed or discovered 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