ITAD Ruling No. 184-03

November 27, 2003 ITAD RULING NO. 184-03 Article 10, RP-Japan BIR Ruling No. DA-ITAD 88-03 Sanritsu Great International Corporation Lot 6, Block 14, Phase 3 Cavite Economic Zone Rosario, Cavite Attention: Ms. Rhodora M. Villamater Finance and General Affairs Manager Gentlemen : This refers to your application for relief from double taxation dated June 11, 2003 requesting confirmation of your opinion that the dividend payments by Sanritsu Great International Corporation (SGIC) to Sanritsu Denki Company Limited (SDC) and to Sanritsu Company Limited (SCL) are subject to ten percent (10%) preferential tax rate pursuant to the RP-Japan tax treaty. It is represented that SDC and SCL are non-resident foreign corporations duly organized and existing under the laws of Japan with office address at 1403 and 1404, respectively, Motai-cho, Naga no-shi, Nagano-ken, Japan; that they are not registered either as corporations or as partnerships and have not been licensed to do business in the Philippines per certification dated June 10, 2003 issued by the Securities and Exchange Commission; that SGIC is a corporation duly organized and existing under the laws of the Philippines; that since 1995, SDC and SCL have invested in the form of shares of stocks with SGIC which they increased, hold and continue to maintain up to the present; that SDC is the owner of 209,981 shares valued at P20,998,100 representing 69.9937%, while SCL owns 90,014 shares valued at P9,001,400.00 representing 30.0047%, of the total shares outstanding of SGIC; that on June 11, 2003, the Board of Directors of SGIC passed and approved the declaration of cash dividend in the amount of Four Million Two Hundred Thousand Peso (4,200,000.00) payable to the stockholders of record as of June 30, 2003. 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. cTCADI 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 above, the Philippines may tax the dividends paid by a Philippine company to a Japanese company at a rate not exceeding ten percent (10%) if the Japanese company is the beneficial owner which holds directly at least 25 percent either of the voting shares or of the total shares issued by the Philippine company for a period of six months immediately preceding the date of payment of the dividends. ( DA-ITAD 99-01 dated October 25, 2001 ) Considering that SDC and SCL hold directly 69.9937% and 30.0047%, respectively, of the shares of stock of SGIC during the period of six months immediately preceding the date of payment of the dividends, this office is of the opinion and so holds that the dividend payments by SGIC to SDC and to SCL are subject to the ten percent (10%) preferential tax rate pursuant to Article 10(2)(a) of the RP-Japan tax treaty. ( BIR Ruling No. DA-ITAD 88-03 dated June 30, 200 3) This ruling is issued on the basis of the foregoing 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