ITAD Ruling No. 190-03

December 5, 2003 ITAD RULING NO. 190-03 RP-Japan treaty Protocol par. 5 BIR Ruling No. ITAD 227-02 Kanematsu Corporation Manila Branch 4th Floor, Don Chua Lamko Building L.P. Leviste corner H.V. Dela Costa Sts. Salcedo Village, Makati, Metro Manila Attention: Masahi Iwami Officer-in-Charge Gentlemen : This refers to your letter dated May 14, 2003 requesting confirmation of your opinion that the preferential tax rate of ten percent (10%) pursuant to paragraph 5 of the Protocol of the RP-Japan tax treaty on the profit remittances by Kanematsu Corporation-Manila Branch (KC-MB) to Kanematsu Corporation-Head Office (KC-HO). It is represented that KC-HO is a Japanese corporation with business address at Seavans N Bldg. 2-1 Shibaura, 1-Chome, Minato-ku, Tokyo 105, Japan; that KC-MB, the Philippine Branch with business address at 4th Floor, Don Chua Lamko Building, L.P. Leviste corner H.V. Dela Costa Sts. Salcedo Village, Makati, Metro Manila, was registered and licensed by the Securities and Exchange Commission (SEC) per certificate no. 501 dated May 29, 1990, as amended, to engage in business as importers, exporters and general business merchants; that KC-MB operates as a branch of a Japanese trading company earning basically from trading and remits income to KC-HO; and, that KC-MB remitted profits to KC-HO in the gross amount of One Million US Dollars (US$1,000,000) last April 23, 2003. In reply, please be informed that paragraph 5 of the Protocol which forms an integral part of the RP-Japan tax treaty provides as follows: "5. Nothing in the Convention shall be construed as preventing the Republic of the Philippines from imposing on the earnings (other than those derived from the operation of ships or aircraft in international traffic) of a company being a resident of Japan attributable to a permanent establishment which it has in the Republic of the Philippines, a tax in addition to the tax which would be chargeable on the income of a company being a resident of the Republic of the Philippines, provided that any additional tax so imposed shall not exceed 10 per cent of the amount of the part of such earnings which is remitted abroad. For the purposes of this paragraph, the term `earnings' means the amount remaining after deducting from the profits attributable to a permanent establishment in the Republic of the Philippines in a year and years preceding that year all taxes other than the additional tax referred to in this paragraph, imposed on such profits by the Republic of the Philippines." (Emphasis supplied) ITCcAD Based on the aforequoted provisions, this Office is of the opinion and so holds that the remittances of profits by KC-MB to its head office KC-HO are subject to the preferential tax rate of ten percent (10%) of such profits remitted abroad. The fifteen percent (15%) tax rate prescribed under Section 28(A)(5) of the National Internal Revenue Code of 1997 imposed on the profits remitted by a branch to its head office abroad does not, therefore, apply in the instant case. (BIR Ruling No. DA-ITAD 227-02 dated December 27, 2002) 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