ITAD Ruling No. 213-02

December 4, 2002 ITAD RULING NO. 213-02 Art. 10, RP-Japan Tax Treaty BIR Ruling No. DA-ITAD-138-02 Philippine Precision Technology Inc . Lot 4, Phase IIB, SEPZ Carmelray, Industrial Park Canlubang, Calamba, Laguna Attention: Mr. Hirohisa Araki Executive Vice President Gentlemen : This refers to your application for relief from double taxation dated September 16, 2002, requesting for a ruling to the effect that the dividends to be received by NICHIEI Corporation (Nichiei) from Philippine Precision Technology Inc. (Precision) are subject to the 10% tax rate pursuant to Article 10 of the RP-Japan tax treaty. It is represented that Nichiei is a corporation organized and existing under the laws of Japan with principal business address at 1-8-8, Sinkawa, Chuo-Ku, Tokyo, Japan; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated September 17, 2002; that Precision is a domestic corporation organized and existing under the laws of the Philippines with principal address at Lot 4, Phase IIB, SEPZ, Carmelray, Industrial Park, Canlubang, Calamba, Laguna; that Precision is an Export Processing Zone Authority (EPZA)-registered enterprise with Certificate of Registration No. 95-70 dated June 9, 1995; that as of March 31, 2002, Nichiei holds nineteen thousand nine hundred ninety five (19,995) shares valued at Nineteen Million Nine Hundred and Ninety Five Thousand Pesos (P19,995,000.00) and constituting 99.98% of ownership in Precision; that during the Special meeting held last July 8, 2002, the Board of Directors of Precision in support of Resolution BD. No. 2002-02 declared cash dividends equivalent to Two Million Pesos (P2,000,000.00) payable to all stockholders of record as of March 31, 2002. In reply, please be informed that Article 10 of the RP-Japan tax treaty provides, viz: "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 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. "xxx xxx xxx "(3) ". . . "(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. ACIESH "xxx xxx xxx" Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company which is a resident thereof to a company which is a resident of Japan at a rate not exceeding 10 percent if the last-mentioned company holds directly at least 25 percent either of the voting shares or of the total shares of the first-mentioned company for the period of six months immediately preceding the date of payment of the dividends. Such being the case, and since Nichiei holds 99.99% of the capital stock of Precision for a period of six months immediately preceding the date of payment, your application for a preferential tax treaty rate of 10% to be withheld by Precision from its dividend remittances to Nichiei pursuant to Article 10 of the RP-Japan tax treaty is hereby confirmed. ( BIR Ruling No. DA-ITAD-138-02 dated August 6, 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