ITAD Ruling No. 215-02

December 11, 2002 ITAD RULING NO. 215-02 RP-US Article 11 BIR Ruling No. 141-95 Joaquin Cunanan & Co. 14/F Multinational Bancorporation Centre 6805 Ayala Avenue, 1226 Makati City Attention: Ms. Tomasa H. Lipana Managing Partner, Tax Services Gentlemen : This refers to your application for tax treaty relief dated November 15, 2000, requesting confirmation of your opinion that the dividend to be paid and remitted to Integrated Device Technology Inc. USA (IDTI-US) by your client, Integrated Device Technology (Philippines), Inc. (IDTI), is subject to the preferential tax rate of 20% pursuant to Article 11 of the RP-US tax treaty. It is represented that IDTI-US is a non-resident foreign corporation existing under the laws of Delaware, USA, with office address at Corporation Trust Center, Orange St., Wilmington City, New Castle County 19801; that IDTI-US is engaged in the business of designing, manufacturing and selling of integrated circuits; that IDTI-US is the parent company of IDTI, owning 99.99% of the total voting stock of IDTI since its incorporation in 1995; that IDTI is a domestic corporation organized and existing under the laws of the Philippines with office address at Carmelray Industrial Park, PEZA Zone, Canlubang, Calamba, Laguna; that IDTI is primarily engaged in the business of processing, manufacturing, assembling fabricating, packaging, testing, taping and reeling of high performance integrated circuits and semi-conductor products of all kinds and materials; that IDTI is registered with the Philippine Economic Zone Authority (PEZA) as an ECOZONE Export Enterprise under PEZA Certificate of Registration No. 95-84 date September 5, 1995; that IDTI-US is not registered as a corporation/partnership licensed to do business in the Philippines per Securities and Exchange Commission Certificate of Non-Registration dated July 18, 2000; that as of June 30, 2000, IDTI-US owns 1,898,158 shares out of the total 1,898,163 issued and outstanding shares of stock of IDTI; that on October 30, 2000, the Board of Directors of IDTI approved a resolution declaring a cash dividend of Seventy Six Pesos and Fifty Centavos (P76.50) per share payable to stockholders of record as of March 31, 2000; and that the dividends are payable on November 17, 2000. In reply, please be informed that Article 11 of the RP-US tax treaty provides: "Article 11 "DIVIDENDS "1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. "2. The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed "a) 25 percent of the gross amount of the dividend; or "b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any) at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. "xxx xxx xxx" In view of the foregoing, and since IDTI-US, which is the recipient of the dividends, owns more than 10% of the outstanding shares of the voting stock of IDTI, the paying corporation, during the part of the latter's taxable year which precedes the date of payment and during the whole of its prior taxable year, your opinion that the dividend to be paid to IDTI-US by IDT is subject to the preferential rate of twenty percent (20%) is hereby confirmed. ( BIR Ruling No. 141-95 ) 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