ITAD Ruling No. 227-02

December 27, 2002 ITAD RULING NO. 227-02 RP-Japan Protocol par. 5 BIR Ruling No. ITAD 120-01 Mizuho Corporate Bank, Ltd.-Manila Branch 26th Floor; Citibank Tower, Valero St., corner Villar St. Salcedo Village, Makati City Attention: Katsuhiro Kakimoto Joint General Manager Gentlemen : This refers to your letter dated October 10, 2002 requesting for the application of the preferential tax rate of ten percent (10%) on profits remitted by Mizuho Corporate Bank, Ltd.-Manila Branch (MCB-MB) to Mizuho Corporate Bank, Ltd.-Head Office (MCB-HO), pursuant to paragraph 5 of the Protocol of the RP-Japan tax treaty. DECcAS It is represented that MCB-HO is a Japanese corporation with address at 1-5-5 Otemachi, Chiyoda-Ku Tokyo, Japan; that MCB-MB, the Philippine Branch was registered and licensed by the Securities and Exchange Commission (SEC) dated June 22, 1995, to engage in commercial banking and related business; that on April 1, 2002 a merger took effect between Fuji Bank Limited, Dai-Ichi Kangyo Bank, Limited and The Industrial Bank of Japan; that the Monetary Board of the Bangko Sentral ng Pilipinas, in its Resolution No. 258 dated February 21, 2002 decided to issue a clearance for the change of name of The Fuji Bank, Ltd.-Manila Branch to Mizuho Corporate Bank-Manila Branch effective April 1, 2002; that per SEC certification issued on August 15, 2002 with Amended SEC License No. AF095-069, the license of The Fuji Bank, Limited was amended to reflect the change of its name from The Fuji Bank, Limited to Mizuho Corporate Bank, Ltd.-Manila Branch as a consequence of the merger; that MCB-MB operates as a branch of a foreign bank earning basically interest income and remits to MCB-HO. 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) Based on the aforequoted provisions, this Office is of the opinion and so holds that the profits to be remitted by MCB-MB to its head office MCB-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 brand to its head office abroad does not, therefore, apply in the instant case. ( BIR Ruling No. DA-ITAD 120-01 dated December 6, 2001 ) cEaACD 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