Revised Provisions on Venue of Civil Cases in RTCs

December 27, 2002 ITAD RULING NO. 232-02 RP-Japan, Article 10 BIR Ruling No. ITAD 110-02 Narciso, Jimenez Gonzales Liwanag Bello Valdez & Caluya SOL Building, 112 Amorsolo Street Legaspi Village, 1229 Makati City Attention: Ms. Jenalyn R. Carabeo-Suarez Gentlemen : This refers to your application for relief from double taxation dated May 22, 2002 requesting for a ruling that the dividend to be remitted by Nachi Pilipinas Industries Inc. (NPII) to Nachi Fujikoshi Corporation (NFC) is subject to 10% withholding income tax, pursuant to the RP-Japan tax treaty. It is represented that NFC is a corporation organized and existing under the laws of Japan with principal address at World Trade Center Bldg., 2-4-1 Hamamatsu-cho Mainato-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 dated May 22, 2002 issued by the Securities and Exchange Commission; that NPII is a corporation organized and existing under the laws of the Philippines with principal address at 1st Avenue, Maalac Compound, Sta. Maria Industrial Estate, B-hayan Taguig, Metro Manila; that NPII is a wholly-owned subsidiary of NFC; that for the period beginning January 1999 and the whole of 2001, NFC is a stockholder of record of the 49,995 shares of stock in NPII representing 99.99% of the latter's outstanding capital stock; that during the same period, NFC is likewise the beneficial owner of the remaining 5 shares of stock in NPII registered under the names of the following nominee stockholders to qualify them as members of NPII's Board of Directors: Hirokazu Shiina, Masao Surawatari, Katsuji Tamura, Vicente T. Mills, Jr., and Akio Sone; and that on December 10, 2001, the Board of Directors of NPII declared a 10% cash dividend (equivalent to 6.17% of the retained earnings as of September 30, 2001) in the amount of Php 5,000,000, to be paid in January 2002, to the stockholders of record as of January 1, 2002. 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. "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" The preferential tax rate on dividend applies whenever the beneficial owner/recipient of the dividends owns at least 25% of the outstanding voting shares of the paying company and has been holding the said shares six months immediately preceding the date of payment of dividends. Since NFC beneficially owns all of the outstanding capital stocks of NPII as of record date and having been the holder thereof beginning January 1999 to 2001, the cash dividend remitted by NPII to NFC is subject to 10% preferential tax rate pursuant to Article 10(2)(a) of RP-Japan tax treaty. (BIR Ruling No. 110-02 dated May 30, 2002) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be discovered 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