December 29, 2004

ITAD RULING NO. 160-04

Articles 5, 7 & 12, Philippines-Japan tax treaty

NIRC, Sec. 108
BIR Ruling No. DA-ITAD-142-02

Sycip Gorres Velayo & Co

6760 Ayala Avenue
1226 Makati City

Attention: R. C. Vinzon
Tax Division

Gentlemen :

This refers to your letter dated December 1, 2004, on behalf of your client, Daikyo International
Philippine, Inc., (Daikyo Phil), requesting confirmation of your opinion that the fees to be paid by Daikyo
Phil to Daikyo Gikein Kogyo Co., Ltd. (Daikyo Japan) for services to be rendered are not subject to
Philippine income tax under the Philippines-Japan tax treaty.

It is represented that Daikyo Japan is a nonresident, foreign corporation duly organized and existing
under the laws of Japan with executive office located at DK Bldg. 1-22-4 Sonan, Sagamihara-City,
Kanagawa Pref. 228-0812, Japan; that it is engaged in the business of manufacturing adhesive tape and die
cutting; that it is not registered either as a corporation or as a partnership licensed to do business in the
Philippines per certification issued by the Securities and Exchange Commission dated October 28, 2004;
that Daikyo Phil is a corporation duly organized and existing under the laws of the Republic of the
Philippines with principal office address at Carmelray Industrial Park-1 Canlubang, Calamba, Laguna; that
on October 26, 2004, Daikyo Phil and Daikyo Japan entered into a Service Agreement whereby Daikyo
Japan shall send employees to the Philippines to conduct the inspection and quality control of the
machinery of Daikyo Phil and to provide assistance through consultation when necessary; that in
consideration for said services, Daikyo Phil shall pay Daikyo Japan the amount of One Million Fifty
Thousand Yen (Y1,050,000) on a quarterly basis; and that the aggregate stay of the employees of Daikyo
Japan to carry out the aforesaid services in the Philippines shall not exceed one (1) month in a given
taxable year.

In reply, please be informed that Article 12(4) of the Philippines-Japan tax treaty defines the term
"royalties", as follows:

"Article 12

(4) The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 1
 including cinematograph films and films or tapes for radio or television broadcasting, any patent,
trade mark, design, or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience."

The tax treaty defines "royalties" to include "payment of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the commentaries of
the ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD) Committee
on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12 (royalties), © 1998, p.
151), such information alludes to the concept of "know-how". The definition of know-how, which has
been adopted by the said Committee, is "all the undivulged technical information, whether capable of
being patented or not, that is necessary for the industrial reproduction of a product or process, directly and
under the same conditions; inasmuch as it is derived from experience, know-how represents what a
manufacturer cannot know from mere examination of the product and mere knowledge of the progress of
technique." In a know-how contract, one of the parties agrees to impart to the other, so that he can use
them for his own account, his special knowledge and experience which remain unrevealed to the public.
(BIR Ruling No. DA-ITAD No. 49-02 dated April 15, 2002)

Further, in the case of Philippine Refining Company vs. CIR, CTA Case No. 2872 dated January 15,
1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from royalties, to
wit:

"To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensation, for personal services, If the payee has proprietary interest
then the payment is royalty."

Applying the above discussions to the instant case, there is nothing in the subject Agreement that
would require transfer into the Philippines of technology, equipment or other property where Daikyo
Japan has proprietary interest or would otherwise permit Daikyo Japan to impart to Daikyo Phil their
special knowledge and experience which remain unrevealed to the public. Likewise, inasmuch as Daikyo
Japan shall render these services using their customary skills, then the compensation to be received
therefor shall not constitute as consideration for the use of, or the right to use, any copyright, patent,
trademark, design or model, plan, secret formula or process, or for the transfer of technology.

In this regard, Article 7 of the Philippines-Japan tax treaty provides as follows:

"Article 7

1. The profits of an enterprise of a Contracting State shall be taxable only in that

Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment."

xxx xxx xxx"

In relation, Article 5 of the same tax treaty provides, viz:

"Article 5

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 2
 1. For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which the business of an enterprise is wholly or partly carried on.

xxx xxx xxx"

6. An enterprise of a Contracting State shall be deemed to have a permanent

establishment in the other Contracting State if it furnishes in that other Contracting State
consultancy services, or supervisory services in connection with a contract for a building,
construction or installation project through employees or other personnel — other than an agent of
an independent status to whom paragraph 7 applies — provided that such activities continue (for
the same project or two or more connected projects) for a period or periods aggregating more than
six months within any taxable year. However, if the furnishing of such services is effected under an
agreement between the Governments of the two Contracting States regarding economic or technical
cooperation, that enterprise shall, notwithstanding any provisions of this Article, not be deemed to
have a permanent establishment in that other Contracting State" (emphasis supplied)

Based on the aforequoted provisions, it is clear that if a corporation which is a resident of the Japan
carries on business in the Philippines through a permanent establishment situated therein, the profits of the
same shall be subject to Philippine income tax, but only so much of them as is attributable to that
permanent establishment. For this purpose, a Japanese corporation may be deemed to have a permanent
establishment in the Philippines if, among others, the furnishing of consultancy or supervisory services by
such corporation, through its employees or other personnel, in the same or connected project, continue
within the Philippines for a period or periods aggregating more than six months within any taxable year.

Considering that the employees of Daikyo Japan shall perform the subject services in the
Philippines for less than six months in a given taxable year, more particularly for period not exceeding one
month, Daikyo Japan is not deemed to have a permanent establishment in the Philippines to which its
business profits may be attributed to. Accordingly, this Office is of the opinion and so holds that the fees
to be paid Daikyo Phil to Daikyo Japan under the Service Agreement are not subject to Philippine tax
pursuant to Article 7(1) in relation to Article 5(6) of the Philippines-Japan tax treaty. (BIR Ruling No.
DA-ITAD-142-02 dated August 20, 2002)

However, the service fees for the portion of services rendered in the Philippines are subject to 10%
value-added tax (VAT) pursuant to Section 108 of the Tax Code of 1997. Accordingly, Daikyo Phil being
the resident withholding agent and payor in control of the payment, shall be responsible for the
withholding of the 10% final VAT before making any payment to Daikyo Japan. In remitting the VAT
withheld, Daikyo Phil shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and
Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment thereof shall
serve as documentary substantiation for the claim of input tax by Daikyo Phil upon filing its own VAT
return, if it is a VAT-registered taxpayer. In case Daikyo Phil is a non-VAT registered taxpayer, the
passed-on VAT withheld shall form part of the cost of the service purchased or treated as "expense" or
"asset," whichever is applicable. In addition, Daikyo Phil is required to issue the Certificate of Final Tax
Withheld at Source (BIR Form No. 2306) in quadruplicate upon request of Daikyo Japan, the first three
copies thereof to be given to Daikyo Japan and the fourth copy to be retained by Daikyo Phil as its file
copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-2002; Section 3 of RR No. 8-2002; Section 7 of
RR No. 14-2002] ACDTcE

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

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 3
 herein parties are concerned.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 29, 2004

ITAD RULING NO. 159-04

Articles 5, 7 & 12, Philippines-Japan tax treaty

NIRC, Sec. 28, 42 and 108
BIR Ruling No. DA-ITAD-142-02

Sycip Gorres Velayo & Co

6760 Ayala Avenue
1226 Makati City

Attention: R. C. Vinzon
Tax Division

Gentlemen :

This refers to your letter dated December 1, 2004, on behalf of your client, Daikyo International
Philippine, Inc., (Daikyo Phil), respectfully requesting confirmation of your opinion that the fees to be
paid by Daikyo Phil to Daikyo Giken Kogyo Co., Ltd. (Daikyo Japan) for services to be rendered are not
subject to Philippine income tax under Philippines-Japan tax treaty.

It is represented that Daikyo Japan is a nonresident foreign corporation duly organized and existing

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 4
 under the laws of Japan with executive office located at DK Bldg. 1-22-4 Sonan, Sagamihara-City,
Kanagawa Pref. 228-0812, Japan; that it is engaged in the business of manufacturing adhesive tape and die
cutting; 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
October 28, 2004; that Daikyo Phil is a corporation duly organized and existing under the laws of the
Republic of the Philippines with principal office address at Carmelray Industrial Park-1 Canlubang,
Calamba, Laguna; that on October 26, 2004, Daikyo Phil and Daikyo Japan entered into a Sales Support
Agreement whereby Daikyo Japan shall send employees to the Philippines to work to convince Fujitsu
Japan to proceed with its transactions with Daikyo Phil through Fujitsu Philippines and also with other
companies; that in consideration for said services, Daikyo Phil shall pay Daikyo Japan 5% of the sales of
Daikyo Phil; and that the aggregate stay of the employees of Daikyo Japan to carry out the aforesaid
services in the Philippines shall not exceed two (2) weeks in a given taxable year.

In reply, please be informed that Article 12(4) of the Philippines-Japan tax treaty defines the term
"royalties", as follows:

"Article 12

(4) The term "royalties " as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literacy, artistic or scientific work
including cinematograph films and films or tapes for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience."

The tax treaty defines "royalties" to include "payment of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the commentaries of
the ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD) Committee
on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12 (royalties), © 1998, p.
151), such information alludes to the concept of "know-how". The definition of know-how, which has
been adopted by the said Committee, is "all the undivulged technical information, whether capable of
being patented or not, that is necessary for the industrial reproduction of a product or process, directly and
under the same conditions; inasmuch as it is derived from experience, know-how represents what a
manufacturer cannot know from mere examination of the product and mere knowledge of the progress of
technique." In a know-how contract, one of the parties agrees to impart to the other, so that he can use
them for his own account, his special knowledge and experience which remain unrevealed to the public.
(BIR Ruling No. DA-ITAD No. 49-02 dated April 15, 2002)

Further, in the case of Philippine Refining Company vs. CIR, CTA Case No. 2872 dated January 15,
1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from royalties, to
wit:

"To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensation for personal services, if the payee has proprietary interest
then the payment is royalty."

Applying the above discussions to the instant case, there is nothing in the subject Agreement that
would require transfer into the Philippines of technology, equipment or other property where Daikyo
Japan has proprietary interest or would otherwise permit Daikyo Japan to impart to Daikyo Phil their
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 5
 special knowledge and experience which remain unrevealed to the public. Likewise, inasmuch as Daikyo
Japan shall render these services using their customary skills, then the compensation to be received
therefor shall not constitute as consideration for the use of, or the right to use, any copyright, patent,
trademark, design or model, plan, secret formula or process, or for the transfer of technology. cIECaS

In this regard, Article 7 of the Philippines-Japan tax treaty provides as follows:

"Article 7

1. The profits of all enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment."

xxx xxx xxx"

In relation, Article 5 of the same tax treaty provides, viz:

"Article 5

1. For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which the business of an enterprise is wholly or partly carried on.

xxx xxx xxx"

6. An enterprise of a Contracting State shall be deemed to have a permanent

establishment in the other Contracting State if it furnishes in that other Contracting State
consultancy services, or supervisory services in connection with a contract for a building,
construction or installation project through employees or other personnel — other than an agent of
an independent status to where paragraph 7 applies —, provided that such activities continue (for
the same project or two or more connected projects) for a period or periods aggregating more than
six months within any taxable year. However, if the furnishing of such services is effected under an
agreement between the Governments of the two Contracting States regarding economic or technical
cooperation, that enterprise shall, notwithstanding any provisions of this Article, not be deemed to
have a permanent establishment in that other Contracting State." (underscoring supplied)

Based on the aforequoted provisions, it is clear that if a corporation which is a resident of the Japan
carries on business in the Philippines through a permanent establishment situated therein, the profits of the
same shall be subject to Philippine income tax, but only so much of them as is attributable to that
permanent establishment. For this purpose, a Japanese corporation may be deemed to have a permanent
establishment in the Philippines if, among others, the furnishing of consultancy or supervisory services by
such corporation, through its employees or other personnel, in the same or connected project, continue
within the Philippines for a period or period aggregating more than six months within any taxable year.

Considering that the employees of Daikyo Japan shall perform the subject services in the
Philippines for less than six months in a given taxable year, more particularly for period not exceeding two
weeks in a given taxable year, Daikyo Japan is not deemed to have a permanent establishment in the
Philippines to which its business profits may be attributed to. Accordingly, this Office is of the opinion
and so holds that the fees to be paid Daikyo Phil to Daikyo Japan under the Sales Support Agreement are
not subject to Philippine tax pursuant to Article 7(1) in relation to Article 5(6) of the Philippines-Japan tax

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 6
 treaty. (BIR Ruling No. DA-ITAD-142-02 dated August 20, 2002)

However, the service fees for the portion of services rendered in the Philippines are subject to 10%
value-added tax (VAT) pursuant to Section 108 of the Tax Code of 1997. Accordingly, Daikyo Phil being
the resident withholding agent and payor in control of the payment, shall be responsible for the
withholding of the 10% final VAT before making any payment to Daikyo Japan. In remitting the VAT
withheld, Daikyo Phil shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and
Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment thereof shall
serve as documentary substantiation for the claim of input tax by Daikyo Phil upon filing its own VAT
return, if it is a VAT-registered taxpayer. In case Daikyo Phil is a non-VAT registered taxpayer, the
passed-on VAT withheld shall form part of the cost of the service purchased or treated as "expense" or
"asset," whichever is applicable. In addition, Daikyo Phil is required to issue the Certificate of Final Tax
Withheld at Source (BIR Form No. 2306) in quadruplicate upon request of Daikyo Japan, the first three
copies thereof to be given to Daikyo Japan and the fourth copy to be retained by Daikyo Phil as its file
copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-2002; Section 3 of RR No. 8-2002; Section 7 of
RR No. 14-2002] ECHSDc

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
Bureau of Internal Revenue

December 29, 2004

ITAD RULING NO. 158-04

Article 12 Philippines-Singapore tax treaty

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 7
 BIR Ruling No. 105-95

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: E.C. Alcantara

Tax Division

Gentlemen :

This refers to your letter dated November 25, 2004, on behalf of your client, Hotel Project Systems,
Pte., Limited (HPSL), requesting confirmation that the royalties to be paid by New Coast Hotel, Inc.
(NCHI) to HPSL are subject to the 25% preferential withholding tax rate under the Philippines-Singapore
tax treaty and that such royalty payments are subject to the 10% value-added tax (VAT) pursuant to
Section 108 of the 1997 Tax Code.

It is represented that HPSL is nonresident foreign corporation organized and existing under the laws
of Singapore with registered office at 20 Raffles Place #17-00, Ocean Towers, Singapore 0104 and its
principal place of business at 10-12 Scotts Road, Singapore; that it is not registered either as a corporation
or as a partnership licensed to do business in the Philippines per certification issued by the Securities and
Exchange Commission dated March 9, 2004; that NCHI is a corporation organized and existing under the
laws of the Philippines with office address at 12th Floor, Net One Center, 26th Street Corner 3rd Avenue,
Crescent Park West, Bonifacio Global City Taguig, Metro Manila; that it is a duly registered VAT
taxpayer under BIR Certificate of Registration No. 9RC000086549 dated October 16, 2002 with Tax
Identification Number 220-609-558-000; that on December 12, 2003 NCHI and HPSL entered into a
License Agreement whereby NCHI was licensed and granted exclusive rights by HPSL over HPSL
proprietary rights to use the name "Hyatt" and related wordmarks, trade and service marks and logos, and
HPSL undertakes to provide the NCHI with experience and know-how of hotel technical systems and
operating standards and services for international deluxe hotels in connection with NCHI's operation and
management of a hotel to be named and called "Hyatt Manila Hotel and Casino"; that Section 2, Article IV
of the License Agreement was amended per Letter Amendment dated August 11, 2004; that in
consideration thereof, NCHI shall pay to HPSL royalties based on a percentage of gross operating profit of
the Hotel; that said License Agreement and its Letter Amendment were registered with the Intellectual
Property Office under Certificate of Registration No. 5-2004-00041 dated November 4, 2004.

In reply, please be informed that Article 12 of the Philippines-Singapore tax treaty provides, viz:

"Article 12

"Royalties

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the law of that State, but if the recipient is the beneficial owner of the royalties, the
tax so charge shall not exceed:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 8
 (a) in the case of the Philippines, 15 per cent of the gross amount of the
royalties, where the royalties are paid by an enterprise registered with the Philippine
Board of Investments and engaged in preferred areas of activities and also royalties
in respect of cinematographic films or tapes for television or broadcasting;

(b) in the case of Singapore, where the royalties are approved under the
Economic Expansion Incentives (Relief from Income Tax) Act of Singapore, the
royalties shall be exempt;

(c) in all other cases, 25 per cent of the gross amount of royalties.

"3. The term " royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or tapes for television or broadcasting, any patent, trade mark,
design or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial, commercial or
scientific experience.

"xxx xxx xxx"

Based on the aforementioned provisions, in the case of Philippines, royalties shall be taxed at a
preferential rate not exceeding of 15% if the payor is a Board of Investments (BOI) registered enterprise
and engaged in preferred areas of activities and royalties are paid in respect of cinematographic films or
tapes for television or broadcasting. In all other cases, royalty payments will be taxed at a rate not
exceeding 25% of the gross amount of royalties.

Considering that NCHI is not a BOI registered enterprise which is engaged in preferred areas of
activities in the Philippines and that the herein royalty payments are not in respect of cinematographic
films or tapes for television or broadcasting, this Office is of the opinion and so holds that the royalty
payments by NCHI to HPSL are subject to the preferential withholding tax rate of 25% of the gross
amount of royalties pursuant to Article 12(2)(c) of the Philippine-Singapore tax treaty. (BIR Ruling No.
DA-ITAD-24-00 dated January 28, 2000)

Moreover, the said royalty payments to be paid by NCHI to HPSL are subject to 10% value-added
tax pursuant to Section 108 of the Tax Code. Accordingly, NCHI being the resident withholding agent and
payor in control of the payment shall be responsible for the withholding of the 10% VAT withheld, NCHI
shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage
Taxes Withheld). The duly filed BIR Form No. 1600 and the proof of payment thereof shall serve as
documentary substantiation for the claim of input tax by NCHI upon filing its own VAT. In addition,
NCHI is required to issue the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in
quadruplicate upon request of HPSL, the first three copies thereof to be given to HPSL and the fourth copy
to be retained by NCHI as its file copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-200; Section 3,
RR 8-2002; Section 7, RR No.-14-2002] AICTcE

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,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 9
 Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 29, 2004

ITAD RULING NO. 157-04

Arts. 5 & 8, Philippines-United States tax treaty

Arts. 5 & 8, Philippines-Canada tax treaty
Arts. 5 & 7, Philippines-China tax treaty
Arts. 5 & 7, Philippines-Malaysia tax treaty
Arts. 5 & 7, Philippines-Indonesia tax treaty
Arts. 5 & 7, Philippines-Australia tax treaty
Arts. 5 & 7, Philippines-New Zealand tax treaty
Arts. 5 & 7, Philippines-India tax treaty
Arts. 5 & 7, Philippines-Japan tax treaty
Arts. 5 & 7, Philippines-Thailand tax treaty
Section 108, NIRC
BIR Ruling No. DA-ITAD-186-00
BIR Ruling No. DA-ITAD-27-04
BIR Ruling No. DA-ITAD-16-01

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Romulo S. Danao Jr.

Partner, Tax Services
This refers to your letter dated December 15, 2004, on behalf of your client, Watson Wyatt
Philippines, Inc. (WWPI), requesting confirmation of your opinion on the following: 1) that the service
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 10
 fees paid by WWPI to Watson Wyatt Offices (WWOs) enumerated below corresponding to services
rendered outside the Philippines are not subject to Philippine income tax pursuant to Section 28(B)(1) in
relation to Section 42(A)(3) of the Tax Code of 1997; and 2) that the service fees paid by WWPI to
WWOs which are residents of countries where the Philippines has an existing tax treaty, corresponding to
services rendered within the Philippines are also not subject to Philippines income tax since said WWOs
do not have permanent establishment in the Philippines.

It is represented that WWPI is a domestic corporation engaged in the business of providing human
resources, actuarial consultancy and advisory services to its clients with principal office at 21/F Tower I,
The Enterprise Center, Makati City; that to efficiently carry out its business operations, WPPI entered into
individual Service Agreements with the WWOs whereby the WWOs have agreed to provide related
services to WWPI; that the WWOs, with their respective country of residence, are as follows:

Watson Wyatt Office Country Residence

1. Watson Wyatt & Company (WWC-US) USA
2. Watson Wyatt & Company-Taiwan Branch Taiwan; Head Office: WWC-US
(WWC Taiwan Branch)
3. Watson Wyatt & Company (WWC-Canada) Canada
4. Watson Wyatt Hong Kong Ltd.
(WWC-Hong Kong) Hong Kong
5. Watson Wyatt Shanghai China
6 Watson Wyatt (Malaysia) Sendirian Berhad Malaysia
7. Watson Wyatt Purbajaga Indonesia
8. Watson Wyatt Australia Pty Ltd Australia
9. Watson Wyatt New Zealand Ltd New Zealand
10. Watson Wyatt India Pvt. Ltd. India
11. Watson Wyatt K.K. Japan
12. Watson Wyatt Company Ltd., Korea Branch Korea; Head Office: WWC Canada
(WWC Korea Branch)
13. Watson Wyatt (Thailand) Limited Thailand
It is further represented that services to be provided under the respective Service Agreements by the
WWOs include the following:

• Human Resources (HR) Consulting such as job position evaluation and pricing, conducting
seminars on HR topics, compensation and benefit evaluation, and such other services related
thereto;

• Actuarial Services which cover professional advice on general actuarial subjects, on the
actuarial and consulting aspects of pension funds, provident funds and retirement gratuity
schemes; and

• Data Services, which include providing reports on compensation surveys by industry,

position, and other related services.

that the abovementioned services being provided by the WWOs to WWPI are principally performed
outside the Philippines; that representatives of the WWOs only make occasional visits to the Philippines in
connection with the performance of the services and only when specifically requested by WWPI; that in
the event that their presence is required in the Philippines, the representatives of the WWOs will not
perform any services in the Philippines for a period exceeding an aggregate of one hundred and eighty
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 11
 days within any twelve-month period; and that WWPI and the WWOs are independent contractors such
that the WWOs and their respective employees and representatives are not considered as employees or
agents or representatives of the WWPI and vice versa; and that the WWOs have no authority or power to
bind the WWPI or contract in the WWPI's name. CTcSIA

In reply, this Office is of the opinion and so holds that:

1. The service fees being derived by WWOs from sources outside the Philippines shall be exempt from
Philippine income tax.

Section 28(B) and 42(A)(3) of the Tax Code of 1997 (Tax Code) provide, viz:

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

"xxx xxx xxx"

"(B) Tax on Nonresident Foreign Corporation. —

"(1) In General. — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of
the gross income received during each taxable year from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%), effective January 1, 1999,
the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate
shall be thirty-two percent (32%).

"SEC. 42. Income from Sources Within the Philippines. —

"(A) Gross Income From Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx

"(3) Services. — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx"

Under the aforecited provisions, a nonresident foreign corporation is taxable only on income
derived from sources within the Philippines. Conversely, if the services are rendered outside the
Philippines, the service income will be considered as foreign source income and not subject to income
taxation. Accordingly, the service income from services rendered outside the Philippines paid by WWPI to
the WWOs are considered income derived from sources outside the Philippines and are, therefore, not
subject to Philippine income tax and consequently to withholding tax, pursuant to Section 28(B)(1) of the
Tax Code.

2. The service fees derived by WWOs from sources within the Philippines shall be exempt from
Philippine income tax.

With the exception of WWC-Hong Kong with which the Philippines has no existing tax treaty, the
income tax consequences of the services fees paid by WWPI to the WWOs from sources within the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 12
 Philippines shall be governed primarily by the pertinent provisions of the applicable Philippine tax
treaties, to wit:

Philippines-United States tax treaty —

"Article 8:

Business Profits

(1) Business profits of a resident of one of the Contracting States shall be taxable only in
that State unless the resident has a permanent establishment in the other Contracting State. If the
resident has a permanent establishment in that other Contracting State, tax may be imposed by that
other Contracting State on the business profits of the resident but only on so much of them as are
attributable to the permanent establishment."

"xxx xxx xxx"

"Article 5

Permanent Establishment

(1) For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which a resident of one of the Contracting States engages on a trade
or business.

(2) The term "fixed place of business" includes but is not limited to:

xxx xxx xxx

(j) The furnishing services, including consultancy services, by a resident of one of the
Contracting States through employees or other personnel, provided activities of that nature continue
(for the same or a connected project) within the other Contracting State for a period or periods
aggregating more than 183 days. (emphasis supplied)

"xxx xxx xxx"

Philippines-Canada tax treaty —

"Article VII

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable
to:

(a) the permanent establishment; or

(b) sales of goods or merchandise of the same or similar kind as those sold,
or from other business activities of the same or similar kind as those affected,
through that permanent establishment."

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 13
 xxx xxx xxx"

"Article V

Permanent Establishment

1. For the purpose of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on. CSHcDT

2. The term "permanent establishment" shall include especially:

(a) a place of management;

(b) a branch;

(c) an office;

(d) a factory;

(e) a workshop;

(f) a mine, quarry or other place of extraction or natural resources;

(g) a building or construction site or supervisory activities in connection

therewith, where such activities continue for a period more than six months;

(h) an assembly or installation project which exists for more than three
months;

(i) premises used as a sales outlet;

(j) a warehouse, in relation to a person providing storage facilities for

others.

"xxx xxx xxx"

Philippines-China tax treaty —

"Article 7

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State, but only so much of them as is attributable to that
permanent establishment."

"xxx xxx xxx"

Article 5

Permanent Establishment

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 14
 1. For the purposes of this Agreement, the term "permanent establishment" means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

"xxx xxx xxx"

3. The term "permanent establishment" likewise encompasses:

"xxx xxx xxx"

c) the furnishing of services, including consultancy services, by an

enterprise through employees or other personnel engaged by the enterprise for such
purpose, but only where activities of that nature continue (for the same or a
connected project) within the country for a period or periods aggregating more than
6 months within any twelve-month period". (emphasis supplied)

xxx xxx xxx"

Philippine-Malaysia tax treaty —

"Article 7

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprises may be taxed in the other State but only on so much thereof as is attributable to that
permanent establishment."

"xxx xxx xxx"

"Article 5

Permanent Establishment

1. For the purpose of this Agreement, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on. IEcDCa

"xxx xxx xxx"

4. An enterprise of a Contracting State shall be deemed to have a permanent

establishment in the other Contracting State if:

(a) it carries on supervisory activities in that other State for more than 6
months in connection with a construction, installation or assembly project which is
being undertaken in that other State." (emphasis supplied)

"xxx xxx xxx"

Philippines-Indonesia tax treaty —

"Article 7

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 15
 Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable
to:

(a) that permanent establishment; or

(b) sales within that other Contracting State of goods or merchandise of the
same or similar kind as those sold through that permanent establishment; or

(c) other business activities carried on in that other State of the same or
similar kind as those effected through that permanent establishment."

"xxx xxx xxx"

"Article 5

Permanent Establishment

1. For the purposes of this Agreement, the term "permanent establishment" means a fixed
place of business through which the business of the enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes especially:

"xxx xxx xxx"

(m) the furnishing of services, including consultancy services by an

enterprise through an employee or other personnel where activities of that nature
continue (for the same or connected project) for a period or periods aggregating
more than 183 days within any twelve-month period." (emphasis supplied)

"xxx xxx xxx"

Philippines-Australia tax treaty —

"Article 7

Business Profits

(1) The profits of an enterprise of one of the Contracting States shall be taxable only in
that State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in the other State, but only so much of them as is attributable
to —

(a) that permanent establishment; or

(b) sales within that other Contracting State of goods or merchandise of the
same or a similar kind as those sold, or other business activities of the same or a
similar kind as those carried on through that permanent establishment if the sale or
the business activities had been made or carried on in that way with a view to
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 16
 avoiding taxation in that other State."

"xxx xxx xxx"

"Article 5

Permanent Establishment

(1) For the purposes of this Agreement, the term "permanent establishment" means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

(2) The term "permanent establishment" shall include especially —

xxx xxx xxx"

(k) a place in one of the Contracting States through which an enterprise of

the other Contracting State furnishes services, including consultancy services, for a
period or periods aggregating more than six months in any taxable year or year of
income, as the case may be, in relation to a particular project, or to any project
connected therewith. (emphasis supplied)

xxx xxx xxx"

(4) An enterprise shall be deemed to have a permanent establishment in one of the

Contracting States and to carry on business through that permanent establishment if substantial
equipment is being used in that State for more than six months by, for or under contract with the
enterprise." (emphasis supplied) aETADI

xxx xxx xxx"

Philippines-New Zealand tax treaty —

"Article 7

Business Profits

1. The profits of an enterprise of one of the Contracting States shall be taxable only in
that State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in the other State, but only so much of them as is attributable
to —

(a) that permanent establishment; or

(b) sales within that other Contracting State of goods or merchandise of the
same or a similar kind as those being sold, or other business activities of the same or
a similar kind as those being carried on through that permanent establishment if the
sale or the business activities had been made or carried on in that way with a view to
avoiding taxation in that other State."

"xxx xxx xxx"

"Article 5

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 17
 Permanent Establishment

1. For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which the business of the enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes especially:

xxx xxx xxx"

(k) a place for the furnishing of services, including consultancy services by

an enterprise through employees or other personnel where activities of that nature
continue (for the same or a connected project) within the country for a period or
periods aggregating more than 183 days within any twelve month period." (emphasis
supplied)"

xxx xxx xxx"

"Article 7

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that

Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in that other State but only so much of them as is attributable
to that permanent establishment."

xxx xxx xxx"

"Article 5

Permanent Establishment

1. For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which the business of the enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes especially:

xxx xxx xxx"

(h) a building site or construction project or supervisory activities in

connection therewith, where such site, project or activity continues for a period of
more than six months"

xxx xxx xxx"

Philippines-Japan tax treaty —

"Article 7

(1) The profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State through a
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 18
 permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment."

xxx xxx xxx"

"Article 5

(1) For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which the business of an enterprise is wholly or partly carried on.

xxx xxx xxx"

(6) An enterprise of a Contracting State shall be deemed to have a permanent

establishment in the other Contracting State if it furnishes in that other Contracting State
consultancy services, or supervisory services in connection with a contract for a building,
construction or installation project through employees or other personnel — other than an agent of
an independent status to whom paragraph (7) applies — provided that such activities continue (for
the same project or two or more connected projects) for a period or periods aggregating more than
six months within any taxable year. However, if the furnishing of such services is effected under an
agreement between the Governments of the two Contracting States regarding economic or technical
cooperation, that enterprise shall, notwithstanding any provisions of this Article, not be deemed to
have a permanent establishment in that other Contracting State." (emphasis supplied)

xxx xxx xxx"

Philippines-Thailand tax treaty —

"Article 7

Business Profits

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in that other State but only so much of them as is attributable
to that permanent establishment."

xxx xxx xxx"

"Article 5

Permanent Establishment

1. For the purposes of this Convention, the term "permanent establishment" means a
fixed place of a business through which the business of the enterprise is wholly or partly carried on.

xxx xxx xxx"

2. The term "permanent establishment" includes especially:

xxx xxx xxx"

(k) the furnishing of services, including consultancy services, by a resident

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 19
 of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days."
(emphasis supplied)

xxx xxx xxx"

Based on the above-quoted provisions, the income in the form of service fees of WWOs shall be
taxable in the Philippines only if they are deemed to have a permanent establishment situated in the
Philippines as defined under the above Philippine tax treaties. HTIEaS

Moreover, it is clear that if a corporation which is a resident of the aforecited countries, more
particularly, the United States, Canada, China, Malaysia, Indonesia, Australia, New Zealand, India, Japan
and Thailand, carries on business in the Philippines through a permanent establishment situated therein,
the profits of the same shall be subject to Philippine income tax, but only so much of them as is
attributable to that permanent establishment. For this purpose, a resident corporation of the United States,
Canada, Malaysia and India, may be deemed to have a permanent establishment in the Philippines if,
among others, the furnishing of consultancy or supervisory services by such corporation, through its
employees or other personnel, in the same or connected project, continue within the Philippines for a
period or periods aggregating more than 183 days or 6 months, as the case may be. Moreover, with respect
to resident corporations of China, Indonesia, Australia, New Zealand and Japan, the furnishing of
consultancy or supervisory services by such corporation, through its employees or other personnel, in the
same or connected project, continue within the Philippines for a period or periods aggregating more than
183 days or 6 months, as the case may be, must be within any twelve month period.

With respect to WWC Taiwan Branch and WWC Korea Branch, Article 3 of the Philippines-United
States tax treaty and Article 4 of the Philippines-Canada tax treaty read, viz:

Philippines-United States tax treaty —

"Article 3

Fiscal Residence

1. In this Convention:

xxx xxx xxx"

(b) The term "resident of the United States" means:

(i) A United States corporation, and

(ii) Any other person (except a corporation or any entity treated as a corporation for United
States tax purposes) resident in the United States for purposes of United States tax, but in the case of
a partnership, estate, or trust only to the extent that the income derived by such partnership, estate,
or trust is subject to United States tax as the income of a resident either in the hands of the
respective entity or of its partners or beneficiaries.

"xxx xxx xxx"

Philippines-Canada tax treaty —

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 20
 "Article IV

Fiscal Domicile

1. For the purposes of this Convention, the term "resident of a Contracting State" means
any person who, under the law of that State is liable to taxation therein by reason of his domicile,
residence, place of management or any other criterion of a similar nature."

"xxx xxx xxx"

It is clear from the aforequoted provision that the term "resident of the United States" includes a
United States corporation while the term resident of Canada shall include any person who is liable to tax
in Canada by reason of his domicile, residence, place of management or any other criterion of a similar
nature. Since WWC Taiwan Branch and WWC Korea Branch are branches of WWC-US and
WWC-Canada respectively, WWC Taiwan Branch and WWC Korea Branch are considered as residents of
the United States and Canada, respectively. Accordingly, the service income derived by WWC Taiwan
Branch and WWC Korea Branch from sources within the Philippines are subject to Philippines-United
States tax treaty and the Philippines-Canada tax treaty. (BIR Ruling No. ITAD-DA-186-00 dated
December 7, 2000)

Considering that it has been represented that the furnishing of services under the Service
Agreements shall be performed by the WWOs, through their respective employees for a period or periods
not aggregating 183 days, the WWOs are not deemed to have a permanent establishment in the Philippines
to which its business profits may be attributed to. Therefore, with the exception WWC-Hong Kong, the
service fees to be paid by WWPI to WWOs for services within the Philippines under the Agreement are
not subject to Philippine income tax pursuant to the aforecited tax treaties. Consequently, the said service
fees are not subject to the Philippine withholding tax under Section 57(A) of the Tax Code. However, with
respect service fees derived by WWC-Hong Kong from sources within the Philippines, WWC-Hong Kong
shall be subject to income tax pursuant to Sections 28(B) and 42(A)(3) of the Tax Code. (BIR Ruling No.
DA-ITAD-27-04 dated March 25, 2004; BIR Ruling No. DA-ITAD-16-01 dated February 19, 2001)

However, the service fees payments for services done in the Philippines are subject to 10%
value-added tax (VAT) pursuant to Section 108 of the Tax Code of 1997. Accordingly, WWPI being the
resident withholding agent and payor in control of the payment, shall be responsible for the withholding of
the 10% final VAT before making any payment to the WWOs. In remitting the VAT withheld, WWPI
shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage
Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment thereof shall serve as
documentary substantiation for the claim of input tax by WWPI upon filing its own VAT return, if it is a
VAT-registered taxpayer. In case WWPI is a non-VAT-registered taxpayer, the passed-on VAT withheld
shall form part of the cost of the service purchased or treated as "expense" or "asset," whichever is
applicable. In addition, WWPI is required to issue the Certificate of Final Tax Withheld at Source (BIR
Form No. 2306) in quadruplicate upon request of the WWOs, the first three copies thereof to be given to
the WWOs and the fourth copy to be retained by WWPI as its file copy. [Section 4 & 6, Revenue
Regulations (RR) No. 4-2002; Section 3 of RR No. 8-2002; Section 7 of RR No. 14-2002]

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. caTESD

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 21
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 28, 2004

ITAD RULING NO. 156-04

Article 12, Philippines-Netherlands;

Sec. 108 of the Tax Code of 1997
BIR Ruling Nos. ITAD 152-00 & DA-ITAD 207-02

Joaquin Cunanan & Co.

29th Floor, Philamlife Tower
8767 Paseo de Roxas Avenue
Makati City 1200

Attention: Mary Assumption S. Bautista-Villareal

Principal, Tax Service Department

Gentlemen :

This refers to your letter dated September 9, 2004, on behalf of your client, Unilever Philippines,
Inc. (UPI), formerly Philippine Refining Company Inc., requesting confirmation of your opinion that: (1)
the fees paid by UPI to Unilever N.V. (UNV) under the Trademark License Agreement and Technology
License Agreement are subject to the preferential tax rate of 10% in accordance with Article 12(2)(a) of
the Philippines-Netherlands Tax Treaty; and (b) the service fees paid by UPI to UNV under the Central
Services Agreement are business profits and not royalties, hence, not subject to Philippine taxation since

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 22
 UNV does not have a permanent establishment in the Philippines.

It is represented that UNV is a nonresident foreign corporation duly organized and existing under
the laws of Netherlands, with office address at Weena 455, 3013 AL Rotterdam, Netherlands; that it is not
registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification issued by the Securities and Exchange Commission dated June 18, 2004; that UPI is
registered with the Board of Investments (BOI) as a preferred non-pioneer enterprise (expansion) per
Certificate of Registration No. 85-1031 dated November 29, 1985; that in 1993, UNV and UPI entered
into a Service Agreement wherein the former has undertaken to assist in the development of UPI's business
in the Philippines by making available to the latter its services; that the Agreement covered a period of five
(5) years from January 1, 1993 to December 31, 1997; that the said Service Agreement was later renewed
by the parties when it expired on December 31, 1997 for another ten (10) years effective January 1, 1998
to December 31, 2007.

It is further represented that, subsequently, on August 27, 2003, the 1998 Service Agreement was
amended and split into three (3) separate Agreements, namely: (a) Trademark License Agreement; (b)
Technology License Agreement and; (c) Central Services Agreement; that under the Trademark License
Agreement, UNV will continue to grant UPI an exclusive license to use and apply the intellectual property
rights including the trademarks on or in relation to the products in the Philippines for the duration of the
Agreement; that in consideration thereof, UPI shall pay a royalty fee of 2.5% of the turnover determined in
Philippine currency; that it shall be deemed renewed for subsequent period of one (1) year but otherwise
on the same terms, unless otherwise terminated; that it is covered by Certificate of Compliance No.
5-2004-00039 dated March 18, 2004, valid until December 31, 2004; that under the Technology License
Agreement, UNV will continue to grant UPI an exclusive license under the intellectual property rights
and/or the technology, to make, have made, use, keep, offer for sale, sell and import products, and services
embodying or utilizing the technology in the Philippines; that in consideration thereof, UPI shall pay a
royalty fee of 3.5% of the turnover determined in Philippine currency; that it is covered by Certificate of
Compliance No. 5-2003-00023 dated September 1, 2003 valid until December 31, 2007; that it shall be
deemed renewed for the subsequent period of five (5) years but otherwise on the same terms, unless
otherwise terminated; that under the amended Central Services Agreement, UNV shall continue to make
available to UPI the same corporate or central services covered in both the 1993 and 1998 Service
Agreements, however, the corporate and central services are described in detail, as follows:

a) "Corporate Services" which are services provided by Unilever's board of directors and
supporting staff, which benefit the Group Companies which include, but are not limited to the
following:

— providing corporate strategic leadership;

— assisting the management of the Division, Business Groups and/or

Group Companies, to translate the corporate strategies into regional strategies;

— the provision of expert and transactional support, assistance and advice

by the corporate functional departments including but not limited to legal matters,
taxation, finance, human resources and information technology. aTEADI

b) "Divisional Services" are those services provided by the management and supporting
staff of a Division and certain Group Companies as agreed by the management of such Division,
which benefit the Group Companies within that Division. Such services include, but are not limited to
the following:
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 23
 — developing global business strategies and providing strategic global
leadership;

— assisting the management of Business Groups and/or Group Companies

to translate Divisional strategies into regional strategies;

— provisioning of support, assistance and advice from staff departments of

the Division, including but not limited to supply chain activities.

c) "Other Services are those services which benefit the Group Companies in one or more
regions and which are not corporate services, divisional, services or, and include but are not limited to
the activities of the Global Infrastructure Organization which provides services in the area of
information technology and communications including but not limited to infrastructure management
services.

"Infrastructure management services" includes but is not limited to the organization,

management, procurement, operation and maintenance of computer servers and proprietary hardware,
desktop and mobile computers, printers and scanners, Unilever networks (local, national and global),
voice, data and video communications, facsimile equipment, platform software (operating system,
database, standard desktop and), end-user support (helpdesk) and training for the above;

that these "central services'" shall be provided, or made available, in such manner and at such time as may
be agreed between the parties and which are: (i) necessary for UPI's activities in respect of the products in
territory and in the countries authorized by Unilever, (ii) of mutual benefit to UPI and Unilever Group, and
(iii) necessary to ensure that the manufacture, marketing and/or sale of the products is at the standard of
quality and appearance required by Unilever of the Group Companies; and that these services shall be
rendered entirely by UNV outside of the Philippines.

In reply, please be informed as follows:

1. The payments made under the Trademark and Technology License Agreements are considered
royalties.

Article 12 of the Philippines-Netherlands Tax Treaty provides, viz:

"Article 12

ROYALTIES

"1. Royalties arising in one of the States and paid to a resident of the other State may be
taxed in that other State.

"2. However, such royalties may also be taxed in the State in which they arise, and according
to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged
shall not exceed:

a) 10 per cent of the gross amount of the royalties where the royalties are
paid by an enterprise registered, and engaged in preferred areas of activities in that
State; and

b) 15 per cent of the gross amount of the royalties in all other cases.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 24
 "3. The competent authorities of the States shall by mutual agreement settle the mode of
application of paragraph 2.

"4. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films or tapes for radio or television broadcasting, any patent, trademark,
design or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial commercial or scientific
experience.

"xxx xxx xxx"

Based on the foregoing, royalties arising in the Philippines and paid to a resident of the Netherlands
may be subject to Philippine tax at a rate not to exceed ten percent (10%) of the gross amount of royalties
where such are paid by an enterprise registered and engaged in preferred areas of activities, or fifteen
percent (15%) of the gross amount of the royalties in all other cases.

Such being the case and since UPI is BOI-registered and engaged in preferred areas of activities in
the Philippines, this Office hereby confirms your opinion that the royalty remittances of UPI to UNV
under the Trademark Agreement and Technology License Agreement are subject to tax at a rate of ten
percent (10%) of the gross amount of the royalties. (BIR Ruling No. 152-00 dated October 30, 2000)

2. The payments made pursuant to the Central Services Agreement are in the nature of business
profits and not royalties.

The above tax treaty defines "royalties" to include "payments of any kind received as a
consideration for information concerning industrial, commercial or scientific experience." According to
the commentaries of the ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
(OECD) Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(royalties), © 1998, p. 151), such information alludes to the concept of "know-how". The definition of
know-how, which has been adopted by the said Committee, is "all the undivulged technical information,
whether capable of being patented or not, that is necessary for the industrial reproduction of a product or
process, directly and under the same conditions; inasmuch as it is derived from experience, know-how
represents what a manufacturer cannot know from mere examination of the product and mere knowledge
of the progress of technique." In the know-how contract, one of the parties agree to impart to the other, so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public. (BIR Ruling DA-ITAD No. 49-02 dated April 15, 2002). EACIcH

Furthermore, in the case of Philippine Refining Company (PRC) vs. CIR, CTA Case No. 2872 dated
January 15, 1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from
royalties, to wit:

"To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensation for personal services, if the payee has proprietary interest
then the payment is royalty."

Applying the above discussions to the case at hand, it is clear in the Central Services Agreement
that the service fees are not within the definition of "royalties" under Article 12 of Philippines-Netherlands
tax treaty. Inasmuch as UNV shall render these services using only their customary skills, then the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 25
 compensation to be received therefore shall not constitute as consideration for the use of, or the right to
use, any copyright, patent, trademark, design or model, plan, secret formula or process, or for the transfer
of technology. Thus, the service fees paid to UNV shall not be considered as royalties but shall constitute
as business profits derived from sources outside the Philippines.

3. The service fees are business profits not subject to Philippine taxation.

However, Article 5 of the Philippines-Netherlands tax treaty provides:

"Article 5

PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

"2. The terms "permanent establishment" includes especially:

a) a place of management;

b) a branch;

c) an office;

d) a factory;

e) a workshop;

f) a mine, quarry or other place of exploration or extraction of natural

resources;

g) a building site or construction or assembly project or supervisory

activities in connection therewith, where such site, project or activity continues for a
period of more than 183 days;

h) the furnishing of services including consultancy services by an

enterprise through an employee or other personnel where activities of that nature
continue (for the same or a connected project) for a period or periods exceeding in
the aggregate 183 days within any twelve-month period. (Emphasis supplied)

"xxx xxx xxx"

In relation thereto, Article 7 of the same treaty also provides:

"Article 7

BUSINESS PROFITS

"1. The profits of an enterprise of one of the States shall be taxable only in that State unless
the enterprise carries on business in the other State through a permanent establishment situated
therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in
the other State but only so much of them as is attributable to that permanent establishment.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 26
 "xxx xxx xxx"

Based on the aforequoted provisions, an enterprise which is a resident of Netherlands may be

deemed to have a permanent establishment in the Philippines when, among others, the furnishing of
services in the Philippines by that enterprise, through its employees or other personnel, continue (for the
same or connected project) for a period or periods aggregating more than 183 days within any twelve
month period. Inasmuch as these services will be performed by UNV outside the Philippines, that is, in
Netherlands, UNV is not deemed to have a permanent establishment in the Philippines.

In view thereof, this Office is of the opinion and so holds that since the services covered by the
subject Central Services Agreement are rendered by UNV outside the Philippines, and are considered
income from sources without the Philippines, the payments made by UPI to UNV for said services shall
not be subject to Philippine income tax and consequently to the withholding tax under Section 28(B)(1) of
the Tax Code of 1997. (BIR Ruling No. DA-ITAD-101-02 dated May 28, 2002 and DA-ITAD-207-02 dated
November 26, 2002)

3. On Value-Added Tax

Thus, while the compensation for services rendered outside the Philippines is not subject to the
10% VAT, the fees paid for that portion where the services of UNV are rendered in the Philippines are,
however, subject to the 10% VAT pursuant to Section 108 of the Tax Code of 1997. Moreover, the royalty
fees to be paid by UPI to UNV shall also be subject to the 10% value-added tax (VAT). Accordingly, UPI,
being the resident withholding agent and payor in control of the payment, shall be responsible for the
withholding of the 10% VAT on such royalty and consultancy fees before making any payment to UNV.
In remitting the VAT withheld, UPI shall use BIR Form No. 1600 (Monthly Remittance Return of
Value-Added Tax and Other percentage Taxes Withheld). The duly filed BIR Form No. 1600 and proof of
payment thereof shall serve as documentary substantiation for the claim of input tax by UPI upon filing its
own VAT return, if it is a VAT-registered taxpayer. In case UPI is a non-VAT registered taxpayer, the
passed-on VAT withheld shall form part of the service purchased which may be treated as "expense" or
"asset" whichever is applicable. In addition, UPI is required to issue the Certificate of Final Tax Withheld
at Source (BIR Form No. 2306) in quadruplicate upon request of UNV, the first three copies thereof to be
given to UNV and the fourth copy to be retained by UPI as its file copy. [Sections 4 & 6, Revenue
Regulations (RR) No. 4-2000; Section 3, RR No. 8-2002; Section 7, RR No. 14-2002]

This ruling is issued on the basis of the foregoing 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. TacSAE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 27
 Legal Service
Bureau of Internal Revenue

December 23, 2004

ITAD RULING NO. 155-04

Articles 5, 7 and 15 of Philippines-New Zealand tax treaty

Sec. 2.57.2 (B) of the Revenue Regulations No. 30-03 Sec.
28(B)(1) of the Tax Code of 1997 BIR Ruling No.
DA-ITAD-169-02 BIR Ruling No. DA-ITAD-38-03 BIR
Ruling No. DA-ITAD-120-04

C. L. Manabat & Company

Certified Public Accountant
3rd to 6th Floor, Salamin Bldg.
197 Salcedo St., Legaspi Village
1229 Makati City

Attention: Atty. Ophelia G. Jimenez

Tax Partner

Gentlemen :

This refers to your letter dated June 16, 2004, on behalf of your client, PB Power (NZ) Limited,
formerly Design Power New Zealand Limited, (PB Power for brevity), requesting confirmation of your
opinion that PB Power has sufficiently set-up a permanent establishment in the Philippines and is, thus,
subject to ten percent (10%) withholding tax creditable against its income liability for the taxable year
2003.

It is represented that PB Power is a corporation organized and existing under the laws of New
Zealand with principal address at P.O. Box 668, Wellington, New Zealand; that PB Power is not registered
either as a corporation or as a partnership licensed to do business in the Philippines per certification issued
by the Securities and Exchange Commission (SEC) dated June 28, 2004; that PB Power entered into
several General Services Agreements dated November 10, 2001, June 21, 2002 and July 1, 2003,
respectively, with CE Cebu Geothermal Power Company, Inc., Visayas Geothermal Power Company, Inc.,
and CE Casecnan Water & Energy Company, Inc., all corporations duly organized and existing under the
laws of the Philippines; that each General Service Agreement renewed the original General Service
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 28
 Agreement dated July 18, 2000, appointing PB Power as contractor to provide engineering services to
support the operation and maintenance of CE Cebu Geothermal Power Company, Inc., CE Luzon
Geothermal Power Company, Inc., Visayas Geothermal Power Company, Inc., and CE Casecnan Water &
Energy Company, Inc. facilities; that pursuant to the said Agreements, PB Power sent its employees to the
Philippines, and one of the employees, Mr. John B. Christian was present in the Philippines for more than
one hundred eighty three (183) days during a twelve (12) month period covering the fiscal year of 2003;
that per certification issued by PB Power dated November 18, 2004, the project revenues derived by PB
Power through its employee, Mr. Christian, in the Philippines for the current financial year ending
December 31, 2004 will be in excess of Seven Hundred and Twenty Thousand Pesos (P720,000.00).

In reply, please informed that Article 7 of the Philippines-New Zealand tax treaty provides, viz:

"Article 7

"BUSINESS PROFITS

"1. The profits of an enterprise of one of the Contracting States shall be taxable only in
that State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in the other State, but only so much of them as is attributable
to —

a) that permanent establishment; or

b) sales within that other Contracting State of goods or merchandise of the

same or a similar kind as those being sold, or other business activities of the same or
a similar kind as those being carried on through that permanent establishment if the
sale or the business activities had been made or carried on in that way with a view to
avoiding taxation in that other State

In relation thereto, paragraphs (1) and (2) of Article 5 and Article 15 of the same treaty provide, viz:

"Article 5

"PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on. DaCTcA

"2. The term 'permanent establishment' includes especially but is not limited to:

a) A place of management;

b) A branch;

c) An office;

d) A factory;

e) A workshop

f) A mine, an oil or gas well, a quarry or any other place of extraction of

natural resources;
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 29
 g) A place of exploration or natural resources;

h) A building site or construction, installation or assembly project, or

supervisory activities in connection therewith where such site, project or activity
continues for more than six months;

i) A building site or construction or assembly project or installation

project or supervisory activities in connection therewith, provided such site, project
or activity continues for the period more than 184 days; and

j) A warehouse, in relation to a person providing storage mainly for some

other person or persons;

k) A place for the furnishing of services, including consultancy services by

an enterprise through employees or other personnel where activities of that nature
continue (for the same or a connected project) within the country for a period or
periods aggregating more than 183 days within any twelve month period. (Emphasis
supplied)

"xxx xxx xxx"

Based on the foregoing, it is clear that if a resident corporation of Netherlands carries on business
in the Philippines through a permanent establishment situated therein, the profits of the said corporation
attributable to such permanent establishment shall be subject to Philippine income tax. For this purpose, a
Netherlands corporation may be deemed to have a permanent establishment in the Philippines if, among
others, the furnishing of services by such corporation, through its personnel, continue (for the service or
connected project) within the Philippines for a period or periods exceeding in the aggregate 183 days
within any twelve-month period. (BIR Ruling No. DA-ITAD-120-04 dated November 2, 2004)

Accordingly, since PB Power rendered services to the aforesaid corporations in the Philippines
through its employee Mr. John B. Christian, and, since Mr. Christian stayed in the Philippines beyond 183
days in performing his job as a consultant, PB Power is considered to have established a permanent
establishment in the Philippines and is, therefore, subject to Philippine tax for income received from all
sources within the Philippines and, shall be subject to withholding tax at the rate of 10 percent (10%) from
November 10, 2001 up to December 31, 2003 and 15 percent (15%) withholding tax rate from January 1,
2004 onwards. (Sec. 28(B)(1) of the Tax Code of 1997 and Sec. 2.57.2(B) of the Revenue Regulations No.
30-03)

Furthermore, Article 15 of the Philippines-New Zealand tax treaty provides:

"Article 15

"DEPENDENT PERSONAL SERVICES"

"1. Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similar
remuneration derived by an individual who is a resident of one of the Contracting States in respect of
an employment is exercised in the other Contracting State. If the employment is so exercised, such
remuneration as is derived therefrom may be taxed in that other State. EDSHcT

"2. Notwithstanding the provisions of paragraph 1, remuneration derived by an individual

who is a resident of one of the Contracting States in respect of an employment exercised in the other

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 30
 Contracting State shall be taxable only in the first-mentioned State if —

"a) the recipient is present in that other State for a period or a periods not
exceeding in the aggregate 183 days in the year of income of fiscal year, as the case
may be, of that other State; and

"b) the remuneration is paid, or on behalf of, an employer who is not a

resident of that other State; and

"c) the remuneration is not deductible in determining the taxable profits of a

permanent establishment or a fixed base which the employer has in that other State.

"3. Notwithstanding the preceding provisions of this Article, remuneration in respect of an

employment exercised aboard a ship or aircraft operated in international traffic by a resident of one of
the Contracting States may be taxed in that Contracting State.

"xxx xxx xxx"

Based on the aforecited provisions, remuneration derived by Mr. Christian in rendering the project
shall be subject to Philippine income tax unless the following conditions concur: (a) he is present in the
Philippines for a period not exceeding an aggregate of 183 days in the year of income of fiscal year, as the
case may, in the Philippines; (b) the remuneration is paid by, on or behalf of, the employer (PB Power) in
the Philippines; and (c) the remuneration is not deductible in determining the taxable profits of a
permanent establishment or a fixed base which PB Power has in the Philippines.

Therefore, compensation received by Mr. John B. Christian from PB Power for the rendition of
subject services may likewise be subject to Philippine incomes tax, depending on the foregoing conditions.

This ruling is issued based on 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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 31
 December 20, 2004

ITAD RULING NO. 154-04

Art. 12, Philippines-Singapore Tax Treaty

RMC No. 77-2003
BIR Ruling No. DA-ITAD-14-04

Wordtext Systems, Inc.

7F SEDCCO I Building
Legaspi cor. Rada Sts.,
Legaspi Village, Makati City

Attention: Ms. Remedios L. Chua

Vice President-Finance

Gentlemen :

This refers to your application for relief from double taxation dated May 27, 2004, requesting
confirmation that your royalty payments to Autodesk Asia Pte. Ltd. (Autodesk) are subject to the 25%
preferential tax rate pursuant to the Philippines-Singapore tax treaty.

It is represented that Autodesk is a nonresident foreign corporation organized and existing under the
laws of Singapore with principal address at 391 B Orchard Road, #12-06, Ngee Ann City, Tower B
Singapore 238874; that its principal activities are manufacturing, trading, technical support services, R &
D and consulting services in respect of computer-aided design, engineering and animation software
products; that its primary trading business consists of sales, marketing and distribution of Autodesk
products throughout the Asia-Pacific region including the Philippines through authorized distribution
channels; that it is licensed by Autodesk Inc. (Autodesk USA), a company organized and existing under
the laws of Delaware, USA, to distribute the Autodesk products, which consists of computer-aided design
software solutions; that it is granted the licensing and distribution right for the Asia-Pacific region by
Autodesk USA; that per Certificate of Corporate Filing/Information issued by the Securities and Exchange
Commission (SEC) on March 26, 2004, Autodesk was licensed to establish a representative office in the
Philippines to undertake activities such as information dissemination, market research and promotion of
company's products as stated in SEC Registration No. A2000 16644 dated November 13, 2000; that
Wordtext Systems, Inc. (Wordtext) is a corporation organized and existing under the laws of Philippines
with principal address at 7/F SEDCCO I Bldg., Rada cor. Legaspi Sts., Legaspi Village, Makati City; that
on February 1, 2004, Autodesk and Wordtext entered into an Autodesk Authorized Distributor Agreement
wherein Wordtext was appointed by Autodesk as its non-exclusive Autodesk Authorized Distributor for
the products within the Philippines; that the products shall be those set out in exhibit A of the Agreement
and the computer software programs designated therein, the copyright of which subsists with Autodesk
Inc. and is licensed to Autodesk; that all prices are on an Incoterms 2000 "Ex-Works" (fulfillment facility
as notified by Autodesk) basis; that the price to Wordtext for each of the Products (the "Per Copy Fee")
shall be as set forth in Autodesk's then prevailing price list as notified to Wordtext; that Autodesk has the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 32
 right at any time to revise the prices in the prevailing price list with thirty (30) days' advance written notice
(including via electronic mail or through Autodesk's website) to Wordtext and such revisions shall apply
to all orders received after the effective date of revision; that Autodesk shall submit an invoice to
Autodesk Authorized Distributor upon shipment of each product ordered by Wordtext covering its per
copy fee for the products; that any invoiced amount paid in US Dollars, shall be due within forty-five (45)
days of the invoice date; that any invoiced amount not received in full when due shall further be subject to
a service charge of one and half percent (1.5%) per month; that the Agreement shall continue in force for a
fixed term until January 31, 2005 unless terminated earlier under the provisions of Section 9 of the
Agreement and at the end of the fixed term, the Agreement shall terminate automatically without notice
and without administrative or judicial resolution unless the Agreement is extended by notice in writing by
Autodesk for such additional period as may be specified by Autodesk, and after which, the Agreement
shall automatically terminate. cSATEH

In reply, please be informed that the fees to be paid by Wordtext to Autodesk are payments for the
use or the right to use of a copyright of literary, artistic or scientific work and as such are considered
royalties within the definition of such term in paragraph 3, Article 12 (Royalty) of the
Philippines-Singapore tax treaty and under Revenue Memorandum Circular No. 77-2003 (Classification
for Software for Income Tax Purposes), dated November 18, 2003, both quoted as follows:

Article 12(3), Philippines-Singapore tax treaty:

"3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or tapes for television or broadcasting, any patent, trade mark, design
or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific experience.

"xxx xxx xxx"

Revenue Memorandum Circular (RMC) No. 77-2003:

"The term 'royalties' as generally used means payment of any kind received as a consideration
for the use of, or the right to use, any copyright of literary, artistic or scientific work including
cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade
mark, design, or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial, commercial or scientific
experience. The term 'use' as contained herein shall include the reselling or distribution of software.
(Emphasis supplied)

"Software is generally assimilated as a literary, artistic or scientific work, protected by the

copyright laws of various countries including the Philippines, thus, payments in consideration for the
use of, or the right to use, a copyright or a copyrighted article relating to software are generally
royalties."

"xxx xxx xxx"

In relation, Article 12 of the Philippines-Singapore tax treaty provides that:

"Article 12

"Royalty"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 33
 "1. Royalty arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the law of that State, but, if the recipient is the beneficial owner of the royalties, the
tax so charged shall not exceed:

"a) in the case of the Philippines, 15 per cent of the gross amount of the
royalties, where the royalties are paid by an enterprise registered with the Philippine
Board of Investments and engaged in preferred areas of activities and also royalties
in respect of cinematographic films or tapes for television or broadcasting; cAHIaE

"b) in the case of Singapore, where the royalties are approved under the
Economic Expansion Incentives (Relief from Income Tax) Act of Singapore, the
royalties shall be exempt;

"c) in all other cases, 25 per cent of the gross amount of the royalties.

"xxx xxx xxx"

Based on the abovecited provision, royalties arising from sources within the Philippines and
derived by a resident of Singapore shall be subject to the following preferential tax rates: (a) a rate not
exceeding 15 percent of the gross amount of the royalties, where the royalties are paid by a corporation
registered with the Philippine Board of Investments and engaged in preferred areas of activities; (b) in the
case of Singapore, where the royalties are approved under the Economic Expansion Incentives (Relief
from Income Tax) Act of Singapore, the royalties shall be exempt; or (c) in all other cases, a rate not to
exceed 25 percent of the gross amount of the royalties.

Such being the case, and since Wordtext is not a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, this Office is of the opinion and so holds that the
fees paid by Wordtext to Autodesk pursuant to their Authorized Distributor Agreement, being royalties,
shall be subject to income tax at a rate of 25 percent, based on the gross amount thereof.

Finally, the said royalty fees by Wordtext to Autodesk are subject to the 10% value-added tax
(VAT) pursuant to Section 108 of the Tax Code of 1997. Accordingly, Wordtext, being the resident
withholding agent and payor in control of the payment shall be responsible for the withholding of the 10%
VAT on such royalty fees before remitting any payment to Autodesk. In remitting the VAT withheld,
Wordtext shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other
Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment thereof shall serve
as documentary substantiation for the claim of input tax by Wordtext upon filing its own VAT Return, if it
is a VAT-registered taxpayer. In case Wordtext is a non-VAT registered taxpayer, the passed-on VAT
withheld shall form part of the cost of the service purchased which may be treated as "expense" or "asset"
whichever is applicable. In addition, Wordtext is required to issue the Certificate of Final Tax Withheld at
Source (BIR Form No. 2306) in quadruplicate upon request of Autodesk, the first three copies thereof to
be given to Autodesk and fourth copy to be retained Wordtext as its file copy. [Sections 4 & 6, Revenue
Regulations (RR) No. 4-2002; Section 3 of RR No. 8-2002; Section 7 of RR No. 14-2002]

This ruling is issued on the basis of the foregoing facts as represented. However, if upon 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. cCSDaI

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 34
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 20, 2004

ITAD RULING NO. 153-04

Art. 12 of Philippines-Singapore tax treaty

RMC No. 77-2003
BIR Ruling No. ITAD-14-04

Quisumbing Torres
12th Floor, Net One Center
26th Street corner 3rd Avenue
Crescent Park West, Bonifacio Global City
Taguig, Metro Manila

Attention: Mr. Dennis G. Dimagiba

Mr. Jose Jaime V. Cruz

Gentlemen :

This refers to your application for relief from double taxation dated June 10, 2004, on behalf of
your client, Autodesk Asia Pte., Ltd (AAPL), requesting confirmation that the income that it will receive
from CIM Technologies, Inc. (CIM) under an Autodesk Authorized Distributor Agreement are in the
nature of business profits, and therefore not subject to Philippine income tax, pursuant to the
Philippines-Singapore tax treaty and the Tax Code of 1997.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 35
 It is represented that APPL is a nonresident foreign corporation organized and existing and under
the laws of Singapore with principal address at 391 B Orchard Road, # 12-06, Ngee Ann City, Tower B
Singapore 238834; that its principal activities are manufacturing, trading, technical support services, R &
D and consulting services in respect of computer-aided design, engineering and animation software
products; that its primary trading business consists of sales, marketing and distribution of Autodesk
products throughout the Asia-Pacific region including the Philippines through authorized distribution
channels; that it is licensed by Autodesk Inc. (Autodesk USA), a company organized and existing under
the laws of Delaware, USA, to distribute the Autodesk products, which consists of computer-aided design
software solutions; that it is granted the licensing and distribution right for the Asia-Pacific region by
Autodesk USA; that on November 13, 2000, AAPL obtained a license from the Securities and Exchange
Commission (SEC) to operate a representative office in the Philippines, but to date, no petition for
cancellation or withdrawal of its license appears to have been filed; that CIM is a corporation organized
and existing under the laws of Philippines with principal address at LG 103, Peninsula Court Building
8735 Paseo de Roxas corner Makati City, Philippines; that on February 1, 2004, AAPL entered into a
standard Autodesk Authorized Distributor Agreement (Agreement) wherein CIM was appointed by AAPL
as its non-exclusive Autodesk Authorized Distributor for the products within the Philippines; that the
products shall be those set out in Exhibit A of the Agreement and the computer software programs
designated therein, the copyright of which subsists with Autodesk Inc. and is licensed to AAPL; that all
prices are on an Incoterms 2000 "Ex-Works" (fulfillment facility as notified by AAPL) basis; that the price
to CIM for each of the Products (the "Per Copy Fee") shall be as set forth in AAPL's then prevailing price
list as notified to CIM; that AAPL has the right at any time to revise the prices in the prevailing price list
with thirty (30) days' advance written notice (including via electronic mail or through Autodesk's website)
to CIM and such revisions shall apply to all orders received after the effective date of revision; that AAPL
shall submit an invoice to CIM upon shipment of each product ordered by CIM covering its per copy fee
for the products; that any invoice amount, paid in US Dollars, shall be due within forty-five (45) days of
the invoice date; that any invoiced amount not received in full when due shall further be subject to a
service charge of one and half percent (1.5%) per month; that the Agreement shall continue in force for a
fixed term until January 31, 2005 unless terminated earlier under the provisions of Section 9 of the
Agreement and at the end of the fixed term, the Agreement shall terminate automatically without notice
and without administrative or judicial resolution unless the Agreement is extended by notice in writing by
AAPL for such additional period as may be specified by AAPL, and after which, the Agreement shall
automatically terminate.

In reply, please be informed that the fees to be paid by CIM to Autodesk are payments for the use
or the right to use of a copyright of literary, artistic or scientific work and as such are considered royalties
within the definition of such term in paragraph 3, Article 12 (Royalty) of the Philippines-Singapore tax
treaty and under Revenue Memorandum Circular No. 77-2003 (Classification for Software for Income Tax
Purposes), dated November 18, 2003, both quoted as follows:

Article 12(3), Philippines-Singapore tax treaty:

"3. The term 'royalties' as used in this Article means payments of any kind received a
consideration for the use of, or the right to use, any copyright of literacy, artistic or scientific work,
including cinematographic films or tapes for television or broadcasting, any patent, trade mark, design
or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific experience.
IcTEaC

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 36
 "xxx xxx xxx"

Revenue Memorandum Circular (RMC) No. 77-2003:

"The term 'royalties' us generally used means payment of any kind received as a consideration
for the use of, or the right to use, any copyright of literary, artistic or scientific work including
cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade
mark, design, or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial, commercial or scientific
experience. The term 'use' as contained herein shall include the reselling or distribution of software.
(Emphasis supplied)

"Software is generally assimilated as a literary, artistic or scientific work protected by the

copyright laws of various countries including the Philippines, thus, payments in consideration for the
use of, or the right to use, a copyright or a copyrighted article relating to software are generally
royalties."

"xxx xxx xxx"

In relation, Article 12 (1) and 12 (2) of the Philippines-Singapore tax treaty also provides that:

"Article 12

"Royalty"

"1. Royalty arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the law of that State, but, if the recipient is the beneficial owner of the royalties, the
tax so charged shall not exceed:

"a) in the case of the Philippines, 15 per cent of the gross amount of the
royalties, where the royalties are paid by an enterprise registered with the Philippine
Board of Investments and engaged in preferred areas of activities and also royalties
in respect of cinematographic films or tapes for television or broadcasting;

"b) in the case of Singapore, where the royalties are approved under the
Economic Expansion Incentives (Relief from Income Tax) Act of` Singapore, the
royalties shall be exempt;

"c) in all other cases, 25 per cent of the gross amount of` the royalties. HACaSc

"xxx xxx xxx"

Based on the abovecited provision, royalties arising from sources within the Philippines and
derived by a resident of Singapore shall be subject to the following preferential tax rates: (a) a rate not to
exceed 15 percent of the gross amount of the royalties, where the royalties are paid by a corporation
registered with the Philippine Board of Investments and engaged in preferred areas of activities; (b) in the
case of Singapore, where the royalties are approved under the Economic Expansion Incentives (Relief
from Income Tax) Act of Singapore, the royalties shall be exempt; or (c) in all other cases, a rate not to
exceed 25 percent of the gross amount of the royalties.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 37
 Such being the case, and since CIM is not a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, this Office is of the opinion and so holds that the
fees paid by CIM to AAPL pursuant to their Authorized Distributor Agreement, being royalties, shall be
subject to income tax at a rate of 25 percent, based on the gross amount thereof.

Finally, Section 108(A)(1) of the Tax Code of 1997 states that "the lease on the use of the right or
privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand for on other like property or right" falls within the definition of "sale or exchange
of services" subject to 10 percent value-added tax (VAT). Accordingly, the royalty fees paid by CIM to
AAPL shall be subject to 10 percent VAT (BIR Ruling, No. ITAD 14-04 dated February 20, 2004)

Under Sections 4 and 6 of the Revenue Regulations No. 4-2000, Section 3 of Revenue Regulations
No. 8-02, and Section 7 of Revenue Regulations No. 14-2002, CIM being the resident withholding agent
and payor in control of the payment, shall be responsible for the withholding of the 10 percent VAT on
such royalty fees before paying them to AAPL. In remitting the VAT withheld, CIM shall use BIR Form
No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). If
CIM is VAT-registered taxpayer, the duly filed BIR Form No. 1600 and proof of payment thereof shall
serve as documentary substantiation for the claim of input VAT by CIM upon filing its own VAT return. If
it is not a VAT-registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service
purchased which may be treated as an "expense" or "asset" on the part of CIM; whichever is applicable. In
addition, CIM is required to issue the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in
quadruplicate upon request of AAPL, the first three copies to be kept by the CIM and the fourth copy by
AAPL as its file.

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. aSEHDA

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 38
 December 20, 2004

ITAD RULING NO. 152-04

Philippines-United States Tax Treaty — Articles 5, 8 and

16;
Tax Code of 1997 — Sections 28 (B) (1), 42 (A) (3) and
108
BIR Ruling No. DA-ITAD-38-03
BIR Ruling No. DA-ITAD-96-02
BIR Ruling No. DA-ITAD-38-02

Bernaldo Mirador Law Offices

Unit 1807 Cityland Condominium 10-Tower 1
6815 Ayala Avenue corner H.V. Dela Costa Sts.
Makati City

Attention: Atty. Rosario S. Bernaldo

Managing Partner

Gentlemen :

This refers to your letter dated May 6, 2004, on behalf of your client, Technology Exports Services
Corporation (TESCO), requesting confirmation of the following:

(1) the consultancy fees paid by TESCO to TNG Enterprises, Inc. (TNG) for consultancy
services under the Consultancy Agreement are considered as compensation for services
rendered outside the Philippines pursuant to Section 42(C)(3) of the National Internal
Revenue Code of 1997 (Tax Code), hence, not subject to income tax pursuant to
Section 28(B)(1) of the Tax Code, and consequently to expanded withholding tax;

(2) the consultancy fees paid by TESCO to TNG for services performed by the latter are
ordinary and necessary business expense of TESCO which are allowed as a deduction
from its gross income pursuant to Section 34(A)(1) of the Tax Code; and

(3) the consultancy fees received by TNG from TESCO for services rendered abroad are
not subject to ten percent (10%) value-added tax (VAT) pursuant to Section 108 of the
Tax Code.

It is represented that TNG is a nonresident foreign corporation duly organized and existing under
the laws of the United States of America, with principal address at 10018 Sagegate, Houston, Texas; that
TNG is not registered either as a corporation or as a partnership licensed to do business in the Philippines
per certification issued by Securities and Exchange Commission dated June 3, 2004; that TESCO is a
corporation duly organized and existing under the laws of the Philippines with principal office at RMT
Industrial Complex, Tunasan, Muntinlupa City; that TESCO is engaged in the business of providing

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 39
 geothermal energy services; that on December 15, 2003, TESCO and TNG entered into an Equipment
Lease Contract, whereby TNG, being the absolute owner of a Smith Geothermal Well Repair Unit,
Geopak Valve Change Unit and Post Weld Heat Treat Equipment (Equipment), leases said Equipment to
TESCO; that said Lease Contract shall be valid and binding from January 2004 to December 2004; that
pursuant to said Contract, TESCO shall use the Equipment in a careful and proper manner subject to the
approval of TNG and provided that the TNG appointed consultant is present; that on December 15, 2004,
TESCO and TNG likewise entered into a Consultancy Agreement whereby TNG, representing and
warranting to have technical expertise and know-how in providing consultancy services related to
geothermal energy works, covenants to provide consultancy services to operate and supervise the use of its
leased equipment to TESCO; that in consideration for the above consultancy services, TESCO shall pay
TNG consultancy fee on a per project basis, payable in US dollars subject to the rules and regulations of
the Bangko Sentral ng Pilipinas on remittance of foreign exchange; and that the lease on the Equipment
shall be based on its actual use as may be agreed upon by the parties which shall be invoiced in US
Dollars.

In reply, please be informed as follows:

1) Whether the consultancy fees paid by TESCO to TNG under the Consultancy Agreement are
considered as compensation for services rendered outside the Philippines. ECDaTI

Sections 28(B)(1), 42(A)(3), and 42(C)(3) of the Tax Code provides, viz:

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

xxx xxx xxx

"(B) Tax on Nonresident Foreign Corporations. —

"(I) In General. — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the
gross income received during each taxable year from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c); Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate shall
be thirty-two percent (32%)."

"SEC. 42. Income from Sources Within the Philippines. —

"(A) Gross Income From Sources Within the Philippines. —

xxx xxx xxx

"(3) Services. — Compensation for labor or personal services performed in the Philippines;

xxx xxx xxx

"(C) Gross Income from Sources Without the Philippines. —

xxx xxx xxx

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 40
 "(3) Compensation for labor or personal services performed without the Philippines;

Based on the foregoing, a nonresident foreign corporation, in general, shall be subject to income tax
at the rate of thirty-two percent (32%) only when its income is derived from sources within the
Philippines. Thus, when the income is derived from sources without the Philippines (e.g., compensation
for labor or personal services performed without the Philippines), the same shall not be subject to the
income tax rate.

In connection, Article 8 and, in relation thereto, Article 5 of the Philippines-United States tax treaty
respectively states that:

"Article 8

"BUSINESS PROFITS

"1. Business profits of a resident of one of the Contracting States shall be taxable only in
that State unless the resident has a permanent establishment in the other Contracting State. If the
resident has a permanent establishment in that other Contracting State, tax may be imposed by that
other Contracting State on the business profits of the resident but only on so much of them as are
attributable to the permanent establishment."

"Article 5

"PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
pace of business through which a resident of one of the Contracting States engages in a trade or
business.

"2. The term 'fixed place of business' includes but is not limited to:

"xxx xxx xxx

"j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days."
(Emphasis supplied)

It is clear from the above-quoted provisions that if a corporation which is a resident of United
States does not carry on business in the Philippines through a permanent establishment situated therein,
the profits of that corporation shall not be subject to Philippine income tax. For this purpose, a corporation
which is a resident of United States may be deemed to have a permanent establishment in the Philippines
if, among others, the furnishing of services through its employees continue (for the same or a connected
project) within the Philippines for a period or periods aggregating more than 183 days.

It is worthy to note that under the scope of services of the said Consultancy Agreement, TNG
agreed to provide consultancy services "to operate and supervise the use of TNG leased equipment". Since
under the Lease Contract, TESCO may use the leased equipment only when "the TNG appointed
consultant is present," it may be inferred that the presence of TNG's consultant in the Philippines for the
entire duration of the said contracts is very much necessary to operate the leased equipment. Thus, the said

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 41
 services rendered by TNG (through its employees) for TESCO would constitute a permanent
establishment of TNG in the Philippines inasmuch as these services will be furnished in the Philippines for
a period exceeding 183 days within the twelve-month period considering that the term of the Lease
Contract is one year, based on the provisions of the related Consultancy Agreement.

Such being the case and since the services are performed within the Philippines, the business
profits/income attributable to the rendering of subject services will be subject to Philippine income tax,
and consequently to withholding tax, pursuant to Article 8 and 5 of the Philippines-United States tax treaty
in relation to Section 28(B)(1) and Section 42(A)(3) of the Tax Code. (BIR Ruling No. DA-ITAD-38-03
dated February 21, 2003)

Moreover, Article 16 of the same treaty provides:

"Article 16

"DEPENDENT PERSONAL SERVICES

"1. Except as provided in Article 20 (Governmental Functions), wages, salaries, and similar
remuneration derived by an individual who is a resident of one of the Contracting States from labor or
personal services performed as an employee, including income from services performed by an officer
of a corporation, may be taxed by that Contracting State. Except as provided by paragraphs 2 and 3
and in Articles 20 (Governmental Functions), 21 (Teachers), and 22 (Students and Trainees), such
remuneration derived from sources within the other Contracting State may also be taxed by that other
Contracting State.

"2. Remuneration described in paragraph 1 derived by an individual who is a resident of one

of the Contracting States shall be exempt from tax by the other Contracting State if —

a) He is present in that other Contracting State for a period or periods aggregating less than
90 days in the taxable year;

b) He is an employee of a resident of, or of a permanent establishment maintained in, the

first-mentioned Contracting State; and

c) The remuneration is not borne as such by a permanent establishment which the employer
has in that other Contracting State.

"xxx xxx xxx

Based on the above provision, remuneration derived by an individual who is a resident of the
United States is not taxable in the Philippines if all three conditions are met: a) his presence in the
Philippines is merely for less than 90 days in a year, b) he is an employee of a company which is a
resident of the United States; and c) his remuneration or income is not borne by a permanent establishment
which his employer has in the Philippines.

The documents submitted (i.e., Lease Contract and Consultancy Agreement between TESCO and
TNG) show that TNG consultant/s will be staying in the Philippines for a period exceeding 90 days. This
considering, said consultant/s shall be treated as nonresident alien doing business in the Philippines
pursuant to Section 25(A)(1) of the Tax Code. As such, they shall be subject to the graduated tax rate of
5% to 32%, in the same manner as an individual Filipino citizen, pursuant to Section 24(A)(l)(c) of the
Tax Code. Accordingly, their remuneration derived within the Philippines shall be subject to creditable

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 42
 withholding tax on compensation income pursuant to Section 57 of the Tax Code as implemented by
Revenue Regulations No. 2-98 as amended, specifically Section 2.78 thereof. (BIR Ruling No.
DA-ITAD-96-02 dated May 21, 2002)

2) Whether the consultancy fees paid by TESCO to TNG for services performed by TNG are
ordinary and necessary business expense of TESCO which are allowed as a deduction from its gross
income pursuant to Section 34(A)(1) of the Tax Code. DAaIHT

As regards your opinion that the consultancy fees paid by TESCO to TNG qualify as deductible
expense under Section 34(A)(1)of the Tax Code, please be informed that we decline to rule on the matter
considering the factual nature of the issue raised. (BIR Ruling No. DA-ITAD-38-02 dated March 14,
2002)

3) Whether the consultancy fees received by TNG from TESCO for services rendered abroad are
not subject to ten (10%) percent value-added tax (VAT) pursuant to Section 108 of the Tax Code.

Section 108(A) of the Tax Code provides, as follows:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

"(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties. DIEAHc

"The phrase `sale or exchange of services' means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration, . . . " (Emphasis supplied)

Thus, the payment for the lease of equipment and the services rendered by TNG in the Philippines
are subject to the 10% VAT pursuant to Section 108 of the Tax Code. Accordingly, TESCO being the
resident withholding agent and the payor in control of the payment shall be responsible for the withholding
of 10% VAT on such fees before making any payment to TNG. In remitting the VAT withheld, TESCO
shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage
Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment thereof shall serve as
documentary substantiation for the claim of input tax by TESCO upon filing its own VAT return, if it is a
VAT-registered taxpayer. In case TESCO is a non-VAT registered taxpayer, the passed on VAT withheld
shall form part of the cost of the service purchased which may be treated as "expense" or "asset"
whichever is applicable. In addition, TESCO is required to issue the Certificate of Final Tax Withheld at
Source (BIR Form No. 2306) in quadruplicate upon request of TNG, the first three copies thereof to be
given to TNG and the fourth copy to be retained by TESCO as its file copy. [Section 4&6, Revenue
Regulations (RR) No. 4-2002; Section 3, RR No. 8-2002; Section 7, RR No. 14-2002]

Very truly yours,

Commissioner of Internal Revenue

By:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 43
 (SGD.) MILAGROS V. REGALADO
Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 20, 2004

ITAD RULING NO. 151-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling ITAD-43-99

Embassy of Japan
2627 Roxas Blvd.,
Pasay City, Manila

Gentlemen :

This has reference to your Note Verbale No. 583-04 dated November 18, 2004 referred to this
Office by the Department of Finance and the Department of Foreign Affairs, requesting for a tax-free
purchase on one (1) unit of locally assembled motor vehicle for the personal use of Ms. Hiroko Taniguchi,
First Secretary of the Embassy of Japan, specifically described as follows:

Type of Use: Personal

Make: Toyota Corolla Altis 1.8E A/T
Model Year: 2004
Chassis Number: ZZE122-9003144
Engine Number: IZZ-4367032

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 44
 the goods and services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the VAT prescribed under Sections 106 and 108,
both of the National Internal Revenue Code of 1997. CTSDAI

However, applying the principle of reciprocity, this Office may grant VAT exemption to the
Embassy of Japan and/or its personnel on their local purchases of goods and/or services it appearing from
the list submitted by the Department of Foreign Affairs as of June 22, 2004 that your Government allows
similar exemption to the Philippine Embassy and its personnel on their purchases of goods and services in
your country.

Hence, the local purchase of one (1) 2004 Toyota Corolla Altis 1.8E A/T, for the personal use of
Ms. Hiroko Taniguchi of the Embassy of Japan is exempt from VAT. (BIR Ruling No. ITAD-43-99 dated
November 9, 1999)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 20, 2004

ITAD RULING NO. 150-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling ITAD-43-99

British Embassy
17th Floor Locsin Building
6752 Ayala Avenue, Makati City

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 45
 Gentlemen :

This has reference to your Note No. 184-04 dated October 25, 2004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs, Office of Protocol, requesting for a tax-free
purchase on the three (3) units of locally purchased motor vehicles for the official use of the British
Embassy, specifically described as follows:

Make/Model/Year: 2003 Ford Expedition XLT

Color: Oxford White
Chassis Number: 1FMRU15W53LA68727
Engine Number: 3LA68727
Make/Model/Year: 2003 Chevrolet Suburban 4 x 2
Color: Black
Chassis Number: 1GNEC16T94T11072
Engine Number: 4J11072
Make/Model/Year: 2004 Chevrolet Trailblazer EXT
Color: Summit White
Chassis Number: 1GNET16S046228148
Engine Number: 46228148

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
the goods and services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the VAT prescribed under Sections 106 and 108,
both of the National Internal Revenue Code of 1997. EDISTc

However, applying the principle of reciprocity, this Office may grant VAT exemption to the British
Embassy and/or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs as of June 22, 2004 that your Government allows similar
exemption to the Philippine Embassy and its personnel on their purchases of goods and services in your
country. acCDSH

Hence, the local purchases of three (3) motor vehicles described above for the official use of the
British Embassy are exempt from VAT. (BIR Ruling No. ITAD-43-99 dated November 9, 1999)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 46
 Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 17, 2004

ITAD RULING NO. 149-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. ITAD-24-01

Australian Embassy
Level 23 Tower II, RCBC Plaza
6819 Ayala Avenue
Makati City

Attention: Mr. Ernesto Espiritu

Gentlemen :

This has reference to your Note No. 0318/04 dated November 3, 2004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs (DFA), requesting for a tax-free purchase
on one (1) unit of local motor vehicle for the official use of the Australian Embassy, specifically described
as follows:

Type of Use: Official

Make: Kia KC2700 4x2 Panoramic with dual aircon
Model Year: 2004
Color: White
Frame Number: KNCSE211257039669
Engine Number: J2-395357

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 47
 Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to VAT prescribed under Sections 106 and 108, and ad
valorem taxes under Section 149, all of the National Internal Revenue Code of 1997. SEHACI

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
Australia and/or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the DFA as of June 22, 2004 that your Government allows similar exemption to Philippine
Embassy and its personnel on their purchases of goods and services in your country.

Hence, the local purchase of one (1) Kia KC2700 4x2 Panoramic with dual aircon for the official
use of the Australian Embassy is exempt from VAT and ad valorem taxes. (BIR Ruling No. ITAD-24-01
dated March 12, 2001)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 17, 2004

ITAD RULING NO. 148-04

Article 34, Vienna Convention on Diplomatic Relations

Sec. 233 & 271, Local Gov't. Code of 1991

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 48
 Revenue Regulations No. 12-2001
VAT Ruling No. 008-00
BIR Ruling No. 030-96

Department of Foreign Affairs

2330 Roxas Boulevard, Pasay City
Philippines

Attention: Mr. Wilfredo R. Cuyugan

Director, Immunities and Privileges
Office of Protocol

Gentlemen :

This refers to your letter dated October 6, 2003 with the information that the Government of Brunei
Darussalam, through its Embassy in Manila, plans to purchase real estates in the Philippines for its
Chancery and official residence, and seeks, assistance concerning the applicable rate of annual taxes
imposed on real properties of foreign missions.

In reply, please be informed that under Sections 233 and 271 of the Local Government Code of
1991, local government units are mandated to fix a uniform rate of basic real property tax applicable to
their respective localities, the proceeds of which exclusively accrue to them, stated as follows:

(1) Provinces — not exceeding one percent (1%) of the assessed value of real property, and

(2) Cities and Municipalities in the Metropolitan Manila Area — not more than two
percent (2%) of such assessed value.

The proceeds of the tax are shared with the municipalities and barangays.

In relation thereto, Article 34 of the Vienna Convention on Diplomatic Relations, pertinent portion
of which reads:

"Article 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services;

xxx xxx xxx"

Based on the afore-quoted provision, it is clear that the tax exemption privilege of an Embassy and
its diplomatic agents does not include exemption from indirect taxes such as value-added Tax (VAT).
However, applying the principle of reciprocity, this, Office may grant VAT exemption to the Embassy of
Brunei Darussalam on its local purchases of goods and/or services, it appearing from the list submitted by
the Department of Foreign Affairs that Government of Brunei Darussalam allows similar exemption to
Philippine Embassy and/or its diplomatic personnel on their purchases of goods and services in your

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 49
 country. TaDSHC

As regards the seller of goods or services, it is noteworthy that sales by a VAT-registered entity
under the above circumstances shall be treated as effectively zero-rated transactions. [Sec. 4.100-3,
Revenue Regulations No, 7-95] In this jurisdiction, the grant of VAT exemption alone would mean that
the sellers shall bear the burden of the tax if they will not be allowed to pass-on the VAT to an exempt
embassy. To enable local sellers to refund the amount of the tax inputted into the cost of services supplied
to an exempt entity, VAT zero-rating is resorted to. In other words, from the point of view of the
VAT-registered seller, although the sale of services to an exempt embassy is a taxable transaction for VAT
purposes, the process of zero-rating operates to nullify the output tax on the part of the local supplier and
the input tax on his own purchase of services related to such effectively zero-rated sale becomes available
as tax credit or refund. (VAT Ruling No. 008-00 dated February 7, 2000)

Treated as effectively zero-rated transactions, the VAT-registered seller of services town exempt
embassy is required to file an application and secure prior approval for zero-rating to be able to claim tax
credit/refund on VAT (input tax) previously paid. The said application shall be filed, before an initial sale,
with the Audit Information, Tax Exemptions and Incentives Division (AITEID) of this Bureau, which,
when approved, shall be effective for 12 months from the date of issuance of the approval. (Revenue
Memorandum Circular No. 17-96). Without an approved application for effective zero-rating, the
transaction otherwise treated to as zero-rated shall be considered exempt. Consequently, failure on the part
of a VAT-registered seller to secure an approval for effective zero-rating of said transaction will result in
the forfeiture of his entitlement to claim tar credit/refund on the (VAT) input tax passed on to him. [Secs.
4.107-1(d), 4.102-2 and 4.103-1, Revenue Regulations No. 7-95] In other words, sale of services to an
exempt embassy requires a prior approved application for zero-rating in order to consider such sale to be
effectively zero-rated. (BIR Ruling No. 030-96 dated February 27, 1996)

Furthermore, the seller of the real property classified as capital asset shall be the one responsible
for the payment of the capital gains tax involved in said purchase, which is, a final tax of six percent (6%)
based on the gross selling price or current fair market value as determined in accordance with Section 6(E)
of the Tax Code of 1997, regardless of whether the seller is an individual or corporation, as provided for in
Sections 24(D)(1) and 27(E) of the same Code. However, in case of sale of real property classified as
ordinary asset held by the seller in the pursuit of his profession, trade or business, the ordinary rules of
income tax would apply, hence, any gain shall be reported as ordinary business income, and any loss, if
such be the case, can have an offsetting effect. Nonetheless, in case where the seller is not habitually
engaged in real estate business, he shall be liable to pay the six percent (6%) creditable withholding tax on
any gain derived thereon. (RR No. 12-2001 dated September 7, 2001)

Lastly, the seller shall likewise be directly liable for the payment of the documentary stamp tax as
provided for under Section 173, in relation to Section 196 of the Tax Code of 1997 which is Fifteen Pesos
(P15.00) for each One Thousand Pesos (P1,000.00) or fractional part thereof in excess of One Thousand
Pesos (P1,000.00) of such consideration or value.

We trust that we have satisfied your query.

Very truly yours,

Commissioner of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 50
 By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 17, 2004

ITAD RULING NO. 147-04

Article 13, Philippines-France tax treaty

BIR Ruling No. DA-ITAD-092-02

Bureau Veritas Consumer Products

Services (Phils.) Inc.
8439 South Super Hi-way West
Marcelo Green Village
Parañaque City 1700

Attention: Jarence Minh A. Relloso

Accounts & Finance Division

Gentlemen :

This refers to your letter dated August 31, 2004 requesting confirmation of your opinion that the
royalties paid by your company, Bureau Veritas Consumer Products Services (Phils.) Inc. (Bureau Veritas
Phil), to Bureau Veritas Société Anonyme à Directoire et Conseil de Surveillance (Bureau Veritas France)
are subject to the preferential tax rate accorded under the Philippines-France tax treaty.

It is represented that Bureau Veritas France is a nonresident foreign corporation duly organized and
existing under the laws of France with principal office address at 17 bis Place des Reflets, La Défense 2,
Courbevoie, France; that it is not registered either as a corporation or as a partnership licensed to do
business in the Philippines per certification issued by the Securities and Exchange Commission dated
September 13, 2004; that Bureau Veritas Phil is a domestic corporation duly organized and existing under
Philippine laws; that on February 3, 2004; Bureau Veritas France and Bureau Veritas Phil entered into a
BVSA Royalty Agreement (Agreement) whereby the former grants the latter the right to present itself as
being a part of the Bureau Veritas worldwide organization and to accordingly use the name "Bureau
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 51
 Veritas"; that in consideration for the aforementioned rights, Bureau Veritas Phil agrees to pay royalties to
Bureau Veritas France in a lump sum amount defined and approved by both parties to the Agreement in
January of each year; that said royalty amount shall be invoiced once a year, in the 1st of June, and shall
be paid on the 15th of July by bank transfer to Bureau Veritas France; and that the BVSA Royalty
Agreement complies with the provisions of the Intellectual Property Code on Voluntary Licensing under
Certificate of Compliance No. 5-2004-00062 issued by the Intellectual Property Office (IPO) on August
20, 2004.

In reply, please be informed that Article 12 of the Philippines-France tax treaty provides as follows:

"Article 12

"ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State. SEcTHA

"2. However, such royalties may be taxed in the Contracting State in which they arise, and
according to the law of that State. However, the tax so charged shall, provided that the royalties are
taxable in the other Contracting State, not exceed:

"a) in the case of the Philippines, 15 per cent of the gross amount of the
royalties

(i) paid by an enterprise registered with the Philippines Board of

Investments and engaged in preferred areas of activities, or

(ii) paid in respect of cinematographic films or of works recorded

for broadcasting or television;

"b) in all other cases, 25 per cent of the gross amount of the royalties.

"3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematographic films and works recorded for broadcasting or television, any patent, trade
mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial, or scientific equipment, or for information concerning industrial, commercial or
scientific experience.

"xxx xxx xxx"

Article 6 of the superseding Protocol of the same treaty amending certain provisions thereof deleted
and replaced Article 12(2) above and reads, viz:

"Article 6

"Paragraph 2 of Article 12 of the Convention is deleted and replaced by the following:

"2. However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the
other Contracting State, the tax so charged shall not exceed 15 percent of the gross amount of the
royalties."

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 52
 Accordingly, since Bureau Veritas France is the beneficial owner of the royalty payments, this
Office is of the opinion and so holds that the royalty payments by Bureau Veritas Phil to Bureau Veritas
France are subject to the preferential tax rate of 15 percent pursuant to Article 12(2) as amended by
Article 6 of the Protocol of the Philippines-France tax treaty. (BIR Ruling No. ITAD-92-02 dated May 16,
2002)

Moreover, the royalty payments are subject to 10% value-added tax (VAT) pursuant to Section 108
of the Tax Code of 1997. Accordingly, Bureau Veritas Phil being the resident withholding agent and payor
in control of the payment, shall be responsible for the withholding of the 10% final VAT before making
any payment to Bureau Veritas France. In remitting the VAT withheld, Bureau Veritas Phil shall use BIR
Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld).
The duly filed BIR Form No. 1600 and proof of payment thereof shall serve as documentary substantiation
for the claim of input tax by Bureau Veritas Phil upon filing its own VAT return, if it is a VAT-registered
taxpayer. In case Bureau Veritas Phil is a non-VAT registered taxpayer, the passed-on VAT withheld shall
form part of the cost of the service purchased or treated as "expense" or "asset," whichever is applicable.
In addition, Bureau Veritas Phil is required to issue the Certificate of Final Tax Withheld at Source (BIR
Form No. 2306) in quadruplicate upon request of Bureau Veritas France, the first three copies thereof to
be given to Bureau Veritas France and the fourth copy to be retained by Bureau Veritas Phil as its file
copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-2002; Section 3 of RR No. 8-2002; Section 7 of
RR No. 14-2002] IaTSED

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
Bureau of Internal Revenue

December 17, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 53
 ITAD RULING NO. 146-04

Article 10, Philippines-Netherlands tax treaty BIR Ruling

No. DA-ITAD-123-03

Asian Insights, Inc.

Unit 408, Ferros Bel-Air Tower
30 Polaris corner Durban Streets
Bel-Air, Makati City

Attention: Teresa R. Tam-Yap

Gentlemen :

This refers to your letter dated May 26, 2004 requesting confirmation of your opinion that the
dividend payments of your client, Kalayaan Power Management Corporation (KPMC), to Edison Mission
Operation & Maintenance Services B.V. (EDISON) and IMPSA Construction Services B.V. (IMPSA), are
subject to the preferential tax rate of ten percent (10%) of the gross amount of dividends pursuant to
Article 10(2)(a) of the Philippines-Netherlands tax treaty.

It is represented that EDISON and IMPSA are nonresident foreign corporations duly organized and
existing under and by virtue of the laws of The Netherlands with office addresses at 3521 CB Utretcht,
Netherlands, Croeselaan 18 and Blaak 16, 3011 TA, Rotterdam, Netherlands, respectively; that EDISON
and IMPSA are not registered either as corporations or as partnerships licensed to do business in the
Philippines per certifications issued by the Securities and Exchange Commission both dated June 7, 2004;
that KPMC is a domestic corporation organized and existing under Philippine laws; that Edison and
IMPSA are stockholders of record of KPMC as of May 27, 2004, as follows:

Name of No. of Shares Amount Percentage

Corporation Subscribed Ownership
Edison 49,247 P4,924,700.00 49.996%
KPMC 49,247 P4,924,700.00 49.996%

It is further represented that on March 23, 2004, the Board of Directors of KPMC unanimously
approved the declaration of cash dividends in the amount of Twenty Six Million Nine Hundred Thirty One
Thousand and Twenty Nine Pesos (P26,931,029.00) in favor of all of its stockholders of record as of
December 31, 2003 payable on or before April 30, 2004. cHESAD

In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as
follows:

"Article 10

DIVIDENDS

1. Dividends paid by a company which is a resident of one of the States to a resident of the
other State may be taxed in that other State.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 54
 2. However, such dividends may also be taxed in the State of which the company paying
the dividends is a resident and according to the laws of that 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 recipient is a

company the capital of which is wholly or partly divided into shares and which holds
directly at least 10 per cent of the capital of the company paying the dividends:
(emphasis supplied)

b). 15 per cent of the gross amount of the dividends in all other cases.

xxx xxx xxx"

Based on the aforequoted provision, the Philippines may tax the dividends paid by a Philippine
company to a Netherlands company at a rate not exceeding 10% of the gross amount of dividends if the
last-mentioned company, who is the beneficial owner of the dividends, holds directly at least 10% of the
capital of the Philippine corporation, and at the rate of 15% in all other cases.

Accordingly, considering that EDISON and IMPSA each holds 49.996% of the outstanding capital
stock of KPMC, this Office is of the opinion and so holds that the dividend remittances of KPMC to
EDISON and IMPSA are subject to the preferential tax rate of 10% of the gross amount of dividends
pursuant to Article 10(2)(a) of the Philippines-Netherlands tax treaty. (BIR Ruling No. DA-ITAD-123-03
dated August 11, 2003) cTECIA

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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 55
 December 17, 2004

ITAD RULING NO. 145-04

Sections 105, 106 and 109, Tax Code of 1997

BIR Ruling No. DA-ITAD-173-03
BIR Ruling No. 065-98

National Judicial Institute

Unit 2008 Jollibee Plaza
Emerald Avenue, Pasig City

Attention: Atty. Hector Soliman

Local Project Director, NJI-JURIS Project

Gentlemen :

This refers to your letters dated July 19, 2004 and September 9, 2004 requesting for a ruling on
whether or not the Justice Reform Initiative Support (JURIS) Project (Project), formerly known as the
Judicial Reform Support Project, is exempt from value-added tax (VAT) and excise taxes.

It is represented that on June 18, 2002, the Government of the Republic of the Philippines and the
Government of Canada entered into a Memorandum of Understanding (MOU) concerning the Project, a
subsidiary arrangement made pursuant to the General Agreement on Development Cooperation between
the Philippines and Canada dated November 13, 1987; that the Project is a Canadian International
Development Agency (CIDA) Project; that the goal of the Project is to improve the quality of judicial
services and access to justice particularly by the poor and marginalized groups by supporting selected
elements of the Supreme Court's Action Program for Judicial Reform 2001-2006 (APJR) including the
APJR Supplement; that for this purpose and pursuant to Article II, Section 2.01 of the MOU, CIDA
contracted the National Judicial Institute of Canada (NJI), a Canadian non-profit organization engaged in
judicial education, as the Canadian Executing Agency responsible for the overall financial, administrative
and technical management of the Project; and that NJI has been purchasing equipment, contracting
services and undertaken other activities necessary and proper for the effective implementation of the
Project. HCaIDS

In support of your request, you cited Article IV of the General Agreement on Development
Cooperation between the Philippines and Canada and the MOU as legal basis for the exemption of the
JURIS Project.

In reply, please be informed that Section 105 of the National Internal Revenue Code of 1997 (Tax
Code), provides that any person who, in the course of trade or business, sells, barters, exchanges, leases
goods or properties, renders services, and any person who imports goods, shall be subject to the 10 percent
VAT. Being an indirect tax, the VAT may be shifted or passed on by the person concerned to the buyer,
transferee, or lessee of the properties, or services.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 56
 However, Sections 106(A)(5)(c), 108(B)(3) and 109(q) of the Tax Code either exempt from VAT
or subject to zero percent VAT goods and services sold to persons and entities whose tax treatment under
special laws or international agreements to which the Philippines is a signatory exempts or effectively
subjects to zero percent such goods and services sold to them. In this regard, Articles IV and V of the
Philippines-Canada General Agreement Development Cooperation and Section 5.02, Article 5 of the
Memorandum of Understanding establishing and implementing the JURIS Project, both being
international agreements to which the Philippines is a signatory, provide, viz:

"Article IV

"The Government of the Republic of the Philippines shall ensure that development aid funds
provided under any subsidiary arrangement are not used to pay any taxes, fees, customs duties or
any other levies and charges imposed directly or indirectly by the Government of the Republic of
the Philippines, any goods, materials, equipment, vehicles and services purchased or acquired for
the execution of any project being carried out in the Philippines pursuant to a subsidiary
arrangement."

"Article V

"The Government of the Republic of the Philippines shall exempt Canadian firms and Canadian
personnel from or bear the costs of customs and excise duties, sales taxes, fees (except those
associated with private motor vehicles), and other charges imposed by the Government of the
Republic of the Philippines of similar nature, on all goods, materials, equipment, vehicles and
services and on any other goods or services acquired in or imported into the Philippines for or
related to the execution of projects established under any subsidiary arrangement. . . ."

"Section 5.02

"CANADA's contribution cannot be used to pay any taxes, fees, customs duties or any other levies
or charges imposed directly or indirectly by THE PHILIPPINES on any goods, materials,
equipment, vehicles and services purchased or acquired to meet project requirements or in relation
to the implementation of the Project."

Taken altogether, the abovequoted provisions provide that the Philippine government shall ensure
that the development aid funds allocated by the Canadian government for the JURIS Project shall not be
utilized in paying for taxes on goods and services purchased necessary for the effective implementation of
the Project. Thus, this Office is of the opinion and so holds that in keeping with the intention of
provisions, NJI, the Canadian Executing Agency responsible for the overall financial, administrative and
technical management of the Project, shall be exempt from corporate income tax and as well as to VAT
and excise tax imposed on the purchases of goods and services by NJI relevant to the implementation of
the Project. (BIR Ruling No. 65-98 dated May 21, 1998 and BIR Ruling No. DA-ITAD 173-03 dated
November 20, 2003) EAcTDH

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,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 57
 Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 17, 2004

ITAD RULING NO. 144-04

Articles 11 and 12 Philippines-Japan tax treaty

BIR Ruling Nos. DA-ITAD 25-04 and 67-04

Nidec Philippines Corporation

136 North Science Avenue Extension
Special Economic Zone
Laguna Technopark
Biñan, Laguna

Attention: Mr. Yasuo Hamaguchi

President

Gentlemen :

This refers to your letter dated August 26, 2004 requesting confirmation that interest and royalties
to be paid by Nidec Philippines Corporation (Nidec Philippines) to Nidec Corporation (Nidec Japan) are
both subject to 10 percent income tax pursuant to Articles 11 and 12 of the Philippines-Japan tax treaty.

It is represented that Nidec Japan is a nonresident foreign company organized and existing under
the laws of Japan with office address at 338 Kuze Tonoshirocho, Minami-ku, Kyoto, Japan; that Nidec
Japan is not registered either as a corporation or as a partnership licensed to engage in business in the
Philippines as confirmed by the Certification of Non-Registration of Corporation/Partnership issued by the
Securities and Exchange Commission on August 17, 2004; that Nidec Philippines, on the other hand, is a
domestic company organized and existing under the laws of the Philippines with principal office at 136
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 58
 North Science Avenue Extension, Special Economic Zone, Laguna Technopark, Biñan, Laguna,
Philippines; that Nidec Philippines has been duly registered as of July 28, 2004 with the Board of
Investments, with a pioneer status, as confirmed by the Certificate of Registration No. EP 2004-85 issued
by the Board on the same date; that being a registered enterprise, Nidec Philippines is an export producer
of spindle motors for hard disk drives of computers, with a capacity to produce 54,373,621 units thereof in
a year; that, on June 15, 2004 and on July 16, 2004, for loans received on those dates amounting to
5,000,000 U.S. dollars and 4,000,000 U.S. dollars, respectively, Nidec Philippines issued to Nidec Japan
Promissory Notes Nos. 04-01 and 04-02, whereby Nidec Philippines agreed to pay Nidec Japan interest
for each loan at the rates of 2.95 percent and 2.85 percent, respectively, at the end of every quarter and for
one year.

It is further represented that on January 1, 1997, Nidec Philippines and Nidec Japan entered into a
Technical Assistance Agreement, whereby Nidec Japan agreed to provide Nidec Philippines technical
processes and procedures on the development, manufacturing and marketing of spindle motors, direct
current motors, stators, brackets, bracket assembly (BRT + FPC + STA), hub, base and base assembly, and
other computer-related hardware; and that, in consideration, Nidec Philippines agreed to pay Nidec Japan
at the end of each month, royalties at the rate of 5 percent based on Nidec Philippines net sales of locally
manufactured products which made use of the subject know-how. TIcAaH

In reply, please be informed that interest and royalties arising in the Philippines and paid to a
resident of Japan are subject to preferential tax rates under the relevant provisions of Articles 11 and 12 of
the Philippines-Japan tax treaty, to wit:

"Article 11

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other Contracting State.

"2. However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed:

a) 10 percent of the gross amount of the interest if the interest is paid in

respect of Government securities, or bonds or debentures;

b) 15 per cent of the gross amount of the interest in all other cases.

"3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the
Philippines on the interest paid by a company, being a resident of the Philippines, registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the interest,
shall not exceed 10 per cent of the gross amount of the interest.

"xxx xxx xxx"

"Articles 12

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 59
 royalties the tax so charged shall not exceed:

a) 15 per cent of the gross amount of the royalties if the royalties are paid
in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;

b) 25 per cent of the gross amount of the royalties in all other cases.

"3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the
Philippines on the royalties paid by a company, being a resident of the Philippines, registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the royalties,
shall not exceed 10 per cent of the gross amount of the royalties. TCaAHI

"xxx xxx xxx"

Based on the foregoing, interest arising in the Philippines and paid to a resident of Japan is subject
to 10 percent income tax if the same is paid in respect of government securities, bonds or debentures, or if
the company paying the interest, being a resident of the Philippines, is registered with the Board of
Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of
the Philippines. In all other cases, the interest is subject to 15 percent income tax.

As regard royalties, the same are subject to 10 percent income tax if the company paying the
royalties, being a resident of the Philippines, is registered with the Board of Investments and engaged in
preferred pioneer areas of investment under the investment incentives laws of the Philippines, and to 15
percent income tax if they are paid in respect of the use of or the right to use cinematograph films and
films or tapes fork, radio or television broadcasting. In all other cases, the royalties are subject to 25
percent income tax.

Accordingly, in view of the fact that Nidec Philippines is a domestic company registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines, as confirmed by Certificate of Registration No. EP 2004-85 issued by
the Board of Investments on July 28, 2004, interest and royalties to be paid by Nidec Philippines to Nidec
Japan on and after July 28, 2004 are both subject to 10 percent income tax based on the gross amount of
the interest and royalties. (BIR Ruling No. DA-ITAD 25-04 dated March 11, 2004). On the other hand,
interest and royalties to be paid by Nidec Philippines to Nidec Japan before July 28, 2004 are subject to 15
percent income tax and 25 percent income tax, respectively, as already confirmed by an earlier BIR Ruling
No. DA-ITAD 138-02 dated August 6, 2002.

Finally, the provision of the subject know-how in the Philippines by Nidec Japan, being ". . . supply
of scientific, technical, industrial or commercial knowledge or information," which tabs within the
definition of sale or exchange of services, is subject to 10 percent value-added tax (VAT) under Section
108(A)[(3)] of the National Internal Revenue Code of 1997. Accordingly, royalties to be paid by Nidec
Philippines to Nidec Japan for the subject know-how are subject to 10 percent VAT. (BIR Ruling No.
DA-ITAD 67-04 dated July 9, 2004)

With regard to the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations No. 4-2000, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue
Regulations No. 14-2002, provide that the resident company making the payments to a nonresident
company, Nidec Philippines, shall be responsible for the withholding of the 10 percent VAT on such

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 60
 payments before remitting them to the nonresident company, Nidec Japan. In remitting to the Bureau of
Internal Revenue the VAT withheld on such payments, Nidec Philippines shall use BIR Form No. 1600
(Monthly Remittance Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered
taxpayer; Nidec Philippines may use as documentary substantiation for its claim of input VAT the duly
filed BIR Form No. 1600 and the proof of payment accompanying it. If a non-VAT-registered taxpayer,
Nidec Philippines may include as part of the cost of the services provided to it by Nidec Japan the VAT
consequently shifted nor passed on to it and may treat such VAT either as expense or asset, whichever is
applicable. In addition, upon Nidec Japan's request, Nidec Philippines is required to issue in quadruplicate
the relevant Certificate of Final Tax Withheld at Source (BIR Form No. 2306), the First three copies to be
given to Nidec Japan and the fourth copy to be retained by Nidec Philippines as its file copy. TcaAID

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
Bureau of Internal Revenue

December 16, 2004

ITAD RULING NO. 143-04

Sections 23 (F), 42 (A) (3) and 108 (A) National Internal

Revenue Code of 1997
BIR Ruling No. DA-ITAD 90-04

Sycip Gorres Velayo & Co.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 61
 6th Floor, Ayala Life — FGU Center
Mindanao Avenue corner Biliran Road
Cebu Business Park, Cebu City
6000 Cebu City

Attention: Atty. Rita A.S. Fernandez

Tax Services

Gentlemen :

This refers to your letter dated September 1, 2004 requesting confirmation that the service fees to
be paid by Philippine Kenko Corporation (Kenko Philippines) to Kenko Company, Ltd. (Kenko Japan) are
exempt from Philippine income tax and value-added tax (VAT) pursuant to the pertinent sections of the
National Internal Revenue Code of 1997 (Tax Code).

It is represented that Kenko Japan is a foreign company organized and existing under the laws of
Japan with principal office at 3-9-19 Nishiochiai, Shinjuku-ku, Tokyo, 161-8570, Japan, as confirmed by
its revised Articles of Incorporation dated May 1, 2003; that Kenko Japan is not registered either as a
corporation or as a partnership licensed to engage in business in the Philippines as confirmed by the
Certification of Non-Registration issued by the Securities and Exchange Commission on May 19, 2004;
that, on the other hand, Kenko Philippines is a domestic company organized and existing under the laws of
the Philippines with principal office at Mactan Economic Zone 1, PEZA, Lapu-lapu City 6015, Cebu,
Philippines; that Kenko Philippines is registered with the Export Processing Zone Authority, with
Certificate of Registration No. 89-50 issued on October 24, 1989; that Kenko Japan is engaged in the
manufacture and sale of photographic supplies and optical products, and Kenko Philippines is engaged in
the manufacture and sale of binoculars, rifle scopes and spotting scopes; that, on November 1, 2003,
Kenko Japan and Kenko Philippines entered into a Business Support Agreement where Kenko Japan
agreed to provide Kenko Philippines the following services to be done entirely outside the Philippines:

1. advertising and promotion of sale of Kenko Philippines' products to customers in Japan

and other countries; IDScTE

2. formulation and implementation of a business strategy for customers outside the

Philippines;

3. conducting activities relating to sales promotion in foreign countries requested by

Kenko Philippines, without transfer of technological know-how and other intellectual
property rights;

4. ordering and purchasing of parts of Kenko Philippines' products and making payments
to Kenko Philippines; and

5. assisting in the management and funding of Kenko Philippines;

and that, in consideration for said services, Kenko Philippines agreed to pay on a monthly basis Kenko
Japan service fees amounting to 1,866,000 Japanese yen.

In reply, please be informed that Section 23(F) of the Tax Code provides:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 62
 "Section 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:

"xxx xxx xxx

"(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines."

Section 23(F) states that a foreign corporation like Kenko Japan is taxable only on income derived
from sources within the Philippines. In the case of income from the provision of services, such income is
considered derived from sources within the Philippines if the services are performed in the Philippines, as
stated in Section 42(A)(3) of the Tax Code below:

"Section 42. Income from Sources Within the Philippines. —

"(A) Gross Income from Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx

"(3) Services. — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx

Accordingly, since the subject services will be carried out entirely outside the Philippines, service
fees therefor to be paid by Kenko Philippines to Kenko Japan, being income not derived from sources
within the Philippines by a foreign corporation, are therefore exempt from Philippine income tax. (BIR
Ruling No. DA-ITAD 90-04 dated August 24, 2004)

Similarly, the subject fees are not subject to ten percent (10%) VAT imposed under Section 108(A)
of the Tax Code below:

"Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.

The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration . . ."

Section 108(A) clearly states that the sale or exchange of services subject to VAT include only
those services that are performed in the Philippines. Accordingly, since the subject services will not be
performed in the Philippines, service fees therefor to be paid by Kenko Philippines to Kenko Japan are
therefore exempt from VAT. (BIR Ruling No. DA-ITAD 90-04 dated August 24, 2004) EICSTa

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.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 63
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue

December 10, 2004

ITAD RULING NO. 142-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling ITAD-43-99

Embassy of the Socialist Republic of Vietnam

#670 Pablo Ocampo St.,
Malate, Manila

Attention: Mr. Do Xuan Tue

First Secretary

Gentlemen :

This has reference to your Note Verbale 142 VN/2004 letter dated November 2, 2004 referred to
this Office by the Department of Foreign Affairs, Office of Protocol, requesting for a tax-free purchase on
one (1) unit of local motor vehicle for the official use of the Embassy of the Socialist Republic of
Vietnam, specifically described as follows:
Type of Use: Official
Make: Nissan Urvan Shuttle 15 Seater 2.7 Diesel
Manual Transmission
Model Year: 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 64
 Chassis Number: TVP4LEFE24-A28285
Engine Number: TD27-742930
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
the goods and services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the VAT prescribed under Sections 106 and 108,
both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant VAT exemption to the
Embassy of the Socialist Republic of Vietnam and/or its personnel on their local purchases of goods
and/or services it appearing from the list submitted by the Department of Foreign Affairs as of June 22,
2004 that our Government allows similar exemption to Philippine Embassy and its personnel on their
purchases of goods and services in your country.

Hence, the local purchase of one (1) Nissan Urvan Shuttle 15 Seater 2.7 Diesel Manual
Transmission, for the official use of the Embassy of the Socialist Republic of Vietnam is exempt from
VAT. (BIR Ruling No. ITAD-43-99 dated November 9, 1999)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

December 9, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 65
 ITAD RULING NO. 141-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. DA-322-97

Royal Embassy of Saudi Arabia

389 Sen. Gil J. Puyat Avenue Extension
Makati City

Attention: Mr. Mohammed Ameen Wali

Ambassador

Gentlemen :

This has reference to your Note No. 814 dated August 6, 004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs (DFA), requesting for a tax-free purchase
on one (1) unit of local motor vehicle for the official use of the Royal Embassy of Saudi Arabia,
specifically described as follows:
Make: Toyota Previa 2.4 A/T
Model Year: 2004
Color: Sand Dune
Engine Number: 2AZ-B101252
Chassis Number: JTEGD34M8-00292123
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all due, and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect, taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
embassy of goods and/or services shall be subject to the VAT prescribed under Sections 106 and 108, both
of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Royal
Embassy of Saudi Arabia or its personnel on their local purchases of goods and/or services it appearing
from the list submitted by the Department of Foreign Affairs as of June 22, 2004 that your Government
allows similar exemption to Philippine Embassy and its personnel on their purchase of goods and services

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 66
 in your country. SacTAC

Hence, the local purchase of one (1) Toyota Previa 2.4 A/T for the official use of the Royal
Embassy of Saudi Arabia is exempt from VAT (BIR Ruling No. DA-322-97 dated September 24, 1997)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 30, 2004

ITAD RULING NO. 140-04

Article 11, Philippines-Japan tax treaty BIR Ruling No.

142-95 BIR Ruling No. DA-ITAD 47-04

Philippine HKR Inc.

Toyota Industrial Complex
Sta. Rosa, Laguna

Attention: Mr. Ryuzo Miwa

EVP/Treasurer

Gentlemen :

This refers to your application for tax treaty relief dated July 8, 2004, requesting for a 15% final
withholding tax on interest payments made by Philippine HKR Inc. (HKR) to UFJ Bank Limited (UFJ)
pursuant to the Philippines-Japan tax treaty.

It is represented that UFJ is a corporation and existing under the laws of Japan with principal
address at 21-24, Nishiki 3-chome, Naka-ku, Nagoya City, Japan; that UFJ has a branch office at 6 Raffles
Quay, #24-01 John Hancock Tower, Singapore 048580; that it is not registered either as a corporation or
as a partnership licensed to do business in the Philippines per certification issued by the Securities and
Exchange Commission dated July 26, 2004; that HKR is a Philippine Economic Zone Authority

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 67
 (PEZA)-registered enterprise per Certificate of Registration No. 96-111 dated October 24, 1996 with
principal address at Toyota Industrial Complex, Sta. Rosa, Laguna; that on March 16, 2004, UFJ and HKR
entered into a Loan Agreement whereby UFJ agreed to grant a term loan facility of Japanese Yen Two
Hundred Million (JPY200,000,000) to HKR to be drawn in one lump sum on the borrowing date; that the
rate of interest applicable on the loan shall be the rate determined by UFJ to be the aggregate of (1) 0.7%
per annum and (2) UFJ's cost of funds and shall be applicable for the period commencing on the
borrowing date and ending on the maturity date; and that HKR shall pay interest semi-annually, the first of
such interest payment shall be made on the date falling six (6) Months from the borrowing date of the
loan, and the final interest payment shall be made on the maturity date.

In reply, please be informed that Article 11 of the Philippines-Japan Tax treaty provides as follows:

"Article 11

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other Contracting State. EaIcAS

"2. However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed:

a) 10 per cent of the gross amount of the interest if the interest is paid in
respect of Government securities, or bonds or debentures;

b) 15 per cent of the gross amount of the interest in all other cases.

"xxx xxx xxx

"5. The term "interest" as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from Government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures.

"xxx xxx xxx."

Based on the aforequoted provisions, interest arising in the Philippines and paid to a resident of
Japan may be subject to Philippine tax at a rate not to exceed 15 percent (15%) of the gross amount of the
interest provided the recipient is the beneficial owner of the interest and that said income was not
generated from Government securities, bonds or debentures. Therefore, the interest paid by HKR to UFJ,
who is the beneficial owner of such interest, shall be subject to tax at the preferential rate of fifteen
percent (15%) based on the gross amount of the interest pursuant to Article 11 of the Philippines-Japan tax
treaty. However, the Loan Agreement shall be subject to documentary stamp tax imposed under Section
179 of the 1997 Tax Code, as amended. (BIR Ruling No. 142-95 dated September 13, 1995 and BIR
Ruling No. DA-ITAD 47-04 dated May 7, 2004)

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,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 68
 (SGD.) MILAGROS V. REGALADO
Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 30, 2004

ITAD RULING NO. 139-04

Article 12 Philippines-Japan
BIR Ruling No. 096-81

Joaquin Cunanan & Co.

29th Floor Philam Life Tower
8767 Paseo de Roxas Avenue
1226 Makati City

Attention: George T.J. Lavadia

Principal, Tax Services Department

Gentlemen :

This refers to your letter dated January 24, 2001, requesting confirmation of your opinion that the
royalties paid by Fuji Electric Philippines, Inc. (FEP) to Fuji Electric Co. Ltd. (FECL) are subject to
Philippine income tax at the rate of 25% pursuant to Article 12(2)(b) of the Philippines-Japan tax treaty.

It is represented that FECL is a nonresident foreign corporation organized under the laws of Japan
with principal address at New Yurakucho Buildings 12-1 Yurakucho 1-Chome, Chiyoda-ku, Tokyo, Japan;
that as shown in the Certificate of Corporate Filing/Information dated March 23, 2001 issued by the
Securities and Exchange Commission (SEC), FECL was licensed to transact business as a representative
office in the Philippines on January 14, 1980 per License No. F-899; that per Certificate of Cancellation of
License of a Foreign Corporation with SEC Reg. No. FM-889 dated October 10, 2000, the License issued
to FECL to transact business in the Philippines is hereby cancelled; that a Certificate of Withdrawal of
License of a Foreign Corporation was issued replacing a previous certificate of withdrawal dated October
10, 2000 erroneously indicating the SEC Reg. No. FM-889, instead of F-889; that per Certification dated
June 22, 2004 issued by SEC, the correct registration number of the company was duly indicated; that FEP
is a corporation duly organized and existing under and by virtue of the laws of the Philippines with office

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 69
 address at Carmelray Industrial Park Canlubang, Calamba, Laguna; that on April 1, 1997, FECL and FEP
entered into a Technology License Agreement which states among others, that "Licensor grants to
Licensee a non-exclusive, non-transferable License to use the technical information, to reproduce and
prepare derivate works of the works protected by the copyrights, to practice any and all inventions
claimed in the Patents and to exercise all Other Intellectual Property Rights in order to manufacture the
Subject Products only in the Territory 1 , and to use, sell and otherwise dispose of the Subject Products
worldwide. Such license shall not include the right to sublicense or have made. Subject to the terms and
conditions of this Agreement, Licensor hereby grants to Licensee, for the term of this Agreement, a
non-exclusive, non-transferable license to use the Trademarks in connection with the Subject Products
manufactured by Licensee provided that such Subject Product are manufactured in accordance with
specifications and standards established from time to time by Licensor or otherwise approved by
Licensor"; that in consideration of said license grant, FECL is entitled to receive a royalty equivalent to
five percent (5%) of FEP's net sales of any and all subject products (SP) that are manufactured and sold by
FEP during the term of the Agreement; that a Memorandum for Technology License Agreement dated
April 20, 1997 was entered into which states that with respect to the "Half Term" from April 1, 1997 to
September 30, 1997, the expected total sum of (a) trade, quantity or cash discounts and broker's or agent's
commission, (b) return credits and allowances, (c) tax, excise or other government charges, and (d) freight,
insurance and packing costs, with respect to the SP which shall be deducted from the total invoice value of
the SP in order to calculate the "Net Sales", shall be deemed to be equal to 2.75% of the total invoice value
of the SP, in consideration of the result of the preceding half term, thus, the rate of royalty to be paid by
FEP for such period shall be equal to 4.86% (97.25% x 5%) of the total invoice value of any and all SP
that are sold by FEP during the period; and that this deduction rate for calculating net sales (2.75%) shall
continue for successive term, unless it is largely fluctuated.

In reply, please be informed that Article 12 of the Philippines-Japan tax treaty provides as follows:

"Article 12

"Royalties

"(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.

"(2) However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed:

(a) 15 per cent of the gross amount of the royalties if the royalties are paid
in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;

(b) 25 per cent of the gross amount of the royalties in all other cases.
(emphasis supplied)

"(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the royalties paid by a company, being a resident of the Philippines, registered with the
Board of Investment and engaged in preferred pioneer areas of investment under the investment
incentive laws of the Philippines to a resident of Japan who is the beneficial owner of the royalties,
shall not exceed 10 per cent of the gross amount of the royalties. HIACEa

"(4) The term 'royalties' as used in this Article means payments of any kind received as a
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 70
 consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph film and films or tapes for radio or television broadcasting, any patent,
trademark, or design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experiences.

"(5) The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the
royalties, being a resident of a Contracting State, carries on business in the other Contracting State in
which the royalties arise, through a permanent establishment situated therein, or performs in that other
Contracting State independent personal services from a fixed base situated therein, and the right or
property in respect of which the royalties are paid is effectively connected with such permanent
establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be,
shall apply.

"xxx xxx xxx"

Based on the foregoing, royalty payments arising in the Philippines and paid to a resident of Japan
will be taxed at the preferential tax rate of ten percent (10%), if the payor is a Board of Investments (BOI)
registered enterprise engaged in preferred pioneer areas of investment; fifteen percent (15%) if the
payments are in respect of the use of or the right to use cinematograph films and films or tapes for radio or
television broadcasting; and in all other cases, twenty-five percent (25%) based on the gross amount of the
royalties.

Such being the case, and inasmuch as the royalties are paid by FEP to FECL under the Agreement
in respect of the use of intellectual property rights in order to manufacture the subject products in the
Philippines, the royalties paid by FEP to FECL is subject to Philippine income tax at the rate of 25%.

Moreover, the royalty payments of FEP to FECL for the grant of right and license are subject to the
ten percent (10%) value-added tax (VAT) pursuant to Section 108 of the Tax Code of 1997, based on the
contract price agreed upon by the parties. Accordingly, FEP, being the resident withholding agent and
payor in control of the payment shall be responsible for the withholding of the 10% final VAT on such
fees before making any payment to FECL. In remitting the VAT withheld, FEP shall use BIR Form No.
1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly
filed BIR Form No. 1600 and proof of payment thereof shall serve as documentary substantiation for the
claim of input tax by FEPI upon filing its own VAT return, if it is a VAT-registered taxpayer. In case FEP
is a non-VAT registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service
purchased which may be treated as "expense" or "asset" whichever is applicable. In addition, FEP is
required to issue the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate
upon request of FECL, the first three copies thereof to be given to FECL and the fourth copy to be retained
by FEP as its file copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-2000; Section 3 of RR No.
8-2002; Section 7 of RR No. 14-2002]

This ruling is issued on the basis on 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,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 71
 Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue
Footnotes
1. Article 1.23 of the Technology License Agreement, "Territory" shall mean the Republic of the Philippines.

November 25, 2004

ITAD RULING NO. 138-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. ITAD-057-01

Embassy of the Republic of Singapore

35 Floor, Tower I, The Enterprise Center,
Ayala, Makati City

Gentlemen :

This has reference to your Note Verbale No. MNL 091/200 dated November 9, 2004 referred to this
Office by the Department of Finance and the Department of Foreign Affairs (DFA), requesting for a
tax-free purchase on one (1) unit o local motor vehicle for the official use of the Embassy of the Republic
of Singapore, specifically described as follows:
Make: Toyota Camry 2.4V A/T
Model Year: 2004
Color: Flaxen
Frame Number: ACV30-9001290
Engine Number: 2AZ-1557930
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 72
 Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a find which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
the Republic of Singapore or its personnel on their local purchases of goods and/or services it appearing
from the list submitted by the Department of Foreign Affairs as of June 22, 2004 that your Government
allows similar exemption to Philippine Embassy or its personnel on their purchase of goods and services in
your country. TcHCIS

Hence, the local purchase of one (1) Toyota Camry 2.4V A/T for the official use of the Embassy of
the Republic of Singapore is exempt from VAT ad valorem taxes. (BIR Ruling No. 057-01 dated July 2,
2001)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 24, 2004

ITAD RULING NO. 137-04

Article 34, Vienna Convention on Diplomatic Relations

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 73
 BIR Ruling No. DA-ITAD 61-04
VAT Ruling No. 08-00
Revenue Memorandum Order No. 22-2004

California Clothing Inc.

DII Building, 150 San Vicente Road,
Brgy. San Vicente, San Pedro, Laguna

Attention: Mr. Medardo R. Delos Reyes

Controller

Gentlemen :

This refers to your letter dated July 22, 2003 addressed to Mr. Wilfredo Z. Narnola, Revenue
District Officer of Revenue District Office No. 57, San Pedro, Laguna and indorsed to this office on May
31, 2004 by Acting Regional Director Merlinda L. Ordoyo of Revenue Region No. 9, San Pablo City
pursuant to Revenue Memorandum Circular No. 2-2001, requesting for value-added tax (VAT) exemption
on your sale of goods to VAT-exempt individuals and entities, particularly foreign diplomats and
personnel of foreign embassies in the Philippines.

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portions of which reads:

"Article 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services;

xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
VAT on its local purchases of goods and services. In other words, purchases by the Embassy of goods
and/or services shall be subject to the VAT prescribed under Sections 106 and 108 of the Tax Code of
1997.

However, applying the principle of reciprocity, this Office may grant VAT exemption to qualified
foreign embassies and their qualified personnel on their local purchases of goods and/or services when it
appears in the list dated June 22, 2004 submitted by the Office of Protocol of the Department of Foreign
Affairs (DFA) that the home country of the concerned embassy allows similar exemption to the Philippine
Embassy and/or its diplomatic personnel on their purchases of goods and services in the said country. (BIR
Ruling No. ITAD-61-04 dated June 14, 2004 and Revenue Memorandum Order No. 22-2004 dated May
24, 2004)

As regards the supplier of goods or services, it is worthy to note that sales by a VAT-registered
entity under the above circumstances shall be treated as effectively zero-rated transactions. [Sec. 4.100-3,
Revenue Regulations No. 7-95] In this jurisdiction, the grant of VAT exemption alone would mean that

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 74
 the suppliers shall bear the burden of the tax if they will not be allowed to pass-on the VAT to the foreign
embassies. To enable such local suppliers to refund the amount of the tax inputted into the cost of the
goods and services supplied to an embassy, another mechanism under the VAT system is resorted to by
local suppliers and this is referred as the process of VAT zero-rating. In other words, although the sale of
goods and services to a foreign embassy is a taxable transaction for VAT purposes, the process of
zero-rating operates to nullify the output tax on the part of the local supplier and the input tax on his own
purchases of goods, properties or services related to such effectively zero-rated sale becomes available as
tax credit or refund. (VAT Ruling No. 008-00 dated February 7, 2000)

In this connection, Revenue Memorandum Order (RMO) No. 22-2004 dated May 24, 2004 (see
attached) provides that transactions of VAT-registered business establishments listed in Annex "A"
thereof with the qualified foreign embassies, embassy personnel and the latter's qualified dependents are
subject to zero-percent (0%) VAT at the point of sale even without prior application for effective
zero-rating as required under Revenue Regulations No. 7-95. Said RMO shall serve as sufficient basis to
entitle the six (6) listed business establishments to the benefit of zero percent (0%) VAT for their sales to
exempt foreign embassies, embassy personnel and the latter's qualified dependents. IEHTaA

However, with respect to purchases from other VAT-registered establishments not included in
Annex "A", said transactions are likewise considered zero-rated (0%) transactions. In contrast, however,
these VAT-registered sellers of goods and services to an exempt embassy are still required to file an
application and secure prior approval for zero-rating to be able to claim tax credit/refund on VAT (input
tax) previously paid. The said application shall be filed, before an initial sale, to the Audit Information,
Tax Exemptions and Incentives Division (AITEID) of this Bureau, which, when approved, shall be
effective for 12 months from the date of issuance of the approval. (Revenue Memorandum Circular No.
17-96)

Without an approved application for effective zero-rating, the transaction otherwise treated to be
zero-rated shall be considered exempt. Consequently, failure on the part of a VAT-registered seller to
secure an approval for effective zero-rating of said transaction will result in the forfeiture of his
entitlement to claim tax credit/refund on the (VAT) input tax passed on to him. [Secs. 4.107-1(d), 4.102-2
and 4.103-1, Revenue Regulations No. 7-95] In other words, sale of goods and services by other
VAT-registered establishments not included in Annex "A" to an exempt embassy requires a prior approved
application for zero-rating in order to consider such sale to be effectively zero-rated. (BIR Ruling No.
030-96 dated February 27, 1996)

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.) JOSE MARIO C. BUÑAG

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 75
 Deputy Commissioner
Legal and Inspection Group
Bureau of Internal Revenue

November 24, 2004

ITAD RULING NO. 136-04

Article 13 (Royalties) Philippines-United States of America

tax treaty BIR Ruling No. DA-ITAD 28-04

Romulo Mabanta Buenaventura

Sayoc & De Los Angeles
Attorneys At Law
30th Floor, Citibank Tower
Citibank Plaza
8741 Paseo de Roxas
Makati City

Attention: Atty. Priscilla B. Valer

Gentlemen :

This refers to your letter dated October 12, 2004 addressed to Mr. Nestor Valeroso (Regional
Director, Bureau of Internal Revenue, Revenue Region No. 7 — Quezon City) and endorsed to the
International Tax Affairs Division of this Bureau for the resolution of the issue of the applicability of the
15 percent income tax rate on royalties to be paid by IBM Services Delivery, Inc. (IBM Philippines) to
IBM World Trade Corporation (IBM U.S.A.) pursuant to the pertinent provision of the Philippines-United
States of America (U.S.A.) tax treaty.

It is represented that IBM U.S.A. is a nonresident foreign corporation organized and existing under
the laws of the U.S.A. with principal office at New Orchard Road, Armonk, New York, 10504, U.S.A., as
confirmed by the relevant Certificate issued by IBM U.S.A. on September 6, 2002 certified by the County
Clerk and Clerk of the Supreme Court and County Court of Westchester, Government of the State of New
York on September 10, 2002; that IBM U.S.A. is not registered either as a corporation or as a partnership
and has not been licensed to engage in business in the Philippines as confirmed by the Certification of
Non-Registration issued by the Securities and Exchange Commission on October 14, 2004; that, on the
other hand, IBM Philippines (formerly, Center for Information Technology Exponents, Inc.) is a domestic
corporation organized and existing under the laws of the Philippines with principal office at 5th Floor,
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 76
 IBM Plaza, No. 8 Eastwood Avenue, Eastwood City, E. Rodriguez Avenue, Libis, Quezon City; that IBM
U.S.A and IBM Philippines are both engaged primarily in the business of computers and information
technology; that, on December 27, 1999, IBM U.S.A. and IBM Philippines entered into a Marketing
Royalty Agreement, where IBM U.S.A. agreed to grant to IBM Philippines the license to use its patents,
trademarks, copyrighted materials, know-how, and other forms of intellectual property 1 , which are
significant to IBM Philippines' business of providing computer related services 2 and selling maintenance
parts and Vendor Developed Products 3 to third parties; that in consideration, IBM Philippines agreed to
pay to IBM U.S.A. royalties based on the former's total gross charges equivalent to (a) four percent (4%)
for the provision of services for any Vendor Developed Products (except the provision of maintenance
services for any Information Technology Systems Products that are not Vendor Developed Products) and
for the provision of maintenance parts for Vendor Developed Products, (b) two percent (2%) for the sale
or lease of any Vendor Developed Products bearing an IBM Trademark and for the sale of supplies that do
not operate as part of a machine's basic mechanism like recording media (e.g., paper, cards and tapes) and
intermediaries between the mechanism and the media (e.g., ribbons), and (c) an undetermined percentage
for the provision of maintenance services and maintenance parts for any Information Technology Systems
Products other than Vendor Developed Products; that such royalties shall be paid in U.S. dollars within
thirty (30) days following the end of each month in which they become due; and that the Agreement took
effect on May 1, 1999 with a term of one (1) year and renewable automatically for subsequent one year
periods.

In reply, please be informed that paragraph 2, Article 13 (Royalties) of the Philippines-U.S.A. tax
treaty provides as follows:

"Article 13

ROYALTIES

"1. Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States.

"2. However, the tax imposed by that other Contracting State shall not exceed —

a) In the case of the United States, 15 percent of the gross amount of the royalties, and

b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties,

(ii) 15 percent of the gross amount of the royalties, where the royalties are
paid by a corporation registered with the Philippine Board of Investments and
engaged in preferred areas of activities, and

(iii) the lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third State."

"xxx xxx xxx"

Paragraph 2(b) states that royalties arising in the Philippines and paid to a resident of the U.S.A.
may be taxed in the Philippines, but the tax so charged shall not exceed: (a) 25 percent of the gross amount
of the royalties in general, (b) 15 percent of the gross amount of the royalties if they are paid by a
corporation registered with the Board of Investments and engaged in preferred areas of activities, and (c)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 77
 the lowest rate of Philippine income tax that may be imposed on royalties of the same kind paid under
similar circumstances to a resident of a third State (also known as the most favored-nation tax treatment
of royalties).

Regarding the most-favored-nation tax treatment of royalties, the Supreme Court, in Commissioner
of Internal Revenue vs. S.C. Johnson and Son Inc. and Court of Appeals (G.R. No. 127105 dated June 25,
1999), has cited two conditions for royalties arising in the Philippines and derived by a resident of another
country (in this case, the U.S.A.) to be subject to the most-favored-nation tax treatment (in this case, a rate
lower than 25 percent) as that granted by the Philippines to a resident of a third country under an existing
tax treaty. First, the Court noted that the royalties arising and subject to tax in the Philippines and derived
by a resident of the U.S.A. must be of the same nature as those derived by a resident of the third country.
Second, the Court stressed that the mechanism for relieving double taxation of income employed by the
U.S.A. with respect to royalties arising in the Philippines and derived by a resident of the U.S.A. must be
the same with that employed by the third country with respect to royalties arising in the Philippines and
derived by a resident of the third country.

In looking for existing Philippine tax treaties that provide a most-favored-nation tax treatment of
royalties, it is noteworthy to take into account and use as basis the treaties with Denmark, Finland,
Malaysia and the United Kingdom of Great Britain and Northern Ireland. Under the article on Royalties of
these treaties, royalties in general arising in the Philippines and derived by a resident of each of the
countries mentioned are subject to an income tax rate not exceeding 15 percent of the gross amount of the
royalties. On the other hand, under the article on Relief from Double Taxation of these treaties, the
mechanism for relieving double taxation of income arising in the Philippines and derived by a resident of
each of the countries is the ordinary credit method, similar with that of the U.S.A. Under this method,
only income taxes actually paid by a resident taxpayer with respect to income derived from foreign
sources are allowed as credit against the taxpayer's taxable income subject to certain limitations.

Such being the case, this Office is of the opinion and so holds that royalties to be paid by IBM
Philippines to IBM U.S.A. for the use by IBM Philippines of IBM U.S.A.'s patents, trademarks, copyrighted
materials, know-how, and other forms of intellectual property are subject to 15 percent income tax rate
based on the gross amount of the royalties. (BIR Ruling No. DA-ITAD 28-04 dated March 29, 2004)

Finally, Section 108(A)[(1) and (3)] of the National Internal Revenue Code of 1997 states that "the
lease or the use of or the right or privilege to use any copyright, patent, trademark, or other like property or
right" and "the supply of scientific, technical, industrial or commercial knowledge or information"' (like
the use by IBM Philippines of IBM U.S.A.'s patents, trademarks, copyrighted materials, know-how, and
other forms of intellectual property) fall within the definition of sale or exchange of services subject to ten
percent (10%) value-added tax (VAT). Accordingly, the subject royalties to be paid by IBM Philippines to
IBM U.S.A. are subject to 10% VAT. (BIR Ruling No. DA-ITAD 28-04 dated March 29, 2004)

With regard to the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations No. 4-2000, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue
Regulations No. 14-2002, provide that IBM Philippines, the resident person making the payments, shall be
responsible for the withholding of the 10% VAT on such payments before remitting them to IBM U.S.A.,
the nonresident person. In remitting to the Bureau of Internal Revenue the VAT withheld on such
payments, IBM Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of VAT and Other
Percentage Taxes Withheld). If a VAT-registered taxpayer, IBM Philippines may use as documentary
substantiation for its claim of input VAT the duly filed BIR Form No. 1600 and the proof of payment
accompanying it. If a non-VAT-registered taxpayer, IBM Philippines may include as part of the cost of the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 78
 license granted to it by IBM U.S.A. the VAT consequently shifted or passed on to it by IBM U.S.A. and
may treat such VAT either as expense or asset, whichever is applicable. In addition, upon IBM U.S.A.'s
request, IBM Philippines is required to issue in quadruplicate the relevant Certificate of Final Tax
Withheld at Source (BIR Form No. 2306), the first three copies for IBM U.S.A. and the fourth copy for
IBM Philippines.

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
Bureau of Internal Revenue
Footnotes
1. Intellectual Property shall mean any and all technologies, procedures, processes, designs, inventions,
discoveries, know-how, and works of authorship, including without limitation, documentation and all (i)
issued patents, utility models, and the like and applications therefore, (ii) copyrights, whether or not
registered, and other rights in works of authorship, (iii) mask work rights, (iv) trade secrets, (v) confidential
information and any other intellectual property rights constituting, embodied in, or pertaining thereto and,
(vi) the right to extract data from databases under current and fixture laws.
2. Services shall mean services such as maintenance services, systems integration, outsourcing, networking
services, consultancy, education services and other services.
3. Vendor Developed Products shall mean Information Technology Systems Products developed by parties
other than IBM or Subsidiaries thereof (except those Subsidiaries of IBM, or organizations within a
Subsidiary of IBM, which are designated by IBM U.S.A. to be treated as vendors for purposes of the
Agreement) the marketing of which by IBM Philippines does not require the exercise of a license of IBM
Intellectual Property granted herein. Information Technology Systems Products shall mean any
instrumentality or aggregate of instrumentalities adapted to compute, classify, process, transmit, receive,
retrieve, originate, switch, store, display, manifest, measure, detect, record, reproduce, handle or utilize any
form of information, intelligence or data for business, scientific, control or other purposes, including any
and all apparatus, parts, documentation and supplies used in the manufacture, marketing or utilization of
such instrumentality or aggregate of instrumentalities.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 79
 November 22, 2004

ITAD RULING NO. 135-04

Articles 5 & 7, Philippines-Singapore tax treaty

BIR Ruling No. 077-84
BIR Ruling No. 566-88

Robert Bosch Inc.

G/F Zuellig Building
Sen. Gil Puyat Avenue
Makati City 1200
Attention: Nilo C. Punzalan
Financial Controller
Mary Anne L. Mabalot
Accounting Manager

Gentlemen :

This refers to your application for relief from double taxation dated February 23, 2004, on behalf of
Robert Bosch (South East Asia) Pte. Ltd. (RBSI), pursuant to Article 7 of the Philippines-Singapore tax
treaty.

It is represented that RBSI is a nonresident foreign corporation duly organized and existing under
the laws of Singapore, with principal address at 38C Jalan, Pemimpin, Singapore; that the former name of
RBSI is Diesel Electric (Malaya) Pte. Ltd.; that it is not registered either as a corporation or as a
partnership in the Philippines per certification dated March 11, 2004 issued by the Securities and
Exchange Commission; that Robert Bosch Inc. (RBPH) is a corporation duly organized and existing under
Philippine laws, with office address at G/F Zuellig Building, Sen. Gil Puyat Avenue, Makati City 1200;
that in 2004, RBSI and RBPH entered into a Management Service Agreement, wherein RBSI shall provide
the following services: (1) general management consultancy/support, (2) regional financial and accounting
support, (3) corporate advertising and public relations support, and (4) regional logistics support; that in
consideration of the foregoing services, RBPH shall pay RBSI a yearly service fee in the amount of
Seventy Five Thousand Singapore Dollars (S$75,000.00) not later than thirty days upon receipt of the
invoice from RBSI; that the services referred to in the Agreement shall not exceed One Hundred Eighty
Three (183) days; and that the duration of the said Agreement shall be from January 1, 2003 until further
revised or revoked by mutual agreement of both parties.

In reply, please be informed Article 7 of the Philippines-Singapore tax treaty provides:

"Article 7

"BUSINESS PROFITS

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 80
 establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx."

In relation thereto, Article 5 of the same tax treaty also provides:

"Article 5

"PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on. IcHAaS

"2. The term 'permanent establishment' includes specially but is not limited to:

(a) A seat of management;

(b) A branch;

(c) An office;

(d) A store or other sales outlet;

(e) A factory;

(f) A workshop;

(g) A warehouse, in relation to a person providing storage facilities for others;

(h) A mine, quarry, or other place of extraction of natural resources;

(i) A building site or construction or assembly project or installation project or supervisory

activities in connection therewith, provided such site, project or activity continues for a period more
than 183 days; and

(j) The furnishing of services, including consultancy services, by a resident of one of the
Contracting States through employees or other personnel, provided activities of that nature continue
(for the same or a connected project) within the other Contracting State for a period or periods
aggregating more than 183 days. (Emphasis supplied)

"xxx xxx xxx."

Based on the foregoing, a corporation which is a resident of Singapore and does not carry on
business in the Philippines through a permanent establishment situated therein shall not be subject to
Philippine income tax for profits derived in the Philippines. For this purpose, a Singaporean corporation
may be deemed to have a permanent establishment in the Philippines if, among others, the furnishing of
services through its employees or other personnel continue for the same or a connected project within the
Philippines for a period or periods aggregating more than 183 days.

Inasmuch as it is represented that the above services are to be performed in the Philippines by RBSI
which shall not exceed 183 days during the term of the contract, then the furnishing of said services by

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 81
 RBSI through its employees or other personnel shall not constitute carrying of business through a
permanent establishment in the Philippines, to which the yearly service fees could be attributable. Such
being the case, the said yearly service fees to be paid by RBPH to RBSI are not subject to Philippine
income tax and consequently, to withholding tax under the National Internal Revenue Code of 1997. (BIR
Ruling No. 077-84 dated April 25, 1984; BIR Ruling No. 566-88 dated November 29, 1988)

However, the service fees to be paid by RBPH to RBSI covering the visits of the employees or
other personnel of RBSI are subject to the 10% value-added tax (VAT) pursuant to Sec. 108 of the Tax
Code of 1997. Accordingly, RBPH, being the resident withholding agent and payor in control of the
payment shall be responsible for the withholding of the 10% final VAT on such fees before any payment
to RBSI. In remitting the VAT withheld, RBPH shall use BIR Form No. 1600 (Monthly Remittance
Return of Value-Added tax and Other Percentage Taxes Withheld). The duly filed BIR Form 1600 and
proof of payment thereof shall serve as documentary substantiation for the claim of input tax by RBPH
upon filing its own VAT, if it is a VAT-registered taxpayer. In case RBPH is a non-VAT registered
taxpayer, the passed on VAT withheld shall form part of the cost of the service purchased which may be
treated as "expense" or "asset" whichever is applicable. In addition, RBPH is required to issue the
Certificate of Final Tax Withheld at Source (BIR Form 2306) in quadruplicate upon request of RBSI, the
first three copies thereof to be given to RBSI and the fourth copy to be retained by RBPH as its file copy.
[Section 4 & 6, Revenue Regulations (RR) No. 4-2000; Section 3 of RR No. 8-2002; Section 7 of RR No.
14-2002]

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. cTIESa

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 18, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 82
 ITAD RULING NO. 134-04

Articles 21, 23 & 34 of the Vienna Convention on

Diplomatic Relations
BIR Ruling No. DA-ITAD-61-04
VAT Ruling No. 008-00

Office of Protocol
Department of Foreign Affairs
2330 Roxas Blvd., Pasay City, Philippines

Attention: Mr. Wilfredo R. Cuyugan

Executive Director

Gentlemen :

This refers to the Notes Verbal Nos. MNL 042/2004 and MNL 030/2004 of the Embassy of the
Republic of Singapore, respectively, dated June 8, 2004 and April 22, 2004, indorsed by your office on
June 9, 2004, requesting exemption from payment of dues and taxes on the purchase of real estate
properties which the Embassy intends to make as the new site for its Chancery, specifically described as
"Lot 2 and 3 of Block 3 of the cons./subd. Plan, Pcs-00007928, McKinley Parkway, 5th Avenue and Rizal
Drive, Bonifacio South District, Bonifacio Global City, Taguig, Metro Manila".

In reply, please be informed that Article 21 of the Vienna Convention on Diplomatic Relations
provides that:

"Article 21

1) The receiving State shall either facilitate the acquisition on its territory, in accordance
with its laws, by the Sending State of premises necessary for its mission or assist the latter in
obtaining accommodation in some other way. (Emphasis supplied)

xxx xxx xxx"

Relative thereto, Article 23 of the Vienna Convention on Diplomatic Relations also provides that:

"Article 23

1) The sending State and the head of the mission shall be exempt from all national, regional
or municipal dues and taxes in respect of the premises of the mission, whether owned or leased, other
than such as represent payment for specific services rendered. (Emphasis supplied)

2) The exemption from taxation referred to in this Article shall not apply to such dues and
taxes payable under the law of the receiving State by persons contracting with the sending State or the
head of the mission."

It is clear from the above provisions that the sending State and the head of the mission are exempt
from all national, regional or municipal dues and taxes in respect of the premises of the mission, whether

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 83
 owned or leased. However, such exemption shall not apply to such dues and taxes payable by persons
contracting with the sending State or the head of mission.

Like in the instant case, the seller of the building shall be the one responsible for the payment of
income taxes due on the sale, depending on whether the seller is an individual or a corporation, and
whether the property is an ordinary or capital asset of the corporation. Moreover, the seller shall likewise
be responsible for the payment of the documentary stamp tax as provided for under Section 173, in
relation to Section 196 of the Tax Code of 1997.

Furthermore, pursuant to Article 34 of the Vienna Convention on Diplomatic Relations, pertinent

portions of which reads:

"Article 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services;

xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
VAT on its local purchases of goods and services. In other words, purchases by the Embassy of goods
and/or services shall be subject to the VAT prescribed under Sections 106 and 108 of the Tax Code of
1997. cAHDES

However, applying the principle of reciprocity, this Office may grant VAT exemption to the
Embassy of Singapore on its local purchases of goods and/or services, it appearing from the list submitted
by the Office of Protocol of the Department of Foreign Affairs (DFA) dated June 22, 2004 that the home
country of the Embassy of Singapore grants similar VAT exemption privileges to the Philippine Embassy
and its diplomatic personnel on their purchases of goods and services in the said country. Thus, since the
Embassy of Singapore is included in the abovementioned DFA list, it is, therefore, entitled to VAT
exemption on its purchases of goods and services in the Philippines based on the principle of reciprocity.
(BIR Ruling No. ITAD-61-04 dated June 14, 2004)

As regards the supplier of goods or services, it is worthy to note that sales by a VAT-registered
entity under the above circumstances shall be treated as effectively zero-rated transactions. [Sec. 4.100-3,
Revenue Regulations No. 7-95] In this jurisdiction, the grant of VAT exemption alone would mean that
the suppliers shall bear the burden of the tax if they will not be allowed to pass-on the VAT to the foreign
embassies. To enable such local suppliers to refund the amount of the tax inputted into the cost of the
goods and services supplied to an embassy, another mechanism under the VAT system is resorted to by
local suppliers and this is referred as the process of VAT zero-rating. In other words, although the sale of
goods and services to a foreign embassy is a taxable transaction for VAT purposes, the process of
zero-rating operates to nullify the output tax on the part of the local supplier and the input tax on his own
purchases of goods, properties or services related to such effectively zero-rated sale becomes available as
tax credit or refund. (VAT Ruling No. 008-00 dated February 7, 2000)

Treated as effectively zero-rated transactions, the VAT-registered seller of goods and services to an
exempt embassy is required to file an application and secure prior approval for zero-rating to be able to

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 84
 claim tax credit/refund on VAT (input tax) previously paid. The said application shall be filed, before an
initial sale, with the Audit Information, Tax Exemptions and Incentives Division (AITEID) of this Bureau,
which, when approved, shall be effective for 12 months from the date of issuance of the approval.
(Revenue Memorandum Circular No. 17-96). Without an approved application for effective zero-rating,
the transaction otherwise treated as zero-rated shall be considered exempt. Consequently, failure on the
part of a VAT-registered seller to secure an approval for effective zero-rating of said transaction will result
in the forfeiture of his entitlement to claim tax credit/refund on the (VAT) input tax passed on to him.
[Secs. 4.107-1(d), 4.102-2 and 4.103-1, Revenue Regulations 7-95] In other words, sale of goods and
services to an exempt embassy requires a prior approved application for zero-rating in order to consider
such sale to be effectively zero-rated. (BIR Ruling No. 030-96 dated February 27, 1996)

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. EaIcAS

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue

November 16, 2004

ITAD RULING NO. 133-04

Article 11, Philippines-Japan Tax Treaty BIR Ruling No.

DA-ITAD 112-02

Simian Conservation Breeding

and Research Center, Inc.
6th Floor, Kings Court I
2129 Pasong Tamo, Makati City

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 85
 Attention: Takahiro Uematsu
President

Gentlemen :

This refers to your application for tax treaty relief dated August 5, 2004, requesting confrontation
of your opinion that the tax on the interest income earned on leans granted by LSG Corporation (LSG) to
Simian Conservation Breeding & Research Center, Inc. (SCBRCI) is subject to 15% withholding tax
pursuant to Article 11 of the Philippine-Japan tax treaty.
It is represented that LSG is a nonresident foreign corporation organized and existing under the
laws on Japan with principal address at S&S Bldg., 6-36, Shin-Ogawamachi, Shinjuku-ku, Tokyo, Japan;
that is not registered either as a corporation or as a partnership licensed to do business in the Philippines
per certification issued by the Securities and Exchange Commission dated August 4, 2004; that SCBRCI is
a corporation duly organized and existing under the laws of the Philippines with principal address at 6th
Floor, Kings Court I, 2129 Pasong Tamo, Makati City, Philippines; that on February 3, 2003, LSG entered
into a Memorandum of Agreement (Agreement) with SCBRCI under which it was provided that (1) on
January 1, 2003, SCBRCI export sales transactions were made directly to KS International Pte. Ltd.
(KSIP), an affiliate, based in Singapore, (2) that SCBRCI receives cash advances from KSIP which are
paid and reduced by the amount of export sales to the latter, and (3) that KSIP's business operations
including distribution and sale of bred monkeys coming from SCBRCI was assumed by LSG; and that
pursuant to said Agreement, (1) SCBRCI's outstanding liability to KSIP representing balance of advances
from an affiliate as of February 28, 2003, shall be transferred to LSG, (2) starting March 1, 2003, said
balance of advances from affiliate plus the additional advances to SCBRCI shall be charged interest based
on the American prime rate, (3) the amount of interest shall be computed on a daily basis, based on the
principal amount composed of the monthly beginning balance, plus the amount of cash advance for the
current month, minus the amount of export sales for the month to LSG, (4) the amount of interest, shall be
added on cumulatively to the original principal amount, the total of which shall compose the beginning
balance of the account for the subsequent month, and (5) SCBRICI shall manage and make a regular report
to LSG on a monthly basis.
In reply, please be informed that Article 11 of the Philippines-Japan tax treaty provides as follows:

"Articles 11

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other Contracting State.

"2. However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed:

"(a) 10 per cent of the gross amount of the interest if the interest is paid in
respect of Government securities, or bonds or debentures;

"(b) 15 per cent of the gross amount of the interest in all other cases

xxx xxx xxx

"5. The term "interest" as used in this Article means income from debt-claims of every kind,
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 86
 whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from Government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures."

Based on the aforequoted provisions, interest arising in the Philippines and paid to a resident of
Japan may be subject to Philippine tax at a rate not to exceed fifteen percent (15%) of the gross amount of
the interest provided the recipient is the beneficial owner of the interest and that said income was not
generated from Government securities, bonds or debenture. Thus, the interest paid by SCBRCI to LSG,
which is the beneficial owner thereof, shall be subject to tax at the rate of fifteen percent (15%), based on
the gross amount thereof, pursuant to Article 11(2)(b) of the Philippines-Japan tax treaty. HcDATC

However, the Memorandum of Agreement shall be subject to documentary stamp tax imposed
under Section 179 of the Tax Code of 1997, as amended. (BIR Ruling No. ITAD-112-02 dated May 31,
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
Bureau of Internal Revenue

November 16, 2004

ITAD RULING NO. 132-04

Articles 5 & 7, Philippines-Japan Tax Treaty

BIR Ruling No. ITAD 187-02

Punongbayan & Aurollo

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 87
 20th floor, Tower 1, The Enterprise Center
6766 Ayala Ave., 1200 Makati City

Attention: Maria Victoria C. Españo

Tax Partner

Gentlemen :

This refers to your letter dated August 30, 2004, on behalf of your client, INA MICRO OPTO
CORPORATION (Ina Micro), requesting confirmation of your opinion that the sale of goods by its foreign
supplier, LINEX SANSIN, INC. (Linex), to Ina Micro under a proposed delivery and sales arrangement, or
commonly known as "Just-In-Time" Inventory System Agreement (JIT Agreement), shall not be taxable in
the Philippines.

It is represented that Linex is a nonresident foreign corporation duly organized and existing under
the laws of Japan with office address at 1-6-3 Higashi-Gotanda, Shinagawa-ku, Tokyo, Japan 141-0022;
that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines
per certification dated February 26, 2004 issued by the Securities and Exchange Commission; that Ina
Micro, on the other hand, is a Philippine Economic Zone Authority (PEZA)-registered enterprise under
Certificate of Registration No. 00-007 dated January 25, 2000 as an Ecozone Export Enterprise; that its
registered activity is limited to the manufacture of high-powered microscopes for export, and the
importation of raw materials, machinery, equipment, tools, goods, wares, articles or merchandise directly
used in its registered operation at the Mactan Economic Zone II and export of optical instruments such as
but not limited to microscopes, medical equipment, pneumatic-hydraulic equipment, their component parts
and other similar products and mechanical products or contrivance; that it is presently enjoying the income
tax holiday (ITH) incentive as a non-pioneer PEZA-registered enterprise; that on December 1, 2003, Ina
Micro entered into a JIT Agreement with Linex whereby the raw materials supplied by Linex will be
delivered to Ina Micro's warehouse but Linex will only recognize sales and will issue invoice upon
withdrawal by Ina Micro of the materials from the warehouse; that Ina Micro, on the other hand, will not
recognize as its inventories the raw materials stored in its warehouse until it is actually withdrawn for
production purposes.

In reply, please be informed that Article 7 of Philippines-Japan tax treaty provides, viz:

"Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that

Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits
of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment. DSHcTC

xxx xxx xxx"

In relation thereto, Article 5 of the same tax treaty provides:

"Article 5

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 88
 PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

2. The term permanent establishment' includes especially:

xxx xxx xxx

f) a warehouse;

xxx xxx xxx"

It is clear from the aforequoted provisions that the business profits to be derived by Linex the
Philippines from the sale of raw materials to Ina Micro shall be taxable in the Philippines if Linex has a
permanent establishment situated therein and only so much of them as is attributable to that permanent
establishment.

A warehouse is considered a permanent establishment if the business of an enterprise of one of the

Contracting States is wholly or partly carried on through it.

In the instant case, the subject warehouse is being utilized by its owner, Ina Micro, for storing raw
materials delivered by Linex in accordance with the JIT Agreement. As represented, Linex will deliver
raw materials to Ina Micro's warehouse but sales will be recognized only upon actual withdrawal of such
raw materials by Ina Micro for production purposes. Based on this agreement, it is clear that the use of the
warehouse is for the benefit of Ina Micro and not for the purpose of establishing a fixed place through
which the business of Linex is to be wholly or partly carried on. If any, the connection between the
warehouse and Linex under the arrangement is merely to attain the ultimate objective of carrying out the
provisions of the JIT Agreement.

In view of the foregoing, this Office is of the opinion and holds that since Linex does not maintain a
permanent establishment in the Philippines to which its profits as such may be attributed, the business
profits to be derived by Linex in the Philippines from the sale of raw materials to Ina Micro under the JIT
Agreement are not taxable in the Philippines pursuant to Articles 5 and 7 of the Philippines-Japan tax
treaty. (BIR Ruling No. ITAD-182-02 dated October 22, 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. CSIDEc

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 89
 Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 12, 2004

ITAD RULING NO. 131-04

Sections 28 (B) (1) & 42 of the Tax Code of 1997

BIR Ruling No. DA-ITAD-08-04

Kumon Philippines, Inc.

19th Floor, Philamlife Tower
8767 Paseo de Roxas, Makati City

Attention: Doris Purina-Barican

Finance/Admin Manager

Gentlemen :

This refers to your letter dated July 8, 2004, requesting exemption from Philippine tax on your
management fees to Kumon Asia and Oceania PTE Ltd. (Kumon-Singapore), pursuant to the
Philippines-Singapore tax treaty.

It is represented that Kumon-Singapore is a nonresident foreign corporation organized and existing

under the laws of Singapore with office address at 9 Raffles Place, #18-20/21, Republic Plaza II,
Singapore 048619; that it is not registered either as a corporation or as a partnership licensed to do
business in the Philippines per certification issued by the Securities and Exchange Commission dated
April 27, 2004; that Kumon Philippines, Inc. (Kumon-Philippines) is a corporation organized and existing
under the laws of the Philippines with office address at 19th Floor, Philamlife Tower, 8767 Paseo de
Roxas Ave., Makati City; that on April 1, 2001, Kumon-Philippines and Kumon-Singapore entered into a
Management Agreement wherein it was agreed that Kumon-Singapore shall provide the following services
to Kumon-Philippines: (1) provision of necessary and useful group regulations and group guidelines to
Kumon-Singapore and its subsidiaries, (2) provision of the coordinated decision-making, exchange of
information and training opportunities to the top management of Kumon-Singapore, (3) provision of
administrative assistance to Kumon-Singapore and its subsidiaries, such as establishment of internal
controls, conducting the internal audit, international tax planning and its execution, coordination in
international distributions, etc., (4) development, assistance in installation and maintenance, and training
of staff of Kumon-Singapore and its subsidiaries for certain unified computer software, and (5) conducting
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 90
 certain researches on behalf of Kumon-Singapore; that the initial term of the Management Agreement
shall be for a period of twelve months commencing on April 1, 2001 and continuing until March 31, 2002;
that the term of the Management Agreement shall automatically be extended for additional period of
twelve months each unless either party gives to the other party, at least 30 days prior to the expiration of
the then existing term, a written notice of the termination, with or without cause, of the end of the existing
term; that in consideration for Kumon-Singapore's performance of services, Kumon-Philippines agrees to
pay a management fee equivalent to the direct and indirect expenses of Kumon-Singapore properly
allocable to the services, plus mark-up of five percent (5%); and that the management services as provided
in the Management Agreement were performed in Singapore per certification issued by Kumon-Singapore
dated July 1, 2004.

In reply, please be informed that based on the representation that the management services rendered
by Kumon-Singapore are performed entirely in Singapore, then the management fees paid by
Kumon-Philippines to Kumon-Singapore are considered income derived from sources outside the
Philippines, and shall be governed by Section 28(B)(1), in relation to Section 42, both of the 1997 Tax
Code, to wit:

"SEC. 28. Rates of Income Tax Foreign Corporation. —

"xxx xxx xxx"

"(B) Tax on Nonresident Foreign Corporation —

"(1) In General — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty five percent (35%) of the
gross income received during each taxable year from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be
thirty-three percent (33%); and effective January 1, 2000 and thereafter, the rate shall be thirty-two
percent (32%). (Emphasis supplied)

"xxx xxx xxx."

"SEC. 42. Income from Sources Within the Philippines. —

"(A) Gross Income from Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx.

"(3) Services — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx"

"(C) Gross Income From Sources Without the Philippines. — The following items of gross
income shall be treated as income from sources without the Philippines:

"xxx xxx xxx"

"(3) Compensation for labor or personal services performed without the Philippines;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 91
 "xxx xxx xxx"

It is clear from the aforequoted provisions that a nonresident foreign corporation is taxable only on
income derived from sources within the Philippines. The source of the income derived from services is the
place where the services are rendered so that if the nonresident foreign corporation furnishes and performs
services in the Philippines, the compensation therefore are taxable in the Philippines. In the instant case,
based on your representation that the services rendered by Kumon-Singapore to Kumon-Philippines are
performed entirely in Singapore, the service fees remitted by Kumon-Philippines to Kumon-Singapore are
considered income derived from sources outside the Philippines and are, therefore, not subject to
Philippine income tax and consequently to withholding tax. (DA-ITAD-08-04 dated February 9, 2004)

It is noteworthy that, since the income is derived entirely from sources abroad, then the
Philippines-Singapore tax treaty will find no application as the transaction does not result in a case of
double taxation for which a tax treaty relief is sought. (DA-ITAD-08-04 dated February 9, 2004)

This ruling is issued based on 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. DHETIS

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 10, 2004

ITAD RULING NO. 130-04

Philippines-Japan Tax Treaty, Article 10

BIR Ruling No. ITAD-20-99

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 92
 Kyocera Kinseki Philippines, Inc.
New Cebu Township One Special Ecozone
Barangay Cantao-an, Naga, Cebu

Attention: Tadaaki Hoshikawa

General Manager — Administration & Finance

Gentlemen :

This refers to your letter dated June 15, 2004 requesting for the availment of a preferential tax rate
of ten percent (10%) on the dividend payments by Kyocera Kinseki Philippines, Inc. (Kyocera Phil) to
Kyocera Kinseki Corporation (Kyocera) under the Philippines-Japan tax treaty.

It is represented that Kyocera (formerly Kinseki Limited, per Company Registration dated April 20,
2004) is a nonresident foreign corporation organized and existing under the laws of Japan with business
address at 5350 No. 8-1, 1-chome, Izumi Moto-cho, Komae-shi, Tokyo, Japan; that it is not registered
either as a corporation or a partnership licensed to do business in the Philippines per certification issued
by the Securities and Exchange Commission dated June 7, 2004; that Kyocera Phil, formerly KSS
Philippines, Inc., is a corporation organized and existing under the laws of the Philippines with its place of
business at New Cebu Township One Special Ecozone, Barangay Cantao-an, Naga, Cebu; that Kyocera
Phil is a Japanese-owned domestic corporation duly registered with the Philippine Economic Zone
Authority (PEZA) per Amended Certificate of Registration No. 97-016; that Kyocera Phil is engaged in
the manufacture of SMD quartz crystals and exports 100% of its products in Japan and in other countries;
that Kyocera is the registered legal owner of Four Hundred Ninety-nine Thousand, Nine Hundred
Ninety-four (499,994) common shares as of January 27, 1997 and Seven Hundred Seventy-eight (778)
preferred shares as of September 1, 2003 up to the present, comprising a total of 99.99% of the total shares
of stock of Kyocera Phil; that on June 28, 2004, Kyocera Phil declared cash dividends in the total amount
of Fifty-three Million Nine Hundred Ninety Thousand, Four Hundred Ten Pesos and Four Centavos
(P53,990,410.04) to be distributed on June 28, 2004 to all its stockholders on record.

In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides:

"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; (Emphasis supplied)

b) 25 per cent of the gross amount of the dividends in all other cases. EaHDcS

The provisions of this paragraph shall not affect the taxation of the company in respect of the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 93
 profits out of which the dividends are paid.

"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"

Based on the abovequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding ten percent (10%) if the latter holds directly at
least twenty five percent (25%) either of the voting shares or of the total shares of the former for a period
of six (6) months immediately preceding the date of payment of the dividends.

Considering that Kyocera directly holds 99.99% of Kyocera Phil's shares of stock for the period of
six (6) months immediately preceding the date of payment of the dividends, per Certification issued by
Kyocera Phil's Corporate Secretary dated September 10, 2004, this Office is of the opinion and hereby
holds that the dividend payments of Kyocera Phil to Kyocera are subject to the ten percent (10%)
preferential tax rate pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty. (BIR Ruling No. 22-99
dated August 18, 1999)

This ruling is issued based on 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
Bureau of Internal Revenue

November 10, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 94
 ITAD RULING NO. 129-04

NIRC, Sec. 109

VAT Ruling No. 142-90

Filipinas Eye Center Foundation, Inc.

Philippine General Hospital
Taft Avenue, Manila

Attention: Marita V.T. Reyes, MD

President

Gentlemen :

This refers to your letter dated August 23, 2004 (with Reference No.: 2004-222) requesting for a
ruling on the taxability of the salaries and emoluments to be received by Spanish professionals and experts
sent by Spain pursuant to the Statement of the Fourth Philippines-Spain Joint Commission for Cooperation
(2001-2003).

It is represented that the Statement of the Fourth Philippines-Spain Joint Commission for
Cooperation was signed in Madrid, Spain on July 3, 2001 for the implementation of the Fourth Joint
Commission for Cooperation between the Governments of the Philippines and Spain; that pursuant to the
said Statement, the National Eye Referral Center of the Philippine General Hospital in the Philippines was
established designating Filipinas Eye Center Foundation, Inc. (FECFI), a non-governmental organization,
as its implementing agency; and that for the execution of the programs and projects of the National Eye
Referral Center, Spanish professionals and experts are sent by the Government of Spain.

In this regard, your Office now requests for confirmation that the salaries and emoluments received
by Spanish professionals and experts are exempt from Philippine income tax pursuant to the tax privileges
and immunities accorded under the General Friendship and Cooperation Treaty dated June 30, 2000 and
the Basic Agreement of Technical Cooperation between the Government of Spain and the Government of
the Republic of the Philippines signed and entered into on September 20, 1974. EcDATH

In reply, please be informed that Article VIII paragraph 2 of the aforementioned Basic Agreement
of Technical Cooperation, as recognized under the Statement of the Fourth Philippines-Spain Joint
Commission for Cooperation, provides as follows:

"Article VIII

"In the execution of programs and projects envisaged in the Present Agreement and in
Supplementary Agreements derived from the same, the following rules shall be observed:

"xxx xxx xxx"

2. The salaries and other emoluments received by the technicians, experts or researchers
sent by one of the High Contracting Parties to the territory of the Other, for the execution of programs
and projects, shall not be subject to payment of income taxes in said territory.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 95
 "xxx xxx xxx"

Based on the afore-quoted provisions, salaries and emoluments received by technicians, experts and
researchers sent by the Government of Spain to the Philippines for the execution of programs and projects
supra shall be exempt from the payment of income taxes. Such being the case, and considering that the
Spanish professionals and experts are sent by the Government of Spain for the purpose of carrying out
programs and projects of the National Eye Referral Center in the Philippines, a bilateral project of Spain
and the Philippines under the Fourth Joint Commission, this Office is of the opinion and so holds that the
income received by said professionals and experts shall be exempt from Philippine income tax imposed
under Sections 24 and 25 of the Tax Code of 1997. (VAT Ruling No. 142-90 dated May 23, 1990 and BIR
Ruling No. ITAD-77-04 dated July 28, 2004)

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. cHAaEC

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 10, 2004

ITAD RULING NO. 128-04

Article 11, Philippines-Spain tax treaty

BIR Ruling No. DA-ITAD 92-03

Constantino V. Rodel
Attorney and Counselor at Law
33rd Floor, Export Bank Plaza
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 96
 Chino Roces corner Gil Puyat Avenues
Makati City

Gentlemen :

This refers to your letter dated September 8, 2004 applying for relief from double taxation on
behalf of your client, Greif Spain Holdings, SL (Greif Spain) on its interest income received from Greif
Philippines, Inc. (Greif Phils), pursuant to Article 11 of the Philippines-Spain tax treaty.

It is represented that Greif Spain is a nonresident foreign corporation duly organized and existing
under the laws of Spain, with principal office at 28, 3 Ibanez de Bilbao, Bilbao; that it is not registered
either as a corporation or as a partnership licensed to do business in the Philippines per Certificate of
Non-Registration dated May 5, 2004 issued by the Securities and Exchange Commission; that Greif Phils,
formerly Van Leer Philippines, Inc., is a domestic corporation organized and existing under the laws of the
Philippines with principal address at PSPC Refinery Compound, Brgy. Malaya, Pililla, Rizal; that Greif
Phils is registered with the Board of Investments (BOI) under Certificate of Registration No. EP 96-120
dated July 12, 1996; that Greif Phils borrowed funds from Greif Spain in the amount of US Dollars: One
Million Six Hundred Thousand (US$1,600,000.00); that Greif Spain is not a shareholder of Greif Phils
and no shares of stock of Greif Phils is registered in the name of Greif Spain as of the date of loan
transaction between Greif Phils and Greif Spain per certification dated September 20, 2004 issued the
Corporate Secretary of Greif Phils; that Greif Phils executed a Promissory Note (Note) in the amount of
US$1,600,000.00 in favor of Greif Spain effective October 14, 2003; that pursuant to the said Note, Greif
Phils promised to pay to Greif Spain, through its Zurich Branch or its assignee or to the legal holder
thereof, the amount of the Note; that the unpaid balances will bear interest at a rate per annum equal to 3
month LIBOR USD plus a margin of three basis point (3%) until the principal is paid in full. TaCDAH

In reply, please be informed that Article 10 of the Philippines-Spain tax treaty provides as follows:

"Article 11

"INTEREST

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State.

"2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the law of that State, but the tax so charged shall not exceed:

"a) 10 per cent if such interest is paid:

(i) in connection with the sale on credit of any industrial,

commercial or scientific equipment, or

(ii) in respect of issues of bonds, debentures or similar obligations

offered to the general public.

"b) 15 per cent of the gross amount of such interest in all other cases.

xxx xxx xxx

"4. The term "interest" as used in this Article means income from debt claims of every kind,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 97
 whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from government securities and income from bonds or debentures,
including premiums and prizes attaching to bonds or debentures. Penalty charges for late payment
shall not be regarded as interest for the purpose of this Article.

"xx xxx xxx"

Based on the abovequoted provisions, interest payments by a Philippine resident to a resident of

Spain, who is the beneficial owner of the interest will be taxed at a preferential rate not to exceed 10
percent (10%) if the interest is paid in connection with the sale on credit of any industrial, commercial or
scientific equipment, or in respect of issues of bonds, debentures or similar obligations offered to the
general public. In all other cases, a preferential tax rate not to exceed 15 percent (15%), based on the gross
amount of interest, shall apply.

Such being the case, the interest payments to be remitted by Greif Phils to Greif Spain relative to
the subject promissory note issued shall be subject to the preferential rate of 15% Philippine income tax,
based on the gross amount of interest, pursuant to Article 11 of the Philippines-Spain tax treaty. (BIR
Ruling No. ITAD-92-03 dated July 3, 2003)

This ruling is issued based on 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
Bureau of Internal Revenue

November 10, 2004

ITAD RULING NO. 127-04

Philippines-United States Tax Treaty Article 11

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 98
 BIR Ruling No. DA-ITAD-215-02

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: J.A. OSANA

Tax Division

Gentlemen :

This refers to your letter dated September 8, 2004 requesting confirmation that the payment and
remittance of dividends by your client, AIG Credit Card Company Philippines, Inc. (AIG Credit) to AIG
Consumer Finance Group, Inc. (AIG CFGI), is subject to the preferential tax rate of twenty percent (20%)
pursuant to Article 11 (2) of the Philippines-United States tax treaty.

It is represented that AIG CFGI is a nonresident foreign corporation organized and existing under
the laws of the State of Delaware, U. S. A. with business address at 70 Pine Street, New York City, New
York, USA; that AIG CFGI is the parent company of AIG Credit; that the primary purpose of AIG Credit
is to promote the sale and/or patronage of goods, merchandise and services of producers and traders who
accept the credit, debit and/or charge cards issued by the AIG Credit to qualified clientele; that AIG CFGI
was licensed to transact business in the Philippines on March 2, 1999, but said license was cancelled per
Certificate of Cancellation of License of a Foreign Corporation approved on January 9, 2001, as showed in
the Certificate of Corporate Filing/Information issued by the Securities and Exchange Commission dated
August 13, 2004; that AIG Credit is a corporation organized and existing under the laws of the Philippines
with principal office at 15/F San Miguel Properties Center, #7 St. Francis Avenue, Ortigas Center,
Mandaluyong City; that AIG CFGI owned from the time of its incorporation and still currently owns
2,750,000 shares or representing 50% of the outstanding shares of AIG Credit per Certificate issued by
AIG Credit's Corporate Secretary dated October 19, 2004; that on June 17, 2004, the Board of Directors of
AIG Credit declared cash dividends of Ten Pesos and Fifty Two Centavos (P10.52) per share, or a total of
Fifty Seven Million Eight Hundred Seventy Eight Thousand Seventy-six Pesos (P57,878,076.00), in favor
of all stockholders of record as of June 17, 2004 payable by the end of July 2004.

In reply, please be informed that Article 11 of the Philippines-United States 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. AHDaET

"2. The rate of tax imposed by one of the Contracting States on the 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
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 99
 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 the recipient of the dividends, AIG CFGI, owns 50% of the
outstanding shares of the voting stock of the paying corporation, AIG Credit, during the part the latter's
taxable year which precedes the date of payment and during the whole of its prior taxable year, your
opinion that the dividends to be paid to AIG Credits to AIG CFGI is subject to the preferential rate of
20%, is hereby confirmed. (BIR Ruling No. DA-ITAD 215-02 dated December 11, 2002)

This ruling is issued based on 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
Bureau of Internal Revenue

November 9, 2004

ITAD RULING NO. 126-04

Article 10, Philippines-Netherlands tax treaty BIR Ruling

No. DA ITAD 028-99

Castillo Laman Tan

Pantaleon & San Jose
The Valero Tower, 122 Valero St.
Salcedo Village, 1227 Makati City
Philippines
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 100
 Attention: Maria Victoria D. Sarmiento

Gentlemen :

This refers to your application for tax treaty relief dated August 25, 2004, on behalf of your client
DSM Nutritional Products Philippines Inc. (DSM Phil), formerly Roche Vitamins Philippines, Inc.,
requesting confirmation of your opinion that the dividends payable by DSM Phil to its parent company,
Koninklijke DSMNV (DSMNV), are subject to the preferential tax rate of 10% pursuant to Article
10(2)(a) of the Philippines-Netherlands tax treaty.

It is represented that DSM N.V. is a nonresident foreign corporation organized and existing under
the laws of the Netherlands with address at 6411 TE Heerlen, the Netherlands, Het Overloon 1; that it is
not registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification dated May 7, 2004 issued by the Securities and Exchange Commission; that DSM Phil is a
corporation organized and existing under laws of the Philippines, with office address at 2252 Don Chino
Roces Avenue, Makati City, Philippines; that DSM NV holds Ninety Nine Thousand Nine Hundred
Ninety Five (99,995) shares or a total of Nine Million Nine Hundred Ninety Nine Thousand Five Hundred
Pesos (Php9,999,500.00) which constitute 99.5% of the total outstanding and voting shares of DSM Phil;
that as of March 31, 2004 and to date, the authorized capital stock of DSM Phil is Forty Million Pesos
(Php40,000,000.00) divided into 400,000 shares with par value of Php100.00 each, out of which 100,000
shares have been subscribed and fully paid; and that at a special meeting held on May 3, 2004, the Board
of Directors of DSM Phil unanimously approved and declared cash dividends in the amount of
Php122.79455 per outstanding share or a total amount of Php12,279,455.00 to the stockholders of record
as of March 31, 2004, payable on or before May 10, 2004 out of the retained earnings as of December 31,
2003.

In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as
follows, viz:

"Article 10

"DIVIDENDS

"1. Dividends paid by a company which is a resident of one of the States to a resident of
the other State may be taxed in that other State.

"2. However, such dividends may also be taxed in the State of which the company paying
the dividends is a resident and according to the laws of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed. EADCHS

a) 10 per cent of the gross amount of the dividends if the recipient is a

company the capital of which is wholly or partly divided into shares and which holds
directly at least 10 per cent of the capital of the company paying the dividends;

b) 15 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, 'jouissance' shares

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 101
 or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as
income from debt-claims participating in profits and income from other corporate rights which is
subjected to the same taxation treatment as income from shares by the taxation law of the State of
which the company making that distribution is a resident.

"xxx xxx xxx"

Based on the above-cited provisions, the 10 percent preferential tax rate on dividends apply
whenever the beneficial owner/recipient of the dividend owns at least 10 percent of the outstanding voting
shares of the paying company. In all other cases the 15 percent preferential tax rate applies. Such being the
case and considering that DSM N.V. holds 99.5% percent of the capital of DSM Phil, this Office is of the
opinion and so holds that the dividend payments by DSM Phil to DSM N.V. shall be subject to the
preferential tax rate of 10 percent, based on the gross amount of dividends, pursuant to Article 10(2)(a) of
the Philippines-Netherlands tax treaty. (BIR Ruling No. DA ITAD 028-99 dated October 7, 1999)

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
Bureau of Internal Revenue

November 8, 2004

ITAD RULING NO. 125-04

Art. 12, RP-Netherlands tax treaty

Sec. 20 (B) (1) of NIRC of 1997
Sec 108 of NIRC of 1997
BIR Ruling No. 026-94
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 102
 BIR Ruling No. 198-85
BIR Ruling No. DA-476-99

Gulf Oil Philippines, Inc.

39 M. Lozada Street
Brgy. Sto. Rosario, Silangan
Pateros, Metro Manila

Attention: Ramaswamy Varadarajan

General Manager

Gentlemen :

This refers to your application for relief from double taxation dated July 13, 2004, requesting for a
10% preferential tax rate on the royalty payments relative to a Licensing and Technical Assistance
Agreement executed between Gulf Oil Philippines, Inc. (Gulf-Phil) and Gulf Oil Benelux BV
(Gulf-Netherlands) pursuant to the Philippines-Netherlands tax treaty.

It is represented that Gulf-Netherlands is a wholly owned subsidiary of Gulf Oil International

Limited (Gulf); that it is a corporation organized and existing under the laws of the Netherlands with
principal address at GOI Services Ltd., 3rd Floor 16 Charles, II Street, London SWIY 4QU; that it is not
registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification issued by the Securities and Exchange Commission dated December 9, 2003; that
Gulf-Philippines is a BOI-registered corporation organized and existing under the laws of the Philippines
with principal address at #39 M. Lozada St., Brgy., Sto. Rosario Silangan, Pateros, Metro Manila; that
Gulf is internationally known as a producer, manufacturer and marketer of petroleum products and
specialties, including automotive and industrial lubricants and technical and industrial oils and has the
right to license the use of certain internationally known and advertised trademarks; that Gulf-Netherlands
has the right to license the use of certain colour arrangement, designs and indicia used on labels and
packages and containers which identify the Gulf Trademarks and goodwill; that on April 1, 2003,
Gulf-Netherlands and Gulf-Philippines entered into a Licensing and Technical Assistance Agreement
(Agreement) whereby Gulf-Phil shall obtain a license and authorization to use Gulf Trademarks and Gulf
Indicia from Gulf-Netherlands; that under the same Agreement, Gulf-Netherlands or its nominee shall
provide Gulf-Phil technical advice and services required in connection with the company's lubricant
business; that the said technical assistance covered under the Agreement were performed by
Gulf-Netherlands outside the Philippines per certification issued by Gulf-Philippines dated September 13,
2004; that in consideration thereof, Gulf-Philippines shall pay Gulf-Netherlands a royalty of 4% of net
sales plus technical fee of US$60,000.00, to be billed annually.

In reply please be informed that Article 12 of the Philippines-Netherlands tax treaty provides, viz:

"Article 12

"Royalties

"1. Royalties arising in one of the States and paid to a resident of the other State may be
taxed in that other State.

"2. However, such royalties may also be taxed in the State in which they arise, and according
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 103
 to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged
shall not exceed.

"(a) 10 percent of the gross amount of the royalties where the royalties are
paid by an enterprise registered, and engaged in preferred areas of activities in that
State; and

"(b) 15 percent of the gross amount of the royalties in all other cases.

"3. ...

"4. The term 'royalties as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films or tapes for radio or television broadcasting, any patent, trademark,
design or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial, commercial or scientific
experience.

"xxx xxx xxx"

Based on the above royalties arising in the Philippines and paid to a resident of the Netherlands
who is the beneficial owner thereof may be subject to Philippine income tax at a rate not to exceed 10
percent of the gross amount of the royalties where such royalties are paid by an enterprise registered and
engaged in preferred areas of activities, or 15 percent of the gross amount of the royalties in all other
cases. AIECSD

Such being the case, since Gulf-Phil is a BOI-registered enterprise on a non-pioneer preferred
status, the payments made by Gulf-Phil to Gulf-Netherlands shall be subject to the preferential tax rate of
ten percent (10%), based on the gross amount of the royalties. (BIR Ruling No. 026-94 dated January 21,
1994 and BIR Ruling No. 198-85 dated November 7, 1985)

Moreover, royalty payments made by Gulf-Philippines to Gulf-Netherlands under the Agreement

are subject to the 10% value-added tax under Sec. 108 of the Tax Code of 1997. Accordingly, Gulf
Philippines, being the resident withholding agent and payor in control of the payment, shall be responsible
for the withholding of 10% VAT before remitting any payment to Gulf-Netherlands. In remitting the VAT
withheld, Gulf-Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added
Tax and Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment
thereof shall serve as documentary substantiation for the claim of input tax by Gulf-Philippines upon filing
its own VAT, if it is a VAT-registered taxpayer. In case Gulf-Philippines is a non-VAT registered
taxpayer, the passed-on VAT withheld shall form part of the cost of the service purchased which may be
treated as "expense" or "asset" whichever is applicable. In addition, Gulf-Philippines is required to issue
the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate upon request of
Gulf-Netherlands, the first three copies thereof to be given to Gulf-Netherlands and the fourth copy to be
retained by Gulf-Philippines as its file copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-2000;
Section 3 of RR No. 8-2002; Section 7 of RR No. 14-2002]

Thus, Gulf-Philippines shall be responsible for the withholding of the 10% VAT and income tax at
the rate of 10% of the gross amount of royalties.

However, as regards the payment for the technical services, Section 28(B)(1), in relation to Section

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 104
 42(A)(3) of the Tax Code of 1997 provides as follows:

"(B) Tax on Nonresident Foreign Corporation.

"(l) In General. — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the
gross income received during each taxable year from all sources within the Philippines, such as
interest, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate shall
be thirty-two percent (32%). (Emphasis supplied)

"xxx xxx xxx"

SEC. 42. Income from Sources Within the Philippines. —

"(A) Gross Income from Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx"

"(3) Services. — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx"

It is clear from the aforequoted provisions that a nonresident foreign corporation is taxable only on
income derived from sources within the Philippines. The source of the income derived from services is the
place where the services are rendered so that if the nonresident foreign corporation furnishes and performs
services in the Philippines, the compensation therefore are taxable in the Philippines. In the instant case,
based on your representation that the services are rendered entirely in Netherlands, the fees to be paid are
considered income derived from sources outside the Philippines.

In view thereof, this Office is of the opinion and so holds that since technical services covered by
the subject Licensing and Technical Service Agreement are to be rendered by Gulf-Netherlands outside
the Philippines, and are considered income from sources without the Philippines, the payments made by
Gulf-Philippines to Gulf-Netherlands for said services shall not be subject to Philippine income tax and
consequently to the withholding tax under Section 28(B)(1) of the Tax Code of 1997. (BIR Ruling No.
DA-076-99 dated February dated February 8, 1999)

This ruling is issued based on 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. DSCIEa

Very truly yours,

Commissioner of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 105
 By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

November 3, 2004

ITAD RULING NO. 124-04

Section 28 (B) (5) (b), National Internal Revenue Code of

1997 BIR Ruling No. 208-89

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Mr. A.C. Tionko

Tax Division

Gentlemen :

This refers to your letter dated September 10, 2004 requesting confirmation that dividends to be
paid by Globe Telecom, Inc. (Globe Telecom) to Singapore Telecom International Pte. Ltd. (Singapore
Telecom) are subject to 15 percent income tax pursuant to Section 28(B)(5)(b) of the National Internal
Revenue Code of 1997 (Tax Code).

It is represented that Singapore Telecom is a foreign company organized and existing under the
laws of Singapore with principal office at 31 Exeter Road, Comcentre, Singapore 239732, as confirmed by
its Articles of Association; that, on the other hand, Globe Telecom is a domestic company organized and
existing under the laws of the Philippines with principal office at 3rd Floor, Globe Telecom Plaza, Pioneer
corner Madison Streets, 1552, Mandaluyong City, Philippines; that, as of June 30, 2004, Singapore
Telecom owns 56,036,015 or 40.05 percent of the issued and outstanding common shares of stock of
Globe Telecom with a par value of P50.00 each, as confirmed by the notarized certificate dated July 27,
2004 issued by the Corporate Secretary of Globe Telecom; and that Singapore law provides that dividends
derived by a resident of Singapore, beginning June 1, 2003 and onwards, from sources outside Singapore,
are exempt from Singapore income tax if the income tax imposed by the source country on such dividends
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 106
 is equal to or greater than 15 percent, as confirmed by the relevant letter dated August 30, 2004 of the
Inland Revenue Authority of Singapore to Singapore Telecom. DHSEcI

In reply, please be informed that Section 28(B)(5)(b) provides as follows:

"(b) Intercorporate Dividends. — A final withholding tax at the rate of fifteen percent (15%) is
hereby imposed on the amount of cash and/or property dividends received from a domestic
corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subject to
the condition that the country in which the nonresident foreign corporation is domiciled, shall allow
a credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid
in the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent (19%) for 1998,
eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the
difference between the regular income tax of thirty-five percent (35%) in 1997, thirty-four percent
(34%) in 1998, thirty-three percent (33%) in 1999, and thirty-two percent (32%) thereafter on
corporations and the fifteen percent (15%) tax on dividends as provided in this subparagraph."

Section 28(B)(5)(b) states that dividends to be paid by Globe Telecom to Singapore Telecom,
beginning year 2000 and onwards, are subject to 15 percent Philippine income tax if the latter's country of
domicile, Singapore, shall allow Singapore Telecom a 17 percent deemed paid tax credit against its
Singapore income tax due on such dividends. The Supreme Court (SC), on two separate occasions, had
ruled on the applicability of the 15 percent income tax on dividends, first, in Commissioner of Internal
Revenue vs. Wander Philippines, Inc. and the Court of Tax Appeals (G.R. No. L-68375, April 15, 1988)
and, second, in Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufacturing
Corporation (G.R. No. 66838, December 2, 1991).

In the first SC decision, Wander Philippines, Inc. (Wander), a domestic corporation, remitted
dividends to Glaro S.A. Ltd. (Glaro), a nonresident foreign corporation domiciled in Switzerland. Under
Swiss law, dividends derived by Glaro from sources outside Switzerland are exempt from Swiss income
tax. Given this, the Supreme Court ruled that the subject dividends were subject to 15 percent income tax
by reason that such exemption of dividends in Switzerland would, in effect, allow Glaro not only the
required (minimum) 20 percent deemed paid tax credit but, also, full tax credit on such dividends. On the
other hand, in the second SC decision, Procter & Gamble Philippine Manufacturing Corporation (P&G
Philippines), a domestic corporation, remitted dividends to Procter & Gamble Company, Inc. (P&G
U.S.A.), a nonresident foreign corporation domiciled in the U.S.A. Under U.S. law, dividends derived by
P&G U.S.A. from sources outside the U.S. are allowed U.S. tax credits equivalent to the sum of the
Philippine income tax actually paid on the dividends by P&G U.S.A. and the deemed paid tax credit
proportionate to the corporate income tax actually paid by P&G Philippines. Given this, the Supreme
Court ruled that the subject dividends were subject to 15 percent income tax only if the total U.S. income
tax credits on such dividends were equal to or greater than the required (minimum) 20 percent deemed
paid tax credit.

Applying the pronouncement in the case of Commissioner of Internal Revenue vs. Wander
Philippines, Inc. and the Court of Tax Appeals, and since Singapore law provides that dividends derived
by a resident of Singapore, beginning June 2003 and onwards, from sources outside Singapore, are exempt
from Singapore income tax if the income tax imposed by the source country on such dividends is equal to
or greater than 15 percent, and since Philippine income tax on such dividends is 15 percent under Section
28(B)(5)(b) or 32 percent under Section 28(B)(1) 1 of the Tax Code, dividends to be paid by Globe
Telecom to Singapore Telecom, beginning June 1, 2003 and onwards, are therefore subject to 15 percent
Philippine income tax pursuant to Section 28(B)(5)(b) of the Tax Code. (BIR Ruling No. 208-89 dated

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 107
 September 28, 1989)

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. TIDcEH

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue
Footnotes
1. "(1) In General. — Except as otherwise provided in this Code, a foreign corporation not engaged in trade
or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received
during each taxable year from all sources within the Philippines, such as interests, dividends, rents,
royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or
determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains
subject to subparagraphs 5(c): Provided, That effective January 1, 1998, the rate of income tax shall be
thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and,
effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%)."

November 3, 2004

ITAD RULING NO. 123-04

Article 10, Philippines-Japan tax treaty BIR Ruling No.

DA-ITAD 67-03

Luis Cañete & Company

3f Oftaba Bldg., Jasmin cor
Don Mariano Cui Streets
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 108
 Cebu City

Attention: Luis A. Cañete

Gentlemen :

This refers to your letter dated August 20, 2004 requesting for the application of a preferential rate
of 25 percent (25%) on dividend payments of Tsuneishi Heavy Industries (Cebu) Inc. (THICI) to
Tsuneishi Research and Development Corp. (TRDC), pursuant to Article 10 of the Philippines-Japan tax
treaty.

It is represented that TRDC is a nonresident foreign corporation duly organized and existing under
the laws of Japan, with principal office at 1083 Tsuneishi, Namakuma Cho, Namakuma-Gun, Hiroshima
Prefecture, Japan; that it is not registered either as a corporation or as a partnership licensed to do business
in the Philippines per Certificate of Non-Registration of Corporation/Partnership dated September 28,
2004 issued by the Securities and Exchange Commission; that THICI is a domestic corporation organized
and existing under the laws of the Philippines with principal address located in West Cebu Industrial Park
— Special Economic Zone, Balamban, Cebu; that as of December 17, 2003, TRDC owns Fifty-nine
Million, Nine Hundred Ninety-nine Thousand, Nine Hundred Ninety-nine (59,999,999) shares of stock of
THICI, in the total amount of P59,999,999.00 representing 20% of the total shares of THICI; that as of
May 17, 2004, TRDC's shares of stock in THICI decreased to Fourteen Million, Nine Hundred
Ninety-nine Thousand, Nine Hundred Ninety-nine (14,999,999) shares, representing 5% of the total shares
of THICI; that on May 21, 2004, the Board of Directors of THICI resolved and approved the declaration of
cash dividends in the amount of Fifteen Million Pesos (P15,000,000.00) from the corporation's
unrestricted retained earnings as of December 31, 2003, to be issued pro-rata to all stockholders of records
as of the close of business hours on May 17, 2004, payable on or before June 21, 2004. CTDAaE

In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:

"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.

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

"xxx xxx xxx

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 109
 "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

Based on the abovequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a company which is a resident of Japan at a rate not exceeding 10% of the gross amount of
dividends if the latter holds directly at least 25 percent either of the voting shares or of the total shares of
the during the period of six (6) months immediately preceding the date of payment of the dividends. In all
other cases, 25% preferential tax rate on gross dividends shall apply.

Considering that as of December 17, 2003, TRDC holds only 20% to 5% as shown in the
Certification issued by the corporate secretary of THICI dated May 26, 2004, this Office is of the opinion
and hereby holds that the dividend payments of THICI to TRDC are subject to the 25% preferential tax
rate pursuant to Article 10(2)(b) of the Philippines-Japan tax treaty. (BIR Ruling No. ITAD-67-03 dated
May 5, 2003)

This ruling is issued based on 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. TIEHSA

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue

November 3, 2004

ITAD RULING NO. 122-04

Article 10, Philippines-Japan tax treaty BIR Ruling No.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 110
 DA-ITAD 118-03

Luis Cañete & Company

3f Oftaba Bldg., Jasmin cor
Don Mariano Cui Streets
Cebu City

Attention: Luis A. Cañete

Gentlemen :

This refers to your letter dated August 20, 2004 requesting for a preferential tax rate of ten percent
(10%) on the dividend payment of Tsuneishi Heavy Industries (Cebu) Inc. (THICI) to Tsuneishi
Corporation (TSCO), pursuant to Article 10 of the Philippines-Japan tax treaty.

It is represented that TSCO, formerly Tsuneishi Shipbuilding Co., Ltd, is a non-resident foreign
corporation duly organized and existing under the laws of Japan, with principal office at 1083 Tsuneishi,
Numakuma-Cho, Numakuma-Gun, Hiroshima Prefecture, Japan; that it is not registered either as a
corporation or as a partnership licensed to do business in the Philippines per certification issued by
Securities and Exchange Commission dated August 20, 2004; that TSCO is a domestic corporation
organized and existing under the laws of the Philippines with principal address located in West Cebu
Industrial Park — Special Economic Zone, Balamban, Cebu; that as of December 17, 2003, TSCO owns
One Hundred Seventy-nine Million Nine Hundred Ninety-nine Thousand, Nine Hundred Ninety-five
(179,999,995) shares of stock of THICI with a par value of P1.00 per share representing 60% of the total
outstanding capital of THICI; that as of May 17, 2004, TSCO's number of shares in THICI increased to
Two Hundred Twenty-four Million, Nine Hundred Ninety-nine Thousand, Nine Hundred Ninety-five
(224,999,995) shares with a total amount of Two Hundred Twenty-four Million, Nine Hundred
Ninety-nine Thousand, Nine Hundred Ninety-five Pesos (P224,999,995.00); that on May 21, 2004, the
Board of Directors of THICI resolved and approved the declaration of cash dividends in the amount of
Fifteen Million Pesos (P15,000,000.00) from the corporation's unrestricted retained earnings as of
December 31, 2003, to be issued pro-rata to all stockholders of records as of the close of business hours on
May 17, 2004, payable on or before June 21, 2004. STHAaD

In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:

"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;
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 111
 b) 25 per cent of the gross amount of the dividends in all other cases.

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

"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

Based on the abovequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a company which is a resident of Japan at a rate not exceeding 10% of the gross amount of
dividends if the latter holds directly at least 25 percent either of the voting shares or of the total shares of
the issuing company during the period of six (6) months immediately preceding the date of payment of the
dividends.

Considering that as of December 17, 2003, which is 6 months from date of payment of the subject
dividends, TSCO, directly holds 60% of the total shares of THICI, this Office is of the opinion as it hereby
holds that the dividend payments of THICI to TSCO are subject to the 10% preferential tax rate pursuant
to Article 10(2)(a) of the Philippines-Japan tax treaty. (BIR Ruling No. ITAD-118-03-99 dated August 4,
2003)

This ruling is issued based on 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. DHSCEc

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 112
 November 3, 2004

ITAD RULING NO. 121-04

Articles 5 (Permanent Establishment), 7 (Business Profits)

& 14 (Personal Services), Philippines-Malaysia tax treaty
BIR Ruling No. DA-ITAD-152-02

Joaquin Cunanan & Co.

29th Floor, Philamlife Tower
8767 Paseo de Roxas Avenue
Makati City

Attention: Mr. Alexander B. Cabrera

Partner, Tax Services

Gentlemen :

This refers to your request for ruling dated July 7, 2004, on behalf of your client, Visionex
Management SDN BHD (Visionex), regarding the fees to be paid by Robinsons Savings Bank (Robinsons
Bank) for the former's supply of software and services to the latter under a Treasury System Agreement
entered into between them, pursuant to the pertinent provisions of the Philippines-Malaysia tax treaty. In
your follow-up letter dated August 2, 2004, however, you requested that a separate ruling on the above
supply of services, be given due course, and that the portion for the supply of software be set aside, to be
resolved later.

It is represented that Visionex is a nonresident foreign company organized and existing under the
laws of Malaysia with principal office at Lot 5.01 5/F, Menara 1, Faber Towers, Jalan Desa Bahagia
Taman Desa, 58100 Kuala Lumpur, Malaysia as confirmed by the Certification of Incorporation of Private
Company issued by the Registry of Companies of Malaysia on December 6, 1999; that Visionex is not
registered either as a corporation or as a partnership licensed to engage in business in the Philippines as
confirmed by the Certification of Non-Registration of Corporation/Partnership issued by the Securities and
Exchange Commission on June 7, 2004; that one of its objectives is to carry on all or any of the business
of Multimedia, Internet and Electronic commerce providers and facilitators, including but not limited to
Internet Service Provider, Network and Hosting services, electronic commerce and information technology
activities, venture capital, research and development, consultancy and other related activities, including
the provision of goods and services, education, information, website design and consultancy, supply chain
management, media and entertainment, trading, financial and business services, software, hardware and
computer related activities and including sales and marketing via electronic payment systems; that
Robinsons Bank, on the other hand, is a domestic company organized and existing under the laws of the
Philippines with principal office at L3 Expansion Mall, Robinsons Galleria, EDSA cor. Ortigas, Pasig
City, Philippines; that, on March 30, 2004, Visionex and Robinsons Bank entered into a Treasury System
Agreement wherein Visionex agreed, among others, to: (1) provide training in accordance with the
training plan; (2) provide maintenance for the system after the acceptance date; (3) give sufficient notice
and provide enhancements to licensed modules of the Visionex product; that the foregoing services, were
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 113
 performed in the Philippines and for an aggregate period not exceeding 183 days; and that, in
consideration thereof, Robinsons Bank shall pay Visionex fees for the above services, in US dollars
according to the payment schedule set out under the Agreement. aDIHTE

In reply, we rule on the supply of services portion of the aforementioned Treasury Systems
Agreement as follows:

The portion of the fees to be paid by Robinsons Bank to Visionex designated under the Treasury
System Agreement as fees for Implementation Services in consideration for the above-mentioned services
are business profits taxable under paragraph 1, Article 7 (Business Profits) in relation to Article 5
(Permanent Establishment), both of the Philippines-Malaysia tax treaty, and quoted as follows:

"Article 7

BUSINESS PROFITS

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State but only so much thereof as is attributable to that permanent
establishment.

"xxx xxx xxx"

"Article 5

PERMANENT ESTABLISHMENT

"1. For the purposes of this Agreement, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

"2. The term "permanent establishment" shall include especially:

a) a place of management;

b) a branch;

c) an office;

d) a factory;

e) a workshop;

f) a mine, an oil or gas well, a quarry or other place of extraction of natural

resources including timber or other forest produce;

g) a farm or plantation;

h) a building site or construction, installation or assembly project which

exists for more than 6 months.

xxx xxx xxx

"4. An enterprise of a Contracting State shall be deemed to have a permanent establishment

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 114
 in the other Contracting State if:

a) it carries on supervisory activities in that other State for more than 6

months in connection with a construction, installation or assembly project which is
being undertaken in that other State; or

b) substantial equipment is in that other State being used or installed by,

for or under contract with, the enterprise."

"xxx xxx xxx"

Applying paragraph 1 of Article 7 above to the instant case, the Philippines is allowed to tax the
business profits of an enterprise which is a resident of Malaysia if it has a permanent establishment
situated in the Philippines but only so much of such profit that is attributable to that permanent
establishment. Hence, service fees to be paid by Robinsons Bank to Visionex may be taxed in the
Philippines if such fees are attributable to a permanent establishment which Visionex has in the
Philippines. A permanent establishment, as defined in paragraphs 1 and 2 of Article 5 (Permanent
Establishment) of the Philippines-Malaysia tax treaty, means "a fixed place of business in which the
business of the enterprise is wholly or partly carried on," and includes for example, a place of
management, a branch, an office, a factory, a workshop, etc.

Accordingly, since Visionex does not have a fixed place of business in the Philippines, the
Implementation Services fees to be paid to Visionex by Robinsons Bank under the Treasury System
Agreement for the above services are therefore exempt from Philippine income tax. (BIR Ruling No.
DA-ITAD 81-04 dated August 5, 2004)

Moreover, remuneration of the personnel who will come to the Philippines to personally carry out
the above services is generally subject to Philippine income tax, unless the conditions set forth in
paragraph 2, Article 14 (Personal Services) of the Philippines-Malaysia tax treaty are all complied with, to
wit:

"Article 14

PERSONAL SERVICES

"1. Subject to the provisions of Articles 15, 17, 18, 19 and 20, salaries, wages and similar
remuneration or income derived by a resident of a Contracting State in respect of professional services
or other activities of a similar character, shall be taxable only in that State unless the services or
activities are exercised or performed in the other Contracting State. If the employment, services or
activities are so exercised or performed, such remuneration or income as is derived therefrom may be
taxed in the other State. DSIaAE

"2. Notwithstanding the provisions of paragraph 1, remuneration or income derived by a

resident of a Contracting State in respect of an employment, services or activities exercised or
performed in any calendar year in the other Contracting State shall be taxable only in the
first-mentioned State, if:

a) the recipient is present in that other State for a period or periods not
exceeding in the aggregate 183 days in the calendar year concerned, and

b) the services or activities are exercised or performed for or on behalf of a

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 115
 person who is a resident of the first-mentioned State, and

c) the remuneration or income is not borne by a permanent establishment

which the person paying the remuneration has in the other State.

"xxx xxx xxx"

Paragraph 2 above states that the subject remuneration will be exempt from tax if: (a) the personnel (taken
individually) are present in the Philippines for an aggregate period or periods not exceeding 183 days in
the calendar year concerned, (b) the services or activities are exercised or performed for or on behalf of an
employer who is a resident of Malaysia and (c) the remuneration is not borne by a permanent
establishment which the employer has in the Philippines.

Based on the representations made herein, all the three conditions required in paragraph 2 above are
satisfied considering that (a) the length of stay in the Philippines of the concerned personnel of Visionex
did not exceed 183 days; (b) the services or activities are exercised or performed for or on behalf of
Visionex, who is a resident of Malaysia; and (c) the remuneration is not borne directly by a permanent
establishment which Visionex has in the Philippines. This being so, the subject remuneration of the
concerned personnel are not subject to Philippine income tax.

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
Bureau of Internal Revenue

November 2, 2004

ITAD RULING NO. 120-04

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 116
 Art. 5 & 7, Philippines-Netherlands tax treaty
Sec. 108 of the NIRC of 1997
BIR Ruling No. ITAD-038-02
BIR Ruling No. 038-99
BIR Ruling No. DA-ITAD-80-03

Punongbayan & Araullo

20th Floor, Tower 1, The Enterprise Center
6766 Ayala Avenue,
1200 Makati City

Attention: Ms. Benedicta Du-Baladad

Tax Partner

Gentlemen :

This refers to your letter dated August 12, 2004, on behalf of your clients Jimenez Basic
Advertising (Jimenez Basic) and Publicis Manila, Inc. (Publicis Manila), requesting confirmation of your
opinion that the advisory fees paid by Jimenez Basic and Publicis Manila to Publicis Worldwide BV
(PWW) are in the nature of business profits under Article 7 of the Philippines-Netherlands tax treaty, and
therefore not subject to Philippine income tax and the ten percent (10%) value-added tax (VAT).

It is represented that PWW is a nonresident foreign corporation organized and existing under the
laws of the Netherlands with principal office at 1183 DJ Amstelveen, Prof. W.H. Keesomlaan 12, The
Netherlands; that it is not registered either as a corporation or as a partnership licensed to do business in
the Philippines per certification issued by the Securities and Exchange Commission dated June 3, 2004;
that Jimenez Basic and Publicis Manila are both domestic corporations organized and existing under the
laws of the Philippines with principal office at 23rd Floor, The Pacific Star Building, Sen. Gil Puyat
Avenue, Makati City and Zaragoza Building, 102 Gamboa Street, Legazpi Village, Makati City,
respectively; that PWW entered into a separate Advisory Service Contract for shared advisory services
with Jimenez Basic and Publicis Manila; that under the said contract, PWW, directly or through other
Publicis Group Service Providers, will provide certain advisory services to Jimenez Basic and Publicis
Manila; that the scope of services to be rendered by PWW throughout the term of the agreement, are in
relation to, but are not limited to the following: commercial and creative development, media and research,
finance and administrative, legal and tax and strategic areas to subsidiary, affiliate and related companies;
that for the advisory services rendered by PWW, Jimenez Basic and Publicis Manila will pay a fee equal
to the total direct and indirect costs of providing the services marked up to include a profit on such costs of
8%; that the contract is made effective as of January 1, 2003 and shall remain in force and effective until
terminated for any reason for either party with an effect on December 31 of the year after giving not less
than sixty (60) days written notice to the other party; that PWW will perform these services outside the
Philippines, except for specific services which require the presence of its personnel in the Philippines for
period of time not exceeding 180 days.

In reply, please be informed that Article 7(1) of the Philippines-Netherlands tax treaty provides, viz:

"Article 7

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 117
 "Business Profits

"1. The profits of an enterprise of one of the States shall be taxable only in that State unless
the enterprise carries on business in the other State through a permanent establishment situated
therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in
the other State but only so much of them as is attributable to the permanent establishment. cSTHaE

Moreover, Article 5 of the said treaty provides, viz:

"Article 5

"Permanent Establishment

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on. aDSHCc

"2. The term 'permanent establishment' includes especially:

a) a place of management;

b) a branch;

c) an office;

d) a factory;

e) a workshop;

f) a mine, quarry or other place of exploration or extraction of natural

resources;

g) a building site or construction or assembly project or supervisory

activities in connection therewith, where such site, project or activity continues for a
period of more than 183 days;

h) the furnishing of services including consultancy services by an

enterprise through an employee or other personnel where activities of that nature
continue (for same or a connected project) for a period or periods exceeding in the
aggregate 183 days within any twelve-month period.

"xxx xxx xxx"

Based on the aforequoted provisions, it is clear that if a resident corporation of Netherlands carries
on business in the Philippines through a permanent establishment situated therein, the profits of the said
corporation attributable to such permanent establishment shall be subject to Philippine income tax. For
this purpose, a Netherlands corporation may be deemed to have a permanent establishment in the
Philippines if, among others, the furnishing of services by such corporation through its personnel, continue
(for the same or connected project) within the Philippines for a period or periods exceeding in the
aggregate 183 days within any twelve-month period.

Based on the foregoing, services rendered by PWW (through its employees) for Jimenez Basic and
Publicis Manila under their respective agreements, will each constitute a permanent establishment if such
services were performed in the Philippines and were undertaken for a period or periods exceeding in the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 118
 aggregate 183 days within any twelve-month period. Where a permanent establishment exists, business
profits attributable to the same will be subject to Philippine income tax. (BIR Ruling DA-ITAD-53-04,
dated May 21, 2004)

Thus, service fees paid by Jimenez Basic and Publicis Manila to PWW for services rendered under
their respective Agreements shall be subject to income tax if the same are attributable to a permanent
establishment of the latter in the Philippines. Otherwise, said service fees shall be exempt from income
tax. EcHAaS

Moreover, services rendered by personnel of PWW in the Philippines shall be subject to 10% VAT,
pursuant to Section 108 of the Tax Code of 1997.

As regards your opinion that the service fees paid by Jimenez Basic and Manila Publicis to PWW
qualify as deductible business expense under Section 34(A)(1)(a) of the Tax Code of 1997, please be
informed that we decline to rule on the matter considering the factual nature of the issue raised. (ITAD
Ruling No. 038-02 dated March 14, 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
Bureau of Internal Revenue

October 27, 2004

ITAD RULING NO. 119-04

Article 12 Philippines-Singapore tax treaty

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 119
 DA-ITAD-53-03

Roxas De Los Reyes Laurel & Rosario

Law Offices
19/F 1st e-Bank Tower, 8737 Paseo de Roxas
Makati City 1200

Attention: Anna Melissa R. Lichaytoo

Rommel R. Ramos

Gentlemen :

This refers to your letter dated August 3, 2004 requesting confirmation that the dividend payments
of Micro-Mechanics Technology International, Inc. (Micro-International) to Micro-Mechanics (Holdings)
Ltd. (Micro-Holdings) are subject to a 15% preferential tax rate pursuant to Article 12 of the
Philippines-Singapore tax treaty.

It is represented that Micro-Holdings is a nonresident foreign corporation duly organized and

existing under the laws of Singapore with business address at 31 Kaki Bukit Place, Eunos Techpark,
Singapore 416209; that it is not registered either as a corporation or as a partnership licensed to do
business in the Philippines per certification issued by the Securities and Exchange Commission dated July
26, 2004; that Micro-International is a domestic corporation with office address at Lot B2-1C Carmelray
Industrial Park II, Brgy. Tulo, Calamba, Laguna; that as of December 31, 2002 Micro-Holdings is the
registered owner of 99.99% of the outstanding capital stock of Micro-International as shown in the
certification issued by the Assistant Corporate Secretary of Micro-International dated January 24, 2003;
that on April 12, 2004 the Board of Directors of Micro-International declared cash dividends in the
amount of Ten Million Pesos (P10,000,000.00) to be taken out from the company's unrestricted retained
earnings as reflected in its unaudited financial statements as of March 31, 2004, payable to all
shareholders of record as of April 1, 2004.

In reply, please be informed that Article 10 of the Philippines-Singapore 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 State. cIACaT

"2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed:

a) 15 per cent of the gross amount of the dividends if the recipient is a

company (including partnership) and during the part of the paying company'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 15 per cent of the outstanding shares of the voting
stock of the paying company was owned by the recipient company; and

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 120
 b) in all other cases, 25 per cent of the gross amount of the dividends.

"3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in
respect of the profits out of which the dividends are paid.

"4. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares
or 'jouissance' rights, mining shares, founder's shares or other rights, not being debt-claims,
participating in profits, as well as income assimilated to income from shares by the taxation law of the
State of which the company making the distribution is a resident."

"xxx xxx xxx"

Based on the aforequoted provision, the 15 percent preferential tax rate on dividends applies
whenever the beneficial owner/recipient of the dividends owns at least 15 percent of the outstanding
voting shares of the paying company and such shareholdings should have existed during the part of the
paying company's taxable year immediately preceding the day of payment of the dividends and during the
whole of its prior taxable year, if any.

Since Micro-Holdings holds 99.99% of the total shares of Micro-International during the part of the
latter's taxable year immediately preceding the day of payment of the dividends, dividends received by
Micro-Holdings shall be subject to the preferential tax rate of 15 percent pursuant to Article 10(2)(a) of
the Philippines-Singapore tax treaty. (BIR Ruling DA-ITAD 53-03 dated April 9, 2003)

This ruling is issued based on 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
Bureau of Internal Revenue

October 27, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 121
 ITAD RULING NO. 118-04

Article 10, Philippines-Sweden tax treaty

BIR Ruling No. 070-81

AstraZeneca Pharmaceuticals (Phils.), Inc.

AstraZeneca Building
Km 14 South Superhighway
Parañaque City 1700 Philippines

Attention: Josephine L. Carpio

Finance Director

Gentlemen :

This refers to your application for relief from double taxation dated July 21, 2404, requesting
confirmation of your opinion that the dividends paid by AstraZeneca Pharmaceuticals (Phils.), Inc. (APPI)
to AstraZeneca AB (AAB) are subject to the preferential tax rate of 15% pursuant to Article 10 of the
Philippines-Sweden tax treaty.

It is represented that AAB is a nonresident foreign corporation organized and existing under the
laws of the Sweden with address at S-151 85 Sodertalje, Sweden; that it is not registered either as a
corporation or a partnership licensed to do business in the Philippines per certification dated July 13, 2004
issued by the Securities and Exchange Commission; that APPI is a corporation organized and existing
under laws of the Philippines, with office address at AstraZeneca Building, Km. 14 South Superhighway,
Parañaque, Metro Manila; that as of December 31, 2003, AAB owns and holds Two Million Ninety Four
Thousand Nine Hundred Seventy (2,094,970) shares in APPI equivalent to a total value of Two Hundred
Nine Million Four Hundred Ninety Seven Thousand (209,497,000), representing approximately 99.98% of
the total outstanding and issued shares of APPI; and that on June 17, 2004, the Board of Directors of APPI
declared cash dividends in the aggregate amount of One Hundred Fifty Million Pesos (Ph150,000,000.00)
to all stockholders of record as of December 31, 2003 to be distributed in proportion to their respective
stockholdings, payable on or before December 31, 2004. cSaATC

In reply, please be informed that Article 10 of the Philippines-Sweden tax treaty provides as
follows, viz:

"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 State.

"2. However, such dividends may also be taxed in the State of which the company paying
the dividends is a resident and according to the laws of that State, but if the beneficial owner of the
dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

a) 10 percent of the gross amount of the dividends if the beneficial owner

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 122
 is a company (excluding partnerships) which holds directly at least 25 per cent of the
capital of the paying company;

b) 15 percent of the gross amount of the dividends in all other cases.

This paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

"3. 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 which is
subjected to the same taxation treatment as income from shares by the taxation law of the State of
which the company making the distribution is a resident.

"xxx xxx xxx"

Based on the above-cited provisions, the 10% preferential tax rate on dividends shall apply
whenever the recipient, who is the beneficial owner of the dividends, owns at least 25% of the capital of
the paying company. In all other cases, the 15% preferential tax rate shall apply. Such being the case and
considering that AAB holds approximately 99.98% of the capital of APPI, this Office is of the opinion and
so holds that the dividend payments by APPI to AAB shall be subject to the preferential tax rate of 10% of
the gross amount of dividends, pursuant to Article 10(2)(a) of the Philippines-Sweden tax treaty. (BIR
Ruling No. 070-81 dated April 8, 1981)

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. DaAISH

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

October 27, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 123
 ITAD RULING NO. 117-04

Article 10, Philippines-Netherlands tax treaty

BIR Ruling No. 70-81

AstraZeneca Pharmaceuticals (Phils.) Inc.

AstraZeneca Building
Km 14 South Superhighway
Parañaque City 1700 Philippines

Attention: Josephine L. Carpio

Finance Director

Gentlemen :

This refers to your application for relief from double taxation dated July 21, 2004, requesting
confirmation of your opinion that the dividends paid by AstraZeneca Pharmaceuticals (Phils.), Inc. (APPI)
to AstraZeneca Continent BV (AZC) are subject to the preferential tax rate of 15% pursuant to Article 10
of the Philippines-Netherlands tax treaty.

It is represented that AZC is a nonresident foreign corporation organized and existing under the
laws of the Netherlands, with address at Louis Pasteurlaan 5, NL-2719 EE Zoetermeer, The Netherlands;
that it is not registered either as a corporation or a partnership licensed to do business in the Philippines
per certification dated July 14, 2004 issued by the Securities and Exchange Commission; that APPI is a
corporation organized and existing under laws of the Philippines, with office address at AstraZeneca
Building, Km. 14 South Superhighway, Parañaque, Metro Manila; that as of December 31, 2003, AZC
owns and holds Two Hundred Fifty-Seven (257) common shares of APPI equivalent to a total value of
Twenty Five Thousand Seven Hundred Pesos (Php25,700.00), representing less than 0.01% of the total
outstanding and issued shares of APPI; and that on June 17, 2004, the Board of Directors of APPI declared
cash dividends in the aggregate amount of One Hundred Fifty Million Pesos (Php150,000,000.00) to all
stockholders of record as of December 31, 2003 to be distributed in proportion to their respective
stockholdings, payable on or before December 31, 2004.

In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as
follows, viz:

"Article 10

"DIVIDENDS

"1. Dividends paid by a company which is a resident of one of the States to a resident of the
other State may be taxed in that other State.

"2. However, such dividends may also be taxed in the State of which the company paying
the dividends is a resident and according to the laws of that 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 recipient is a

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 124
 company the capital of which is wholly or partly divided into shares and which holds
directly at least 10 per cent of the capital of the company paying the dividends;

b) 15 per cent of the gross amount of the dividends in all other cases. HEITAD

"xxx xxx xxx"

"5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares
or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as well as
income from debt-claims participating in profits and income from other corporate rights which is
subjected to the same taxation treatment as income from shares by the taxation law of the State of
which the company making the distribution is a resident.

"xxx xxx xxx"

Based on the above-cited provisions, the 10% preferential tax rate on dividends shall apply
whenever the recipient, who is the beneficial owner of the dividends, owns at least 10% of the capital of
the paying company. In all other cases, the 15% preferential tax rate shall apply. Such being the case and
considering that AZC holds approximately 0.01% of the capital of APPI, this Office is of the opinion and
so holds that the dividend payments by APPI to AZC shall be subject to the preferential tax rate of 15%,
based on the gross amount of dividends; pursuant to Article 10(2)(b) of the Philippines-Netherlands tax
treaty. (BIR Ruling No. 070-81 dated April 8, 1981)

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
Bureau of Internal Revenue

October 27, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 125
 ITAD RULING NO. 116-04

Protocol, Philippines-Japan tax treaty

Section 28, NIRC of 1997
BIR Ruling No. 013-95

Itochu Corporation (Manila Branch)

16th Floor, 6788 Ayala Avenue
Oledan Square, Makati City 1226

Attention: Takaharu Tamuro

Admin. & Finance Manager

Gerardo T. Buan
Legal Counsel

Gentlemen :

This refers to your application for relief from double taxation dated September 15, 2004, requesting
confirmation of your opinion that the branch profits to be remitted by the branch office (hereinafter
referred to as "ITOCHU-Phil.") of Itochu Corporation shall be subject to the preferential tax rate of 10%
under the Protocol of the Philippines-Japan tax treaty.

It is represented that Itochu-Phil. is the Philippine branch office of Itochu Corporation, a

corporation duly organized and existing under the laws of Japan with principal office located at 5-1 Kita
Aoyama, 2-chome, Minato-ku, Tokyo, Japan; that Itochu Corporation is incorporated and organized in
Japan as evidenced by its Articles of Incorporation duly authenticated by the Philippine Embassy in
Tokyo, Japan on July 26, 2004; that Itochu-Phil is duly registered as a branch office with the Securities
and Exchange Commission under Amended SEC License No. F-507 dated May 20, 1997; and that Itochu
Corporation has instructed Itochu-Phil. to remit to Japan branch profits in the maximum amount of Five
Million US Dollars (US$5,000,000.00) by October 2004.

In reply, please be informed that Section 28 of the National Internal Revenue Code of 1997
provides as follows, viz:

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

"(A) Tax on Resident Foreign Corporations. —

"(1) In General. — Except as otherwise provided in this Code, a corporation organized,

authorized, or existing under the laws of any foreign country, engaged in trade or business within the
Philippines, shall be subject to an income tax equivalent to thirty-five percent (35%) of the taxable
income derived in the preceding taxable year from all sources within the Philippines: Provided, That
effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January
1, 1999, the rate shall be thirty-three percent (33%); and effective January 1, 2000 and thereafter, the
rate shall be thirty-two percent (32%). aDHCcE

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 126
 "xxx xxx xxx

"(5) Tax on Branch Profits Remittances. — Any profit remitted by a branch to its head office
shall be subject to a tax of fifteen percent (15%) which shall be based on the total profits applied or
earmarked for remittance without any deduction for the tax component thereof (except those activities
which are registered with the Philippine Economic Zone Authority). The tax shall be collected and
paid in the same manner as provided in Sections 57 and 58 of this Code: Provided, That interests,
dividends, rents, royalties, including annuities, emoluments or other fixed or determinable annual,
periodic or casual gains, profits, income and capital gains received by a foreign corporation during
each taxable year from all sources within the Philippines shall not be treated as branch profits unless
the same are effectively connected with the conduct of its trade or business in the Philippines.

"xxx xxx xxx."

However, the Protocol of the Philippines-Japan tax treaty provides as follows, to wit:

"PROTOCOL

xxx xxx xxx

"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)

"xxx xxx xxx"

Under Article 5 of the said treaty, the term "permanent establishment" includes a branch, to wit:

"Article 5

"(1) For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

"(2) The term 'permanent establishment' includes especially:

(a) a store or other sales outlet;

(b) a branch;

(c) an office;

(d) a factory;

(e) a workshop;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 127
 (9 a warehouse;

(g) a mine, an oil or gas well, a quarry or other place of extraction of natural
resources. (Emphasis supplied)

xxx xxx xxx

In view of the above provisions, Itochu-Phil., being a branch of Itochu Corporation, qualifies to
avail of the 10% preferential tax rate. The branch profit remittance tax, which is an additional tax imposed
upon Itochu-Phil., should not exceed 10% of such net income or earnings remitted to its head office. Such
being the case, the 15% tax rate prescribed under Section 28(A)(5) of the Tax Code of 1997 shall not
apply to Itochu-Phil. Instead, the preferential tax rate of 10% under the Philippines-Japan tax treaty shall
be imposed. (Bank of Tokyo-Mitsubishi, Ltd.-Manila Branch vs. Commissioner of Internal Revenue, CTA
Case No. 5697, July 26, 2000; BIR Ruling No. 013-95)

This ruling is issued on the basis of the facts as represented. 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. HTCSDE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

October 26, 2004

ITAD RULING NO. 115-04

Article 13 Philippines-US tax treaty

Article 12 Philippines-China tax treaty
BIR Ruling No. ITAD 140-03

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 128
 RMC No. 46-2002

Pfizer, Inc.
23rd Floor Ayala Life FGU Center
6811 Ayala Avenue
Makati City 1200

Attention: Mr. Domingo M. Uy

Financial Controller

Gentlemen :

This refers to your application for relief from double taxation dated January 6, 2004, requesting
confirmation of your opinion that the royalty payments made by your company, Pfizer, Inc. (PFIZER), to
Parke, Davis & Company LLC (Parke Davis) and Warner-Lambert Company LLC (Warner US), are
subject to the preferential tax rate of 10% pursuant to the most-favored-nation clause of the
Philippines-United States tax treaty in relation to the Philippines-China tax treaty. It is also requested that
a tax refund in the amount of Two Million Five Hundred Twenty Four Thousand Nine Hundred Eleven
Pesos (P2,524,911.00) be made on the excess withholding taxes on the royalty payments made by PFIZER
to Parke Davis and Warner US which were subjected to 15% final withholding tax, pursuant to the same
tax treaties.

It is represented that Parke Davis and Warner US are nonresident foreign corporations organized
and existing under the laws of Michigan and Delaware, United States of America (USA), respectively; that
they are not registered either as a corporation or a partnership licensed to do business in the Philippines
per certifications issued by the Securities and Exchange Commission (SEC) dated April 15, 2004 and
April 21, 2004, respectively; that PFIZER is a corporation organized and existing under the laws of the
Philippines and registered under SEC Registration No. 9092; that it is engaged in the manufacture,
preparation, purchase or acquisition, ownership, processing, mortgage, sale, pledge or disposal of,
distribution, exportation, importation of goods, wares and merchandise and personal property of every
kind, including but not limited to chemical, pharmaceutical, medicinal and biological products; that on
January 18, 2001, PFIZER and Warner Lambert Philippines, Inc. (Warner Philippines) merged into one
company as evidenced by the Certificate of Filing of Amended Articles of Incorporation of PFIZER, the
surviving company; that the entire assets and liabilities of Warner Philippines were transferred to and
absorbed by the PFIZER.

It is further represented that prior to the merger with PFIZER, Warner Philippines entered into a
separate Licensing and Technical Assistance Agreements (Agreements) with Parke Davis and Warner US;
that the Agreements were registered with the then Bureau of Patents, Trademarks and Technology
Transfer under Certificate of Registration (CR) Nos. 1586, 1531 and 1530-A; that the Agreement between
Warner US and Warner Philippines, covered by CR No. 1586 concerns the exclusive license to
manufacture and sell the licensed products in the territory for the use of patents, trademarks, date, know
how, formulation and other assistance, valid for 10 years from April 1, 1994 to March 31, 2004; that the
Agreements between Parke Davis and Warner Philippines covering CR No. 1531 and CR No. 1530-A both
concern the manufacture and sale of pharmaceutical, health care and confectionary products; that in all of
the said Agreements, the following were agreed upon:

License Grants —

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 129
 Licensor grants to Licensee an exclusive license to manufacture the Licensed Products in the
Philippines and, subject to export right, to sell for use or use itself in the Philippines and any other
country or countries to which the export of Licensed Products may be made such Licensed Products
and parts. SaIHDA

xxx xxx xxx

Technical Information —

Licensee shall be entitled to receive data, Know-how, formulations and other assistance as set
forth below with respect to the Licensed Products.

xxx xxx xxx

Technical Assistance —

During the term of the Agreement, Licensor shall provide and communicate to Licensee all
technical assistance required for the satisfactory manufacture of the Licensed Products and marketing
of the same.

xxx xxx xxx

Patents and Trademarks —

Licensor grants Licensee an exclusive license under the Patents covering the manufacture of
the Licensed Products.

that in relation, Warner Philippines agreed to pay a royalty based on 5% of its net sales; that in a letter
dated August 15, 2003, Carmen G. Peralta, Director, Intellectual Property Office informed Pfizer about the
transfer of the Licensing and Technical Assistance Agreements of Warner Philippines to Pfizer; that
during the period from January 2002 to December 2002, the royalty payments remitted by PFIZER to
Parke Davis and Warner US were subjected to 15%; and that you are of the opinion that PFIZER is
entitled to a refund of overpaid withholding taxes on royalty representing the difference between the 15%
tax collected and the 10% tax ought to have been remitted pursuant Revenue Memorandum Circular
(RMC) No. 46-2002 dated September 2, 2002.

In reply, please be informed that Article 13 of the Philippines-United States tax treaty provides as
follows, viz:

"Article 13

"ROYALTIES

"1. Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States.

"2. However, the tax imposed by that other Contracting State shall not exceed —

a) In the case of the United States, 15 percent of the gross amount of the
royalties, and

b) In the case of the Philippines, the least of:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 130
 (i) 25 percent of the gross amount of the royalties,

(ii) 15 percent of the gross amount of the royalties, where the

royalties are paid by a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, and

(iii) the lowest rate of Philippine tax that may be imposed on

royalties of the same kind paid under similar circumstances to a resident of a
third State.

"3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or films or tapes used for radio or television broadcasting, any
patent, trade mark, design or model, plan, secret formula or process, or other like right or property, or
for information concerning industrial, commercial or scientific experience. The term 'royalties' also
includes gains derived from the sale, exchange or other disposition of any such right or property
which are contingent on the productivity, use, or disposition thereof. STcHEI

"xxx xxx xxx"

In relation thereto, Article 12 of the Philippines-China tax treaty provides, viz:

"Article 12

"ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the
tax so charged shall not exceed:

a) 15 per cent of the gross amount of royalties arising from the use of, or
the right to use, any copyright of literary, artistic or scientific work including
cinematograph films or tapes for television or broadcasting, or

b) 10 per cent of the gross amount of royalties arising from the use of, or
the right to use, any patent, trade mark, design or model, plan, secret formula or
process, or from the use of, or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial, commercial or scientific
experience.

"xxx xxx xxx"

Pursuant to the aforequoted "most-favored-nation" clause under Article 13(2)(b)(iii) of the

Philippines-US tax treaty, the tax imposed on royalties derived by a resident of the United States from
sources within the Philippines shall be the lowest rate of Philippine tax that may be imposed on royalties
of the same kind paid under similar circumstances to a resident of a third State. Relative thereto, Article
12(2)(b) of the Philippines-China tax treaty provides that the tax charged shall not exceed 10% of the
gross amount of royalties.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 131
 It is noteworthy that in the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son,
Inc. and Court of Appeals, G.R. No. 127105, promulgated on June 25, 1999, the Supreme Court
interpreted the "most-favored-nation" clause, particularly the phrase "paid under similar circumstances", as
referring to the manner of payment of taxes and not to the subject matter of the tax which is royalties.
(BIR Ruling No. DA-ITAD 140-03 dated September 18, 2003)

A plain reading of the Philippines-China tax treaty provisions on the avoidance of the double
taxation shows a similarity on the manner of payment of the taxes, that is, the allowable foreign tax credit
on both treaties is the amount actually paid in the Philippines.

Such being the case, this Office is of the opinion and so holds that the royalty payments of Pfizer to
Parke Davis and Warner US under the Licensing and Technical Assistance Agreements shall be subject to
the tax rate of ten percent (10%), pursuant to the Philippines-US tax treaty in relation to Article 12(2)(b)
of the Philippines-China tax treaty applicable to royalty payments made beginning January 1, 2002 where
the Philippines-China tax treaty became effective. (RMC No. 46-2002 dated September 2, 2002 and BIR
Ruling No. DA-ITAD 140-03 dated September 18, 2003)

Moreover, the said royalty payments to be paid by Pfizer to Parke Davis and Warner US are subject
to the 10% value-added tax (VAT) pursuant to Sec. 108 of the Tax Code. Accordingly, Pfizer, being the
resident withholding agent and payor in control of the payment shall be responsible for the withholding of
the 10% final VAT on such royalty before making any payment to Parke Davis and Warner US. In
remitting the VAT withheld, Pfizer shall use BIR Form No. 1600 (Monthly Remittance Return of
Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and the
proof of payment thereof shall serve as documentary substantiation for the claim of input tax by Pfizer
upon filing its own VAT, if it is a VAT-registered taxpayer. In case Pfizer is a non-VAT registered
taxpayer, the passed on VAT withheld shall form part of the cost of the service purchased which may be
treated as "expense" or "asset" whichever is applicable. In addition, Pfizer is required to issue the
Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate upon request of Parke
Davis and Warner US, the first three copies thereof to be given to Parke Davis and Warner US and the
fourth copy to be retained by Pfizer as its file copy. [Section 4 & 6, Revenue Regulations (RR) No.
4-2000; Section 3 of RR 8-2002; Section 7 of RR 14-2002]

This ruling is issued on the basis of the facts as represented and is rendered only for the purpose of
determining whether Parke Davis and Warner US are entitled to the benefits of the Philippines-US tax
treaty. The determination on whether your request for tax refund should be given due course is upon the
Office which will be conducting the investigation for that purpose. Thus, the docket pertaining thereto
(including a copy of this ruling) shall be indorsed to the proper Office for processing and investigation. THIcCA

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 132
 Bureau of Internal Revenue

October 26, 2004

ITAD RULING NO. 114-04

Art. 5, 7, 12 of Philippines-Korea Tax Treaty

BIR Ruling No. 068-88

Samsung Electro-Mechanics Philippines Corp.

Blk. 5, Calamba Premiere International Park
Brgy. Prinza Calamba, Laguna

Attention: Mr. Dae Sik Choi

General Manager

Gentlemen :

This refers to your application for relief from double taxation dated July 29, 2003, requesting for a
ruling that the service fees paid by Samsung Electro-Mechanics Philippines Corporation (Samsung-Phil) to
Samsung Electro-Mechanics Co., Ltd. (Samsung-Korea) under a Management Support Agreement and
Information Services Agreement are not subject to Philippine income tax pursuant to the
Philippines-Korea tax treaty.

It is represented that Samsung-Korea is a nonresident foreign corporation organized and existing

under the laws of Korea with principal address at 314 Maetan 3-Dong, Suwon-Si, Kyunggi-Do, Korea;
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 August 18,
2003; that Samsung-Phil is a subsidiary of Samsung-Korea and is a PEZA-registered corporation
organized and existing under the laws of the Philippines with principal address at Blk. 5 Calamba
Premiere International Park, Brgy. Batino Prinza, Calamba Laguna; that on January 1, 2002,
Samsung-Korea and Samsung-Phil entered into a Management Support Agreement under which the former
will provide the latter various management supports and services, including but not limited to the
following support: (1) Consulting or audit, (2) Development, installation, and maintenance of management
systems, (3) Installation, upgrade, maintenance of production line or equipment, (4) Audit or improvement
of quality or process, (5) Training of leaders for 6-Sigma program, and (6) Other supports requested by
Samsung-Phil with respect to its formation and operation including, but not limited to, production,
technology, research, development, sales, purchasing, and/or administration; that Samsung-Phil shall pay
Samsung-Korea fees and expenses for such Management Support and under the Agreement as follows: (a)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 133
 Per Diem in accordance with the current standard of Samsung-Korea, (b) Lodge in accordance with the
then current standard of Samsung-Korea (Company may first pay the lodge for Samsung-Korea personnel,
in this case Samsung-Korea will not invoice the lodge in duplicate), (c) Airfare or other expenses allowed
in accordance with the then current standard of Samsung-Korea, including but not limited to local
transportation, communication, and (d) Fees in accordance with following table:

Fee Personnel

US$300/day Director or higher level, who takes charge of group

level organization

US$200/day Manager or higher level

US$150/day Assistant manager or lower level

US$400/day Any level of personnel of Samsung-Korea's

Tooling & Die Division

and that in the event that only part of the journey of Samsung-Korea's personnel is involved in the
management support hereunder, Samsung-Phil will share a part of his/her trip expenses and fees as
follows: (a) Pro rata portion of fees and expenses for lodge, per diem and other expenses (excluding
airfare) paid by Samsung-Korea on the basis of number of days involved in the management support
hereunder among his/her total trip and, (b) Half of the total airfare incurred during his/her trip; that the
fees and expenses shall be charged and paid on a quarterly basis. DcCHTa

It is further represented that on January 1, 2001, Samsung-Phil and Samsung-Korea entered into an
Information Services Agreement under which Samsung-Korea will provide Samsung-Phil the following
Information Services: (1) Access to Samsung-Korea's Network Server, (2) Connection of Samsung-Korea's
Network Server to Samsung-Phils', (3) Software License, (4) Continuous Development and upgrades of
Information System, and (5) Technical assistance for Network operation and maintenance; and that in
consideration for the said Information Services, Samsung-Phil shall pay the following fees: (1) Server
Access Fee (Pro rata payment of Server access fees to be paid by Samsung-Phil based on Dialog Steps),
(2) Network Access Fee (The fee charged for the route between Gwachon Network Center and Company),
(3) Software License Fee (Pro rata payment of Software License Fees to be paid by Samsung-Phil based
on Number of users); (4) System Development Fee (Fee calculated by the actual person-day input utilized
for development of specific system based on the cost table with reference of cost table issued by KAIST in
2001), and (5) Service Fee (Fee calculated by the actual person-day input provided by trip to Company
based on the following rates: (a)US$500/person-day, general manager, (b)US$300/person-day, manager
level, and (c) US$200/person-day, associate level.

In reply, please be informed that Article 7 in relation to Article 5, both of the Philippines-Korea tax
treaty provides:

"Article 7

"BUSINESS PROFITS

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State but only so much of them as is attributable to that
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 134
 permanent establishment.

"xxx xxx xxx"

"Article 5

"PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

"2. The term 'permanent establishment' includes especially but is not limited to:

"xxx xxx xxx"

j) The furnishing of services, including consultancy services, by a resident of one of the

Contracting States through employees or other personnel, provided activities of that nature continue
(for the same or a connected project) within the other Contracting State for a period or periods
aggregating more than 183 days.

"xxx xxx xxx"

Based on the foregoing, it is clear that when a corporation which is a resident of Korea does not
carry on business in the Philippines through a permanent establishment situated therein, the profits derived
in the Philippines shall not be subject to Philippine income tax. For this purpose, a Korean corporation
may be deemed to have a permanent establishment in the Philippines if, among others, the furnishing of
services by such corporation through its employees or other personnel continue for the same or a
connected project within the Philippines for a period or periods aggregating more than 183 days.

However, the certification issued by Samsung-Phil shows that in the year 2002, the length of stay of
personnel/employees of Samsung-Korea who rendered services in the Philippines, under the Management
Support Services Agreement, exceeded 183 days during the year, and the furnishing of the said services
shall constitute carrying of business through a permanent establishment in the Philippines. Such being the
case, the income derived by Samsung-Korea under the Management Support Services Agreement in 2002
which are in the nature of business profits are subject to Philippine income tax and consequently to
withholding tax under Section 28(B)(1) of the Tax Code of 1997.

On the other hand, services rendered by Samsung-Korea to Samsung-Phil under the Information
Service Agreement and for the year 2003 under the Management Support Services Agreement do not
constitute the carrying on of a business through a permanent establishment, since the length of stay of
Samsung-Korea personnel/employees in the Philippines, to perform the said services, do not exceed 183
days. Thus, fees received in consideration for said services by Samsung-Korea from Samsung-Phil are not
subject to Philippine income tax. HAICTD

Furthermore, please be informed that the software license granted by Samsung-Korea to

Samsung-Phil under the Information Services Agreement should be treated as royalties in accordance with
the meaning of "royalty", taxed at the following rates under the Philippines-Korea tax treaty:

"Article 12

"Royalty

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 135
 "1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State if such resident is the beneficial owner of the royalties.

"2. However, such royalties may be taxed in the Contracting State in which they arise, and
according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax
so charged shall not exceed 15 per cent of the gross amount of the royalties.

"3. Notwithstanding the provisions of paragraph 2 hereof, the amount of tax imposed by the
Philippines, registered with the Board of Investments and engaged in preferred pioneer areas of
investment under the investment incentives laws of the Philippines to a resident of Korea, who is the
beneficial owner of the royalties, shall not exceed 10 per cent of the gross amount of the royalties.

"4. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right
to use industrial, commercial or scientific equipment, or for information concerning industrial,
commercial or scientific experience, and includes payments of any kind in respect of motion picture
films and works on films or videotapes for use in connection with television or tapes for the use of
radio broadcasting.

"xxx xxx xxx"

Therefore, Software License Fees paid by Samsung-Phil to Samsung-Korea for the Software
License under the Information Services Agreement shall be subject to a fifteen percent (15%) preferential
tax rate, based on the gross amount of royalties, pursuant to the Philippines-Korea tax treaty.

Moreover, Section 108 of the Tax Code of 1997 states that the lease or use of any trademark, trade
brand or other like property or right is embraced within the definition of "sale or exchange of services" and
is subject to value-added tax (VAT). However, under the current regulations, the sale of services to
Ecozone Enterprises may be considered effectively zero-rated for VAT purposes but subject to the
limitation that the sale of service is made to persons or entities who enjoyed indirect tax exemption
[Section 4.102-2(c), Revenue Regulations No. 7-95]. Since there is no express provision under the PEZA
law granting exemption from indirect taxes to Ecozone Enterprises, the recognition of zero-rated sale of
services is made to rest on the Cross Border Doctrine or Destination Principle of the VAT system, viz:
"The country taxes all value-added, at home and abroad, for goods that have as their destination the
consumers of that country. Exports are exempt, imports are taxable. . . ." (VAT Ruling No. 009-99 dated
January 21, 1999)

This ruling is issued on the basis of the facts as represented and is rendered only for the purpose of
determining whether Samsung-Korea is entitled to the benefits of the Philippines-Korea tax treaty. The
determination on whether your request for tax refund should be given due course is upon the Office which
will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including a copy
of this ruling) shall be endorsed to the proper office for processing and investigation.

Very truly yours,

Commissioner of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 136
 By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

October 26, 2004

ITAD RULING NO. 113-04

Art. 10, Philippines-Singapore Tax Treaty

Sec. 108 of the NIRC of 1997
BIR Ruling No. DA-ITAD-45-04

Tam-Yap & Associates

Unit 411, Ferros Bel-Air Tower
30 Polaris corner Durban Streets
Bel-Air, Makati City

Attention: Ms. Teresa R. Tam-Yap

Gentlemen :

This refers to your letter dated May 26, 2004, requesting for tax treaty relief on the dividend
payments by your client, SKF Philippines, Inc. (SKF-Philippines) to SKF South East Asia & Pacific Pte.
Ltd. (SKF-Singapore) to be subject to a preferential tax rate pursuant to Article 10 of the
Philippines-Singapore tax treaty.

It is represented that SKF-Singapore is a nonresident foreign corporation duly organized and

existing under the laws of Singapore with principal office at No. 1 Changi South Lane, Singapore 486070;
that SKF-Singapore is not registered either as corporation or as a partnership licensed to do business in the
Philippines per certification issued by the Securities and Exchange Commission (SEC) dated June 7, 2004;
that SKF-Philippines is a corporation organized and existing under the laws of the Philippines with
principal office at U-302 Alegria Bldg. 2229 Pasong Tamo Extension, Makati City; that SKF-Singapore is
a stockholder of record of SKF-Philippines and holds Thirty-Eight (38) shares equivalent to Three
Hundred Eighty Thousand Pesos (PhP380,000), constituting 0.88% of the total shares of SKF-Philippines;
and that on April 29, 2004, the Board of Directors of SKF-Philippines unanimously approved the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 137
 declaration of dividends to all stockholders of the corporation as of December 31, 2003 in the amount of
Seven Million Five Hundred Thousand Pesos (PhP7,500,000.00), which shall be payable to all
stockholders of SKF-Philippines on or before May 30, 2004.

In reply, please be informed that Article 10 of the Philippines-Singapore 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 State.

"2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed:

a) 15 per cent of the gross amount of the dividends if the recipient is a

company (including partnership) and during the part of paying company'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 15 per cent of the outstanding shares of the voting
stock of the paying company was owned by the recipient company; and

b) in all other cases, 25 per cent of the gross amount of the dividends. AIcECS

The competent authorities of the Contracting States shall by mutual agreement settle the mode of
application of this limitation.

"3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in
respect of the profits out of which the dividends are paid.

"4. The term 'dividends' as used in this Article means income from shares, "jouissance"
shares or "jouissance" rights, mining shares, founder's shares or other rights, not being debt-claims,
participating in profits, as well as income assimilated to income from shares by the taxation law of the
State of which the company making the distribution is a resident.

"xxx xxx xxx"

Based on the above-cited provisions, the 15 percent preferential tax rate on dividends applies
whenever the recipient who is the beneficial owner of the dividends owns at least 15 percent of the
outstanding voting shares of the company paying the dividends and such shareholdings should have
existed during the part of the taxable year immediately preceding the date of payment of the dividends and
during the whole of its prior taxable year; and 25 percent preferential tax rate in all other cases. Such being
the case, and considering that SKF-Singapore holds only 0.88% of the shares of stock of SKF-Philippines,
this Office is of the opinion and so holds that the dividend payments by SKF-Philippines to
SKF-Singapore shall be subject to the preferential tax rate of 25 percent pursuant to Article 10(2)(b) of the
Philippines-Singapore tax treaty. (BIR Ruling No. DA-ITAD-45-04 dated May 3, 2004)

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.
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 138
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

October 26, 2004

ITAD RULING NO. 112-04

Art. 10, Philippines-Japan tax treaty BIR Ruling No.

DA-ITAD-31-04

Joaquin Cunanan & Co.

Unit 306, Keppel Center
Samar Loop corner Cardinal Avenue
Cebu Business Park
6000 Cebu City

Attention: Mr. Virgilio L. Manguilimotan

Partner-VISMIN Operations
Assurance Services

Gentlemen :

This refers to your letter dated April 30, 2004, applying for a tax treaty relief, on behalf of your
client, Taiheiyo Cement Corporation (Taiheiyo-Japan), for the dividend income earned as the major
stockholder of Taiheiyo Cement Philippines, Inc. (Taiheiyo-Phil), formerly Grand Cement Manufacturing
Corporation, pursuant to the Philippines-Japan tax treaty.

It is represented that Taiheiyo-Japan is a nonresident foreign corporation organized and existing

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 139
 under the laws of Japan with principal address at 8-I Akashi-cho, Chuo-ku, Tokyo, Japan; that it is not
registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification issued by the Securities and Exchange Commission dated April 14, 2004; that Taiheiyo-Phil
is a corporation organized and existing under the laws of the Philippines with principal address at 6th Flr.,
Insular Life Building, Gen. Maxilom corner Gorordo Avenues, Cebu City; that Taiheiyo-Japan is the
registered owner of Five Million Eight Hundred Three Thousand One Hundred Eighty-Nine shares in
Taiheiyo-Phil, with a total value of PhP580,318,900, constituting more than 99% percentage ownership of
the outstanding capital of Taiheiyo-Phil; that at the meeting of the Board of Directors of Taiheiyo-Phil
held on January 16, 2004, it was resolved that cash dividends in the amount of PhP100,000,000.00 be
declared in favor of stockholders of record of Taiheiyo-Phil as of the close of business hours on March 2,
2004; and that the said dividends are payable on March 10, 2004.

In reply, please be informed that Article 10 of the Philippines-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 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 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. IEHSDA

"This paragraph shall not affect the taxation of the company in respect of the profits out of which
the dividends are paid.

"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.

"xxx xxx xxx"

In view of the foregoing, and since Taiheiyo-Japan is the beneficial owner which holds directly
more than 99% of the total shares of Taiheiyo-Phil, the cash dividends payable by Taiheiyo-Phil to
Taiheiyo-Japan are subject to the preferential tax rate of 10% of the gross amount of the dividends. (BIR
Ruling No. DA-ITAD-31-04 dated April 2, 2004)

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
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 140
 herein parties are concerned.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

October 26, 2004

ITAD RULING NO. 111-04

Sec 106 & 108 of the National Internal Revenue Code of

1997;
Article 34, Vienna Convention
BIR Ruling No. 13-99

The People's Bureau of the Great

Socialist People's Libyan Arab Jamahiriya
1644 Dasmariñas Avenue
corner Mabolo Streets
Dasmariñas Village, Makati City

Gentlemen :

This has reference to your Note Verbale No. 079/04 dated September 21, 2004 referred to this
Office by the Department of Foreign Affairs and the Department of Finance (DFA), requesting for a
tax-free purchase on two (2) units of local motor vehicles for the official use of The People's Bureau of the
Great Socialist People's Libyan Arab Jamahiriya, specifically described as follows:
Make: 2 units Toyota Corolla Altis 1.6E A/T
Model Year: 2004
Colors: Flaxen MM/Azure
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 141
 Conduction Sticker Numbers: AE4766/AE1700
Engine Numbers: 3ZZ-4362922/3ZZ-4366075
Frame Numbers: ZZE121-8013498/ZZE121-8013241
and
Make: Ford Escape XLS 2.3L 4X2 A/T
Model Year: 2004
Colors: Machine Silver
Engine Numbers: L3545341
VIN Numbers: PE2ET67141WA00241
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997. STcADa

However, applying the principle of reciprocity, this Office may grant exemption to The People's
Bureau of the Great Socialist People's Libyan Arab Jamahiriya or its personnel on their local purchases of
goods and/or services it appearing from the list submitted by the Department of Foreign Affairs as of June
22, 2004 that your Government allows similar exemption to Philippine Embassy or its personnel on their
purchases of goods and services in your country.

Hence, the sale of two (2) Toyota Corolla Altis 1.6E A/T and one (1) Ford Escape XLS 2.3L 4X2
A/T, for the official use of The People's Bureau of the Great Socialist People's Libyan Arab Jamahiriya is
exempt from VAT and ad valorem taxes. (BIR Ruling No. 13-99 dated July 28, 1999)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 142
 October 12, 2004

ITAD RULING NO. 110-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. DA-322-97

Royal Embassy of Saudi Arabia

389 Sen. Gil J. Puyat Avenue Extension
Makati City

Attention: Mr. Mohammed Ameen Wali

Ambassador

Gentlemen :

This has reference to your Note No. 969 dated September 1, 2004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs (DFA), requesting for a tax-free purchase
on one (1) unit of local motor vehicle for the official use of the Royal Embassy of Saudi Arabia,
specifically described as follows:
Make: Ford Everest 4x4 Automatic Transmission
Model Year: 2004
Color: Champagne Silver
VIN Number: MNCLS4D404W107611
Engine Number: WLAT488490
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 143
 However, applying the principle of reciprocity, this Office may grant exemption to the Royal
Embassy of Saudi Arabia or its personnel on their local purchases of goods and/or services it appearing
from the list submitted by the Department of Foreign Affairs as of June 22, 2004 that your Government
allows similar exemption to Philippine Embassy or its personnel on their purchase of goods and services in
your country.

Hence, the local purchase of one (1) Ford Everest AT for the official use of the Royal Embassy of
Saudi Arabia is exempt from VAT. (BIR Ruling No. DA-322-97 dated September 24, 1997) CTDHSE

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

October 8, 2004

ITAD RULING NO. 109-04

Sec 106 & 108 of the National Internal Revenue Code of

1997;
Article 34, Vienna Convention
BIR Ruling No. 23-99

Canadian Embassy
Level 8, Tower 2
RCBC Plaza
6819 Ayala Avenue
Makati City 0707

Attention: Dr. Huguette Demers

Medical Attaché

Gentlemen :

This has reference to your Note Verbale No. 1539/04 dated September 16, 2004 referred to this
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 144
 Office by the Department of Foreign Affairs and the Department of Finance (DFA), requesting for a
tax-free purchase on a local motor vehicle for the personal use of Dr. Huguette Demers, Medical Attaché
of the Canadian Embassy, specifically described as follows:
Make: Honda Jazz
Model Year: 2004
Color: Rallye Red
Conduction Sticker Number: DB4083
Engine Number: L13A31700234
Frame Number: MRHGD 18404 P020106
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Canadian
Embassy or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs as of June 22, 2004 that your Government allows similar
exemption to Philippine Embassy or its personnel on their purchase of goods and services in your country.

Hence, the sale of one (1) Honda Jazz, for the personal use of Dr. Huguette Demers, Medical
Attaché of the Canadian Embassy is exempt from VAT. (BIR Ruling No. 23-99 dated October 30, 1999)
SITCcE

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 145
 September 22, 2004

ITAD RULING NO. 108-04

Sec 106 & 108 of the National Internal Revenue Code of

1997;
Article 34, Vienna Convention
BIR Ruling No. 206-93

Embassy of Singapore
35/f Tower I, Enterprise Center
6766 Ayala Ave. corner Paseo de Roxas
Makati City

Attention: Mr. Adrian Chan Gek Chong

First Secretary

Gentlemen :

This has reference to your letter dated May 12, 2004 referred to this Office by the Department of
Foreign Affairs and the Department of Finance (DFA), requesting for the exemption from payment of
taxes (VAT) on a locally-purchased motor vehicle for the personal use of Mr. Adrian Chan Gek Chong,
First Secretary of the Embassy of Singapore, specifically described as follows:
Make: Mitsubishi L400 Spacegear AT
Model Year: 2003
Color: Silver/Gray
Production Number: 008792
Engine Number: 4G64A033419
Service Number: W5036661
Conduction Sticker No.: BA 4602
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 146
 and 108, both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
Singapore or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs as of October 29, 2004 that your Government allows
similar exemption to Philippine Embassy personnel on their purchases of goods and services in your
country.

Hence, the sale of one (1) Mitsubishi L400 Spacegear AT, for the personal use of Mr. Adrian Chan
Gek Chong, First Secretary of the Embassy of Singapore is exempt from VAT. (BIR Ruling No. 206-93
dated May 11, 1993)

This ruling is issued on the basis of the facts as represented and is rendered only for the purpose of
determining whether Mr. Adrian Chan Gek Chong, First Secretary of the Embassy of Singapore is entitled
to the benefits of the principle of reciprocity. The determination on whether your request for tax refund
should be given due course is upon the Office which will be conducting the investigation for that purpose.
Thus, the docket pertaining thereto (including a copy of this ruling) shall be indorsed to that for processing
and investigation. CaHcET

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

September 22, 2004

ITAD RULING NO. 107-04

Sec 106 & 108 of the National Internal Revenue Code of

1997;
Article 34, Vienna Convention
BIR Ruling No. 27-03

Embassy of Japan
Consular Office of Japan
7th Floor, Keppel Center
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 147
 Samar Loop, Cebu City, Cebu

Attention: Mr. Shingo Inao

Second Secretary

Gentlemen :

This has reference to your Note Verbale No. 399-04 dated August 5, 2004 referred to this Office by
the Department of Foreign Affairs and the Department of Finance (DFA), requesting for the refund of
value-added tax (VAT) paid on a locally purchased motor vehicle for the personal use of Mr. Shingo Inao,
Second Secretary of the Embassy of Japan, specifically described as follows:
Make: Toyota Revo/VX LTR 2.0 4S
Model Year: 2004
Color: Ico Lithium
Production Number: 186-06
Engine Number: 1RZ-3299773
Frame Number: RZF82-0005232
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
Japan or its personnel on their local purchases of goods and/or services it appearing from the list submitted
by the Department of Foreign Affairs as of October 29, 2004 that your Government allows similar
exemption to Philippine Embassy personnel on their purchases of goods and services in your country.

Hence, the sale of one (1) Toyota Revo/VX LTR 2.0 4S, for the personal use of Mr. Shingo Inao,
Second Secretary of the Embassy of Japan is exempt from VAT. (BIR Ruling No. 27-03 dated February 3,
2003)

This ruling is issued on the basis of the facts as represented and is rendered only for the purpose of
determining whether Mr. Shingo Inao, Second Secretary of the Embassy of Japan is entitled to the benefits
of the principle of reciprocity. The determination on whether your request for tax refund should be given
due course is upon the Office which will be conducting the investigation for that purpose. Thus, the docket
pertaining thereto (including a copy of this ruling) shall be indorsed to that for processing and
investigation. TAHIED

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 148
 Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

September 16, 2004

ITAD RULING NO. 106-04

Sec 106 & 108 of the National Internal Revenue Code of

1997;
Article 34, Vienna Convention
BIR Ruling No. 206-93

New Zealand Embassy

23/F RCBC Plaza Bldg., Ayala Avenue,
cor. H.V. dela Costa St., Makati City

Gentlemen :

This has reference to your Note Verbale No. 75-04 dated August 23, 2004 referred to this Office by
the Department of Foreign Affairs and the Department of Finance (DFA), requesting for the exemption
from the payment of value-added tax (VAT) and ad valorem taxes on a locally-purchased motor vehicle
for the personal use of H.E. Robert Moore-Jones, Ambassador-Extraordinary and Plenipotentiary of the
New Zealand Embassy, specifically described as follows:
Make: Hyundai Matrix GL 1.6 AT
Model Year: 2004
Color: EB (Ebony Black)
Engine Number: G4ED4877278
Chassis Number: KMHPM81CP5U179725
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 149
 "A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the New
Zealand Embassy or its personnel on their local purchases of goods and/or services it appearing from the
list submitted by the Department of Foreign Affairs as of October 29, 2004 that your Government allows
similar exemption to the Philippine Embassy and its personnel on their purchases of goods and services in
your country.

Hence, the sale of one (1) Hyundai Matrix GL 1.6 AT, for the personal use of the New Zealand
Embassy is exempt from VAT. (BIR Ruling No. 206-93 dated May 11, 1993) CaEIST

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

September 13, 2004

ITAD RULING NO. 105-04

Articles 5 and 7, Philippines-Singapore tax treaty

BIR Ruling No. DA-ITAD-37-02

Murata Electronics Philippines Inc.

124 GRM Building East Science Ave.
Laguna Technopark Biñan, Laguna

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 150
 Attention: Mr. Kohei Miyao
President

Gentlemen :

This refers to your letter dated November 4, 2003 requesting confirmation that the charges to be
paid by your company, Murata Electronics Philippines Inc. (Murata Phil), to Murata Electronics Singapore
(Pte) Ltd., Inc. (Murata Singapore) under the Data Communication Agreement, are not subject to
Philippine income tax pursuant to the Philippines-Singapore tax treaty.

It is represented that Murata Singapore and Starhub (Pte) Ltd. (Starhub) are non-resident foreign
corporations duly organized and existing under the laws of Singapore; that they not registered either as
corporations or as partnerships licensed to do business in the Philippines per certifications issued by the
Securities and Exchange Commission dated October 15, 2003 and June 21, 2004; that Murata Phil is a
corporation duly organized and existing under Philippine laws; that Murata Singapore is an ASEAN
regional headquarters responsible for sourcing the most cost effective solution for its ASEAN affiliates in
terms of data communications; that Murata Singapore and Starhub entered into agreement whereby
Starhub will provide data communication line services for data transmission and other on-line applications
for Murata Singapore's ASEAN affiliates; that for the above services, Starhub will bill its charges to
Murata Singapore and the latter will then redistribute said charges to its ASEAN affiliates, which includes,
among others, Murata Phil; that for this purpose, on July 1, 2003, Murata Singapore and Murata Phil
entered into a Data Communication Line Agreement (Agreement) whereby the former will provide 128K
BT MPLS data communication line services for data transmission and other on-line applications; that in
consideration of the above services, Murata Phil shall pay Murata Singapore the latter's expenses in the
amount of Two Thousand One Hundred Fifty Four and 03/100 Singapore Dollars (US$2,154.03) per
month representing the actual charges of Starhub in the amount of One Thousand Three Hundred Fifty
One (US$1,351.00) to Murata Singapore for said services; that the Agreement shall be effective from July
1, 2003 for a term of 1 year and shall be automatically renewable for another year unless either party gives
3 months written notice of termination prior to the expiration; and that none of the personnel of Murata
Singapore or Starhub has arrived or stayed in the Philippines to comply with the provisions of the
Agreement, instead, Murata Singapore engaged the services of British Telecoms and Unisys Philippines
(BTUP) for the access, port and equipment installation in connection with the Agreement. CSTDEH

In reply, please be informed that Articles 5 and 7 of the Philippines-Singapore tax treaty provide as
follows:

"Article 7

"Business Profits

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 151
 "Article 5

"Permanent Establishment

"1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

"2. The term "permanent establishment" includes specially but is not limited to:

"xxx xxx xxx

j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days."
(emphasis supplied)

"xxx xxx xxx"

Based on the aforequoted provision, if a corporation which is a resident of Singapore carries on

business in the Philippines through a permanent establishment situated therein, the profits of the same
shall be subject to Philippine income tax, but only so much of them as is attributable to that permanent
establishment. For this purpose, a corporation which is a resident of Singapore may be deemed to have a
permanent establishment in the Philippines if, among others, the furnishing of services by such
corporation, through its employees or other personnel, in the same or connected project, continue within
the Philippines for a period or periods aggregating more than 183 days.

Inasmuch as the payments by Murata Phil to Murata Singapore are, in fact, payments to Starhub
effected through Murata Singapore for Starhub's data communication line services, said charges constitute
business profits of Starhub and as such are taxable if Starhub has a permanent establishment in the
Philippines.

Such being the case, considering that Starhub does not have any fixed place of business in the
Philippines, and that the actual services of providing 128K BT MPLS data communication line services
for data transmission and other on-line applications are performed by Murata Singapore and not Starhub,
and that, the installation of access, port and equipment is subcontracted to BTUP, Starhub is not deemed to
have a permanent establishment in the Philippines to which its business profits may be attributed to. Such
being the case, this Office is of the opinion and so holds that the charges to be paid by Murata Phil to
Starhub effected through Murata Singapore, under the Data Communication Line Agreement, are not
subject to Philippine income tax pursuant to Article 7(1) in relation to Article 5 of the
Philippines-Singapore tax treaty. (BIR Ruling No. DA-ITAD-037-02 dated April 2, 2002)

Moreover, as regards the payment of value-added tax (VAT), please be informed that Section
108(A) of the Tax Code of 1997 provides, viz:

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

"(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties. cTESIa

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 152
 "The phrase 'sale or exchange of services' means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate, commercial, customs and
immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or
distributors of cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension
houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who transport goods or cargoes
for hire and other domestic common carriers by land, air and water relative to their transport of goods
or cargoes; services of franchise grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under Section 119 of this Code; services of
banks, non-bank financial intermediaries and finance companies; and non-life insurance companies
(except their crop insurances), including surety, fidelity, indemnity and bonding companies; and
similar services regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties. The phrase 'sale or exchange of services' shall likewise include:"
(emphasis supplied)

Based on the afore-cited provision, only services actually performed in the Philippines are subject
to VAT. Accordingly, inasmuch as the installation of access, port and equipment is subcontracted and
performed in the Philippines by BTUP, it shall be directly liable for the payment of VAT.

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
Bureau of Internal Revenue

September 13, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 153
 ITAD RULING NO. 104-04

Articles 25 & 18, RP-US tax treaty

Manuel R. Sanchez
Attorney At Law
11 Imao Street, Corinthian Gardens
Quezon City

Sir:

This refers to your letter dated October 2, 2002, requesting this Office to make the necessary
representation, on your behalf, with the United States-Internal Revenue Service (US-IRS) and obtain a
clarification of Article 18 of the Philippines-US tax treaty.

It is represented that a tax assessment has been made against you by the US-IRS for not withholding
the tax on your alimony payments to your former wife, a Filipina residing in the Philippines; that your
position, as stated to the US-IRS, is that since there is no divorce in the Philippines, alimony payments
take the form of wife and children support; that as such, support payments are not considered income to
the wife and therefore not taxable; that any tax withheld on the support payments would constitute a
reduction of the support agreement; that the US-IRS takes the opposite view, hence, this request; that you
have approached this Office a couple of years ago with the same tax question and a letter 1 was written on
your behalf signed by then Commissioner Beethoven L. Rualo, but the tax issue remained unresolved; that
you believe that the tax assessment constitutes double taxation since you have paid taxes on your income,
and now being taxed, again, on your alimony payments; and that in addition to your position, there were
earlier discussions on the possibility of the alimony payments being considered as annuities, thus, could be
taxed only in the country where the recipient is a resident. aDSAEI

In reply, it is understood that this request has been made, in effect, pursuant to Article 25(1) of the
Philippines-US tax treaty, to wit:

"Article 25

"MUTUAL AGREEMENT PROCEDURE

"(1) Where a resident or citizen of one of the Contracting States considers that the action of
one or both of the Contracting States results or will result for him in taxation not in accordance with
this Convention, he may, notwithstanding the remedies provided by the national laws of the
Contracting States, present his case to the competent authority of the Contracting State of which he is
a resident or citizen. Should the resident's or citizen's claim be considered to have merit by the
competent authority of the Contracting State to which the claim is made, it shall endeavor to come to
an agreement with the competent authority of the other Contracting State with a view to the
avoidance of taxation not in accordance with the provisions of this Convention."(Emphasis supplied)

In view of the above, this Office decides to determine first whether your case has merit before we
endeavor to come to an agreement with the US-IRS with a view to the avoidance of double taxation in
accordance with the provisions of the Philippines-US tax treaty.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 154
 Therefore, please be informed that Article 18 of the Philippines-US tax treaty provides as follows,
viz:

"Article 18

PRIVATE PENSIONS AND ANNUITIES

"xxx xxx xxx

"(2) Annuities paid to an individual who is a resident of one of the Contracting States shall be
taxable only in that Contracting State.

"xxx xxx xxx

"(5) The term `annuities', as used in this article, means a stated sum paid periodically at stated
times during the life, or during a specified number of years, under an obligation to make the payments
in return for adequate and full consideration (other than services rendered). (Emphasis supplied)

"xxx xxx xxx

Paragraph 5 of the foregoing provision defines the term "annuities."

Alimony, on the other hand, is defined as an allowance for support fixed with a view to enable a
party entitled thereto to confront obligations for current necessities (Gorayeb vs. Hashim, 50 Phil 29). It is
also defined as an allowance given to a woman for her support out of the income of her husband upon her
legal separation or divorce from him or during a suit for the same (BIR Ruling No. 344-99.)

Unlike alimony, the said tax treaty requires that the annuities are paid "under an obligation to make
payments in return for adequate and full consideration (other than services rendered)." It is in this
requirement that a whale of difference exists between alimony and annuities. CAIaHS

Consideration is defined as anything that is bargained for by the promisor and given by the
promisee in exchange for the promise (Pirovano vs. Commissioner of Internal Revenue, 122 Phil 180) and
requires a legal detriment to the promisee which must be more than a moral duty (Lui vs. De Ocampo, 55
OG 1778). In this light, it must be emphasized that Article 68 of the Family Code of the Philippines
imposes upon the spouses, among others, the rendition of mutual help and support. It is founded on the
husband's duty to support his wife or vice versa. Thus, in giving support, it may not be said that there is a
consideration that is "bargained for" as this is a duty imposed by law.

In addition, it is noteworthy that the US Model (Tax) Treaty has a specific article on the treatment
of alimony payments, to wit:

"3. Alimony paid to a resident of a Contracting State shall be taxable only in that State. The
term `alimony' as used in this paragraph means periodic payments made pursuant to a written
separation agreement or a degree of divorce, separate maintenance, or compulsory support, which
payments are taxable to the recipient under the laws of the State of which he is a resident.

The above provision defines the nature of alimony payments and their treatment under a separate
article clearly rules out a possible similarity with annuities. While most of the US tax treaties contain the
above provision, a number of treaties, including the Philippines-US tax treaty, however, do not have the
Alimony article. And in the absence of such provision, alimony payments are to be covered by the Other

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 155
 Income article or similar provision. It is unfortunate that the Philippines-US tax treaty likewise does not
contain an Other Income article or similar provision. The Annuities provision generally would be
inapplicable since the treaty definition of an "annuity" requires that it be issued for consideration. (Refer to
INCOME TAX TREATIES OF THE UNITED STATES by Peter H. Blessing, © 1996, p. 17–24)

Inasmuch as alimony payments are not covered by the Philippines-US tax treaty, the respective
domestic law of the Contracting States on the subject shall apply.

In the case of the Philippines, alimony is not subject to tax. As such, there can be no valid
diminution of the court-ordered support payment by way of tax imposition insofar as the Philippines is
concerned. On the other hand, US imposes a tax at the rate of 30% on alimony payments which are
sourced therefrom. cDAEIH

An understanding of the circumstances surrounding the subject alimony payments clearly show that
the same are sourced from US paid to a Philippine resident. Being taxable in US, the US-IRS may,
therefore, employ the withholding tax system to collect such tax on US-sourced alimony payments
especially on nonresident individuals and may penalize the payor in case of non-withholding. Thus, the tax
assessment issued against you by the US-IRS for not withholding the corresponding tax on your alimony
payments must not be confused with the tax-exempt nature of said payments in the Philippines, in due
recognition of the right of the US to tax US-sourced income.

Moreover, it is your belief that the tax assessment issued against you by the US-IRS constitutes
double taxation since you have already paid taxes on your income, and out of such income, where your
alimony payments are sourced, the same is being taxed once more.

To constitute double taxation in the objectionable or prohibited sense, the same property must be
taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject
matter, for the same purpose, by the same State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character
of tax. (Villanueva vs. City of Iloilo, L-26521, December 28, 1968; 26 SCRA 594)

It is apparent that the tax on your income and the tax on your alimony payments are not imposed for
the same purpose since in the former the same is imposed upon the performance of an act, the enjoyment
of privilege, or the engaging in an occupation. In the latter case, however, the tax assessment has been
made against you as a penalty for not withholding the tax on the supposed income of a nonresident person,
and thus, the real taxpayer is actually not you but your nonresident wife-beneficiary.

It should be clarified that the foregoing concept of double taxation is not that contemplated in the
Philippines-US tax treaty as will warrant the application thereof in your case. In Commissioner of Internal
Revenue vs. S.C. Johnson and Son, Inc., et al. (G.R. No. 127105, June 25, 1999), the Supreme Court
declared:

"The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has
entered into for the avoidance of double taxation. The purpose of these international agreements is to
reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid
simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted
with a view towards the elimination of international juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states on the same taxpayer in respect of the same
subject matter and for identical periods. The apparent rationale for doing away with double taxation
is to encourage the free flow of goods and services and the movement of capital, technology and
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 156
 persons between countries, conditions deemed vital in creating robust and dynamic economies.
Foreign investments will only thrive in a fairly predictable and reasonable international investment
climate and the protection against double taxation is crucial in creating such a climate.

"Double taxation usually takes place when a person is a resident of a contracting state and
derives income from, or owns capital in the other contracting state and both states impose tax on that
income or capital." (Emphasis supplied)

In view of the foregoing pronouncement, there is no double taxation in the tax treaty sense to speak
of in your case since alimony payments are not deemed taxable income in the Philippines. acAESC

In fine, we regret to inform you that the tax treaty remedy requested in relation to the tax
assessment issued against you by the US-IRS cannot be given due course for lack of merit.

Please be guided accordingly.

Very truly yours,

(SGD.) GUILLERMO L. PARAYNO, JR.

Commissioner
Bureau of Internal Revenue

September 13, 2004

ITAD RULING NO. 103-04

Sec 106, 108 & 149 of the National Internal Revenue Code
of 1997;
Article 34, Vienna Convention
BIR Ruling No. 79-04

Australian Embassy
23/F RCBC Plaza Bldg., Ayala Avenue,
cor. H.V. dela Costa St., Makati City

Gentlemen :

This has reference to your Note Verbale No. 229/04 dated August 13, 2004 referred to this Office
by the Department of Foreign Affairs and the Department of Finance (DFA), requesting for the exemption
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 157
 from the payment of value-added tax (VAT) and ad valorem taxes on a locally-purchased motor vehicle
for the official use the Embassy of Australia (AusAID Section), specifically described as follows:
Make: Toyota Camry 2.4V A/T
Model Year: 2004
Color: Quick Silver
Engine Number: 2AZ-1497813
Chassis Number: ACV30-9001087
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
Australia or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs as of October 29, 2004 that your Government allows
similar exemption to the Philippine Embassy and its personnel on their purchases of goods and services in
your country. AHCTEa

Hence, the sale of one (1) Toyota Camry 2.4V A/T, for the official use of the Embassy of Australia
(AusAID) is exempt from VAT and ad valorem taxes. (BIR Ruling No. 79-04 dated August 5, 2004)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 158
 September 13, 2004

ITAD RULING NO. 102-04

Sec 106, 108 & 149 of the National Internal Revenue Code
of 1997;
Article 34, Vienna Convention
BIR Ruling No. 79-04

Australian Embassy
23/F RCBC Plaza Bldg., Ayala Avenue,
cor. H.V. dela Costa St., Makati City

Gentlemen :

This has reference to your Note Verbale No. 235/04 dated August 17, 2004 referred to this Office
by the Department of Foreign Affairs and the Department of Finance (DFA), requesting for the exemption
from the payment of ad valorem and value-added tax (VAT) on a locally-purchased motor vehicle for the
official use the Embassy of Australia, specifically described as follows:
Make: Toyota Camry 2.4V
Model Year: 2004
Color: Quick Silver
Engine Number: 2AZ1454375
Chassis Number: ACU309001012
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
Australia or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs as of October 29, 2004 that your Government allows
similar exemption to the Philippine Embassy and its personnel on their purchases of goods and services in

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 159
 your country. CScTED

Hence, the sale of one (1) Toyota Camry 2.4V, for the official use of the Embassy of Australia is
exempt from VAT and ad valorem taxes. (BIR Ruling No. 79-04 dated August 5, 2004)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

September 13, 2004

ITAD RULING NO. 101-04

Art. 10, Philippines-France tax treaty;

Protocol
BIR Ruling No. ITAD-17-01

Stepan Philippines, Inc.

Cocochem Agro-Industrial Park
Bauan, Batangas

Attention: Jean-Charles Leroy

General Manager

Gentlemen :

This refers to your application for relief from double taxation dated April 30, 2004, requesting
confirmation of your opinion that the dividend payments by Stepan Philippines, Inc. (Stepan) to United
Coconut Planters International S.A. (UCPI), is subject to the preferential final tax rate of 10%, pursuant to
the Philippines-France tax treaty.

It is represented that UCPI is a corporation organized and existing under the laws of France with
address at #34 Avenue, Des Champs, Elysees, 75008 Paris, France; that it is not registered either as a
corporation or as a partnership licensed to do business in the Philippines per certification issued by the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 160
 Securities and Exchange Commission dated April 30, 2004; that Stepan is a BOI-registered corporation
organized and existing under the laws of the Philippines with principal address at Cocochem
Agro-Industrial Park, Bauan, Batangas, with an extension office at the 7th Flr., NOL Tower, Commerce
Avenue, Madrigal Business Park, Ayala Alabang, Muntinlupa City; that as of March 31, 2004, UCPI holds
1,800,117 shares representing 39.9993% of the voting shares of Stepan; that on the meeting of the Board
of Directors of Stepan held on March 23, 2004, it was resolved that cash dividends, in the total amount of
Four Million US Dollars (US$4,000,000.00) in its Peso equivalent, out of the unrestricted retained
earnings of Stepan as of March 31, 2004, be declared for distribution to all stockholders of record in
proportion to their shareholdings; and that the said dividends shall be distributed and paid to the
stockholders on or before May 31, 2004.

In reply, please be informed that Article 10 of the Philippines-France 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 be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed:

"(a) 15 percent of the gross amount of the dividends if the recipient is a

company (excluding partnership) which holds directly at least 10 per cent of the
voting shares of the company paying the dividends;

"(b) in all other cases, 25 percent of the gross amount of the dividends."

"xxx xxx xxx"

In accordance with the foregoing, the 15% preferential tax rate on dividends apply whenever the
beneficial owner/recipient of the dividends owns at least 10% of the voting shares of the paying company.
However, in the Protocol amending the foregoing provisions which took effect on January 1, 2000 reads as
follows:

"Article 5

"In Article 10 of the Convention:

— in paragraph 2, the rates of `15 percent' and `25 percent' are replaced respectively by `10
percent' and `15 percent';"

Based on the above provisions of the Protocol, the dividends payable to UCPI by Stepan shall be
subject to withholding tax at the rate of 10% of the gross amount of dividends considering that the
transaction transpired after the effectivity of the Protocol and UCPI is the holder and beneficial owner of
39.9993% of the total voting shares of Stepan as of March 31, 2004. (BIR Ruling No. ITAD-17-01 dated
February 19, 2001)

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
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 161
 herein parties are concerned. AETcSa

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

September 13, 2004

ITAD RULING NO. 100-04

RP-Japan tax treaty, Article 5 & 7

000-00

TES Philippines Inc.

EDSA MRT DEPOT
North Avenue cor. EDSA
Quezon City

Attention: Mr. Tetsugo Kanemura

President

Gentlemen :

This refers to your letters dated August 15, 2001 and February 22, 2002, requesting confirmation of
your opinion that the consultancy fees paid by TES Philippines Inc. (TES) to Ryoju Transportation
Equipment Engineering & Service Co., Ltd., Japan (RTEE) are not subject to Philippine income tax
pursuant to Article 7(1) in relation to Article 5 of the RP-Japan tax treaty.

It is represented that RTEE is a corporation organized and existing under the laws of Japan with

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 162
 business address at No. 16-20 Hinode 2-Chome, Kawasaki-ku, Kawasaki City, Kanagawa 210-0824,
Japan; that RTEE is not registered either as a corporation or as a partnership and has not been licensed to
do business in the Philippines per Certificate of Non-Registration issued by the Securities and Exchange
Commission dated November 5, 2001; that TES is a corporation organized and existing under the laws of
the Philippines with address at EDSA MRT Depot, North Avenue corner EDSA, Quezon City; and that
per Requests for Work dated December 1, 1999, March 1, 2000 and August 14, 2000, RTEE will perform
services to TES as follows: (1) supervise engineering works for MRT maintenance, (2) repair work on
MRT vehicles and, (3) installation work on MRT.

In reply, please be informed that Article 7 of the RP-Japan tax treaty provides:

"Article 7

"(1) The profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits
of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment. THESAD

xxx xxx xxx"

Moreover, paragraphs (1) and (6) of Article 5 of the same treaty provide viz:

"Article 5

"Permanent Establishment

"(1) For the purposes of this Convention, the term `permanent establishment' means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

"xxx xxx xxx

"(6) An enterprise of a Contracting State shall be deemed to have a permanent establishment

in the other Contracting State if it furnishes in that other Contracting State consultancy services, or
supervisory services in connection with a contract for a building, construction or installation project
through employees or other personnel — other than an agent of an independent status to whom
paragraph (7) applies —, provided that such activities continue (for the same project or two or more
connected projects) for a period or periods aggregating more than six months within any taxable year.
However, if the furnishing of such services effected under an agreement between the Governments of
the two Contracting States regarding economic or technical cooperation, that enterprise shall,
notwithstanding any provisions of this Article, not be deemed to have a permanent establishment in
that other Contracting State."

Based on the foregoing provisions, the profits of a corporation which is a resident of Japan is
taxable only in Japan, unless the Japanese corporation carries on business in the Philippines through a
permanent establishment situated therein to which such profits are attributable. A Japanese corporation
may be deemed to have a permanent establishment in the Philippines if, among others, the furnishing of
services of that corporation in the Philippines through its employees or other personnel in relation to a
particular project or any project connected therewith is for a period or periods aggregating more than 6
months within ANY taxable year. When a permanent establishment is constituted in this manner, the
Japanese corporation is deemed to have a permanent establishment in the Philippines throughout the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 163
 duration of its operation in the latter for the same or any connected project.

The documents submitted disclose that the employees of RTEE performed their services in the
Philippines for periods aggregating more than six months in the taxable year 2000 a] , thus, RTEE is
deemed to have a permanent establishment in the Philippines in connection with the subject maintenance
support and services it provided to TES Philippines, Inc.

RTEE is a foreign corporation not authorized or licensed to do business in the Philippines. A

corporation is itself a taxpaying entity and for purposes of income tax, corporations are classified into (a)
domestic corporation and (b) foreign corporation. (Section 27 and 28 of the 1997 Tax Code). Foreign
corporations are further classified into (1) resident foreign corporations and (2) non-resident foreign
corporations. A resident foreign corporation is a foreign corporation that is engaged in trade or business in
the Philippines or having an office or place of business therein. Conversely, a non-resident foreign
corporation is a corporation that is not engaged in trade or business in the Philippines and not having
office or place of business therein.

In order for a foreign corporation to be considered as engaged in trade or business, its business
transactions must be continuous. A casual business activity in the Philippines by a foreign corporation, as
in the present case, does not amount to engaging in trade or business in the Philippines for income tax
purposes. Foreign corporations not doing business in the Philippines are taxable on income from all
sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities,
compensations, remunerations, emoluments or other fixed or determinable annual or periodical or casual
gains, profits and income and capital gains. The tax is 30% (now 32%) of such gross income pursuant to
Section 28(B)(1) of the 1997 Tax Code. (N.V. Reederij "Amsterdam" and Royal Interocean Lion vs.
Commissioner of Internal Revenue, L-46029, June 23, 1988, 162 SCRA 487)

In view thereof, the consultancy fees paid by TES to RTEE from 1999 to 2000 are subject to
Philippine withholding income tax at the rate of 32% in accordance with Section 28(B)(1) of the 1997 Tax
Code.

Moreover, the fees to be paid by TES for that portion of the services rendered by RTEE in the
Philippines are subject to the 10% value-added tax pursuant to Section 108 of the Tax Code. Accordingly,
TES, being the resident withholding agent and payor in control of the payment shall be responsible for the
withholding of the 10% final VAT on such fees before making any payment to RTEE. In remitting the
VAT withheld, TES shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and
Other Percentage Taxes Withheld). The duly filed BIR Form 1600 and proof of payment thereof shall
serve as documentary substantiation for the claim of input tax by TES upon filing its own VAT Return, if
it is a VAT-registered taxpayer. In case TES is a non-VAT registered taxpayer, the passed-on VAT
withheld shall form part of the cost of the service purchased which may be treated as "expense" or "asset"
whichever is applicable. In addition, TES is required to issue the Certificate of Final Tax Withheld at
Source (BIR Form 2306) in quadruplicate upon request of RTEE, the first three copies thereof to be given
to RTEE and the fourth copy to be retained by TES as its file copy. [Section 4 & 6, Revenue Regulations
(RR) No. 4-2002; Section 3 of RR8-2002; Section 7 of RR 14-2002]

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. aDcETC

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 164
 Very truly yours,

(SGD.) GUILLERMO L. PARAYNO, JR.

Commissioner
Bureau of Internal Revenue
Footnotes
a]. Certification of the duration of the services performed showed 189 days.

September 7, 2004

ITAD RULING NO. 099-04

Article 11, Philippines-Japan tax treaty BIR Ruling No.

142-95

SyCip Gorres Velayo & Co.

2F Blk. A Mactan Marina Mall
Pusok, Lapu-Lapu City
6015 Cebu
Philippines

Attention: Rita A. S. Fernandez

Gentlemen :

This refers to your application for tax treaty relief dated May 21, 2004, on behalf of your client,
Philippine Kenko Corporation (PKC), requesting confirmation of your opinion that the interest payments
of PKC to Kenko Co., Ltd. shall be subject to the preferential income/withholding tax rate of 15% under
Article 11 of the Philippines-Japan Tax Treaty.

It is represented that PKC is a domestic corporation organized and existing under Philippine laws
with principal office at Mactan Economic Zone I, Lapulapu City; that it is duly registered with the
Philippine Economic Zone Authority (PEZA) as an export-oriented enterprise and is currently subject to
the 5% preferential tax rate under Section 24 of Republic Act No. 7916, otherwise known as the Special
Economic Zone Act of 1995; that Kenko Co., Ltd., is a nonresident foreign corporation organized and
existing under the laws of Japan with principal place of business located at Nishi-Ochiai 3-9-19,
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 165
 Shinjuku-ku, Tokyo, 161-8570, Japan; that Kenko Co., Ltd. is not registered either as a corporation or as a
partnership in the Philippines per certification dated May 19, 2004 issued by the Securities and Exchange
Commission; and that on April 19, 2004, PKC and Kenko Co. Ltd. formally entered into a Loan
Agreement (Document of Consumption Loan Contract) whereby PKC borrowed from Kenko Co. Ltd. the
amount of One Hundred Ten Million Japanese Yen (JP¥110,000,000) drawn as follows: August 20, 2003
— JP¥85,000,000 & September 7, 2003 — JP¥25,000,000, with an interest rate of 1.5% per annum.

In reply, please be informed that Article 11 of the Philippines-Japan tax treaty provides as follows:

"Article 11

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other Contracting State.

"2. However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed:

(a) 10 per cent of the gross amount of the interest if the interest is paid in
respect of Government securities, or bonds or debentures;

b) 15 per cent of the gross amount of the interest in all other cases.

xxx xxx xxx

"5. The term "interest" as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from Government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures."

Based on the aforequoted provisions, interest arising in the Philippines and paid to a resident of
Japan may be subject to Philippine tax at a rate not to exceed 15 percent (15%) of the gross amount of the
interest provided the recipient is the beneficial owner of the interest and that said income was not paid in
respect of Government securities, bonds or debentures. Thus, the interest paid by PKC to Kenko Co., Ltd.,
which is the beneficial owner of such interest, shall be subject to Fifteen (15%) percent of the gross
amount of the interest pursuant to Article 11(2)(b) of the Philippines-Japan tax treaty. (BIR Ruling No.
142-95) However, the Loan Agreement shall be subject to documentary stamp tax imposed under Section
179 of the National Internal Revenue Code of 1997, as amended by Republic Act 9243, which became
effective on March 20, 2004.

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,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 166
 Bureau of Internal Revenue

September 3, 2004

ITAD RULING NO. 098-04

Article 10, Philippines-Japan tax treaty

BIR Ruling No. ITAD 47-99
BIR Ruling No. DA-ITAD-137-02

Philippine-Japan Active Carbon Corporation

Malagamot, Panacan
P.O. Box 81316 Davao City

Attention: Mr. Masahiko Saeki

EVP & General Manager

Gentlemen :

This refers to your application for relief from double taxation dated March 4, 2004, on the dividend
payments of Philippine-Japan Active Carbon Corporation (PJAC) to Futamura Chemicals Industries Co.
Ltd. (Futamura), pursuant to the Philippines-Japan tax treaty.

It is represented that Futamura is a corporation duly organized and existing under the laws of Japan,
with principal office at 29-16, Meieki 2 Chome Nagoya, Japan; that per certification issued by the
Securities and Exchange Commission dated February 11, 2004, Futamura is not registered either as a
corporation or a partnership licensed to engage in business in the Philippines; that PJAC is a
BOI-registered corporation with principal address at Malagamot, Panacan, Bunawan, Davao; that since
August 7, 2000, Futamura holds Five Hundred Thirty Five Thousand Nine Hundred Fifty (535,950) shares
of stock equivalent to Fifty Three Million Five Hundred Ninety Five Thousand pesos (P53,595,000.00)
representing forty nine and 95/100 percent (49.95%) of the capital stock of PJAC as of March 30, 2004;
that on December 29, 2003, the Board of Directors of PJAC passed and approved the declaration of cash
dividends in the amount of five pesos per share (P5.00/share) to the stockholders of record as of December
31, 2003 and shall be payable on or before March 30, 2004.

In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:

"Article 10

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 167
 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.

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

"3. Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the dividends paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends,
shall not exceed 10 per cent of the gross amount of dividends.

"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"

Based on the aforequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding ten per cent (10%) if the latter holds directly at
least 25 percent (25%) either of the voting shares or of the total shares of the first-mentioned company for
a period of six (6) months immediately preceding the date of payment of the dividends, or if the Philippine
Company is registered with the Board of Investments (BOI) and engaged in preferred pioneer areas of
investment under the investment incentives laws of the Philippines.

In view thereof, and since Futamura directly holds 49.95% of the shares of stock of PJAC for the
period of six (6) months before the date of payment of the dividends and that PJAC is a BOI-registered
corporation and engaged in preferred pioneer areas of investment under the investment incentives laws of
the Philippines, the said dividends to be paid by PJAC to Futamura are subject to the 10 percent
preferential tax rate pursuant to Article 10 of the Philippines-Japan tax treaty. (BIR Ruling No. ITAD No.
47-99 dated December 9, 1999 and BIR Ruling No. DA-ITAD-137-02 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. EIASDT

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 168
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

September 3, 2004

ITAD RULING NO. 097-04

Article 10, Philippines-Japan tax treaty

BIR Ruling No. ITAD 47-99
BIR Ruling No. DA-ITAD-137-02

Philippine-Japan Active Carbon Corporation

Malagamot, Panacan
P.O. Box 81316 Davao City

Attention: Mr. Masahiko Saeki

EVP & General Manager

Gentlemen :

This refers to your application for relief from double taxation dated March 4, 2004, on the dividend
payments of Philippine-Japan Active Carbon Corporation (PJAC) to Kowa Company. Ltd. (Kowa)
pursuant to the Philippines-Japan tax treaty.

It is represented that Kowa is a corporation duly organized and existing under the laws of Japan,
with principal office at 6-29 Nishiki 3 Chome, Naka-ku, Nagoya, Japan; that per certification issued by the
Securities and Exchange Commission dated February 11, 2004, Kowa's Certificate of Withdrawal of
License of a Foreign Corporation was approved on September 12, 2002; that PJAC is a BOI-registered
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 169
 corporation with principal address at Malagamot, Panacan, Bunawan, Davao; that since May 22, 2000
until to date, Kowa holds 535,950 shares valued at Fifty Three Million Five Hundred Ninety-Five
Thousand Pesos (P53,595,000.00) and constituting 49.95% of ownership in PJAC; that on December 29,
2003, at a Special Meeting of the Board of Directors of PJAC, a resolution was passed and approved
declaring P5.00/share cash dividends to the Stockholders on record as of December 31, 2003 and shall be
payable on or before March 30, 2004. TcHEaI

In reply, please be informed that Article 10 of the Philippines-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.

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

"3. Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the dividends paid by a company, being a resident of the Philippines registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends,
shall not exceed 10 per cent of the gross amount of dividends.

"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"

Based on the aforequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding ten percent (10%) if the latter, who is the
beneficial owner of the dividends, holds directly at least 25 percent (25%) either of the voting shares or of
the total shares of the first-mentioned company for the period of six (6) months immediately preceding the
date of payment of the dividends, or if the Philippine Company is registered with the Board of Investment
(BOI) and engaged in preferred pioneer areas of investment under the investment incentives laws of the
Philippines.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 170
 In view thereof, and since Kowa directly holds 49.95% of the shares of stock of PJAC for the
period of six (6) months before the date of payment of the dividends, and that PJAC is a BOI-registered
corporation and engaged in preferred pioneer areas of investment under the investment incentives laws of
the Philippines, the said dividends to be paid by PJAC to Kowa are subject to the 10 percent preferential
tax rate pursuant to Article 10 of the Philippines-Japan tax treaty. (BIR Ruling No. ITAD No. 47-99 dated
December 9, 1999 and BIR Ruling No. DA-ITAD-137-02 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. acSECT

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

September 2, 2004

ITAD RULING NO. 096-04

Article 10, Philippines-Netherlands tax treaty

Article 10, Philippines-Japan tax treaty
BIR Ruling No. DA-ITAD-164-02
BIR Ruling No DA-ITAD-50-03

SyCip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Atty. E.C. Alcantara

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 171
 Tax Division

Gentlemen :

This refers to your letter dated August 9, 2004, requesting confirmation of your opinion that the
dividend payments of your client, San Roque Power Corporation (SRPC), to Marubeni Corporation (MC)
and KPIC Netherlands B.V. (KPIC Netherlands), are subject to the preferential tax rate of 10% and 15%,
respectively, of the gross amount of dividends pursuant to Article 10(2)(a) of the Philippines-Japan tax
treaty and Philippines-Netherlands tax treaty.

It is represented that MC is a nonresident foreign corporation duly organized and existing under and
by virtue of the laws of Japan with principal office address at 4-2 Ohtemachi I-chome, Chiyoda-ku, Tokyo,
Japan; that MC is not registered either as corporation or as a partnership licensed to do business in the
Philippines per certification issued by the Securities and Exchange Commission dated August 11, 2004,
that KPIC Netherlands is a nonresident foreign corporation duly organized and existing under the laws of
Netherlands with office address at De Boelelaan 7 Officia 1, 1083HJ Amsterdam, Netherlands; that KPIC
Netherlands is likewise not registered either as a corporation or as a partnership licensed to do business in
the Philippines, per certification issued by the Securities and Exchange Commission dated August 11,
2004; that SRPC is a domestic corporation organized and existing under Philippine laws duly registered
with the Board of Investments (BOI) on a preferred pioneer status, to engage in the design, construction,
erection, assembly, as well as to own, commission, and operate electric power-generating plants and other
related activities; that MC and KPIC Netherlands are stockholders of record of SRPC, as follows:

Name of No. of Shares Type of Shares Percentage

Corporation Ownership

MC 827 Common 42.45

939,131 Preferred
KPIC 150 Common 7.50
Netherlands
165,924 Preferred

and that per Certification issued by the Corporate Secretary of SRPC dated August 6, 2004, the 42.45%
ownership of MC has been held for more than six (6) months and remains unchanged until the date of said
certification.

It is further represented that on August 6, 2004, the Board of Directors of SRPC declared cash
dividends in the amount of Japanese Yen 325.3219 and US$ 21.8440 per share in favor of all of its
stockholders of record as of June 31, 2004.

In reply, please be informed that Article 10 of the Philippines-Japan and Philippines-Netherlands

tax treaties provide as follows:

Philippines-Japan tax treaty

"Article 10

DIVIDENDS

"1. Dividends paid by a company which is a resident of a Contracting State to a resident of

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 172
 the other Contracting State may be taxed in that other Contracting State.

"2. However, such dividends may 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; (Emphasis supplied)

b) 75 per cent of the gross amount of the dividends in all other cases.

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

3. Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines only the dividends paid by a company being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends,
shall not exceed 10 per cent of the gross amount of the dividends. (emphasis supplied)

"xxx xxx xxx"

Philippines-Netherlands tax treaty

"Article 10

DIVIDENDS

1. Dividends paid by a company which is a resident of one of the States to a resident of the
other State may be taxed in that other State.

2. However, such dividends may also be taxed in the State of which the company paying
the dividends is a resident and according to the laws of that 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 recipient is a

company the capital of which is wholly or partly divided into shares and which holds
directly at least 10 per cent of the capital of the company paying the dividends;
(emphasis supplied)

b) 15 per cent of the gross amount of the dividends in all other cases.

"xxx xxx xxx"

Based on the aforequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding 10% of the gross amount of dividends if the
last-mentioned company, who is the beneficial owner of the dividends, holds directly at least 25% 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, or if the Philippine
company is registered with the Board of Investments and engaged in preferred pioneer areas of investment,
and at the rate of 25% of the gross amount of dividends in all other cases. On the other hand, dividends
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 173
 paid by a Philippine company to a resident of The Netherlands may be taxed at a rate not exceeding 10%
of the gross amount of dividends if the recipient is the beneficial owner of such dividends which holds
directly at least 10% of the capital of the Philippine company, and at the rate of 15% in all other cases.

Accordingly, considering that MC holds 42.45% of the outstanding capital stock in SRPC during
the period of 6 months immediately preceding the date of payment of the dividends and SRPCC is
registered with the Board of Investments and engaged in preferred pioneer areas of investment under the
incentives laws of the Philippines, this Office is of the opinion and so holds that the dividend remittances
of SRPC to MC are subject to a preferential rate of 10% of the gross amount of dividends pursuant to
Article 10(2)(a) of the Philippines-Japan tax treaty. On the other hand, since KPIC Netherlands holds only
7.50% of the outstanding capital stock in SRPC, the dividends received by KPIC Netherlands are subject
to the preferential tax rate of 15% of the gross amount of dividends pursuant to Article 10(2)(b) of the
Philippines-Netherlands tax treaty. (BIR Ruling No. DA-ITAD-164-02 dated September 3, 2002 and BIR
Ruling No. DA-ITAD-50-03 dated April 8, 2003)

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
Bureau of Internal Revenue

August 31, 2004

ITAD RULING NO. 095-04

Sec 108 & 109 of the National Internal Revenue Code of

1997;
Article 34, Vienna Convention

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 174
 BIR Ruling No. 206-93

Embassy of Papua New Guinea

3rd Floor, Corinthian Plaza Bldg.
Paseo de Roxas, Legaspi Village
Makati City

Gentlemen :

This has reference to your Note No. 27/2004 dated May 31, 2004 referred to this Office by the
Immunities and Privileges Division, Office of Protocol of the Department of Foreign Affairs (DFA),
requesting for the issuance of value-added tax (VAT) exemption certificate for the embassy.

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
Papua New Guinea or its personnel on their local purchases of goods and/or services it appearing from the
list submitted by the Department of Foreign Affairs that your Government allows similar exemption to
Philippine Embassy personnel on their purchases of goods and services in your country. ADcSHC

Hence, the Embassy of Papua New Guinea is exempt from VAT on its purchase of local goods
and/or services. (BIR Ruling No. 206-93 dated May 11, 1993)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 175
 August 31, 2004

ITAD RULING NO. 094-04

Sec 106 & 108 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. 15-99

Embassy of Israel
23/F Trafalgar Plaza,
105 HV dela Costa Street
Salcedo Village, Makati City

Gentlemen :

This has reference to your Note No. MV 2321 dated June 30, 2004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs (DFA), requesting for a tax-free purchase of
a locally assembled motor vehicle, for the official use of the Embassy of Israel, specifically described as
follows:
Make: Mitsubishi Adventure GLS Sport Gas M/T
Model Year: 2004
Color: Monza Silver
Serial Number: PAEVB2RX14B000445
Engine Number: 4G63AC3040
In reply, please be informed that. pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
Israel or its personnel on their local purchases of goods and/or services it appearing from the list submitted
by the Department of Foreign Affairs that your Government allows similar exemption to Philippine
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 176
 Embassy and its personnel on their purchases of goods and services in your country.

Hence, the local purchase of one (1) Mitsubishi Adventure GLS Sport Gas M/T for the official use
of the Embassy of Israel is exempt from VAT. (BIR Ruling No. 15-99 dated August 6, 1999)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

August 31, 2004

ITAD RULING NO. 093-04

Articles 4 & 18, Philippines-Netherlands tax treaty

Secs. 23 and 51, Tax Code of 1997
BIR Ruling No. ITAD-017-03
BIR Ruling No. 116-97

Mr. Jan Lambertus Van De Velde

718, 7th Street, Brgy. Lakandula
Mabalacat, Pampanga

Dear Mr. Van de Velde :

This refers to your letter dated May 31, 2004 seeking clarification on the taxability of your
annuities received from The Netherlands.

Documents submitted show that you are a citizen of The Netherlands; that your immigrant status in
the Philippines has been made permanent per Immigrant Certificate of Residence issued by the Bureau of
Immigration dated October 29, 2002; that you are married to Flordeliza S. Usoria and blessed with three
(3) children; that from September 24, 2000 to date, you have been residing with your family in the
Philippines at No. 718 7th Street, Lakandula, Mabalacat, Pampanga; that you have neither properties nor
other addresses outside the Philippines; and that your only source of income are the two annuities coming
from The Netherlands.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 177
 In reply, please be informed that Articles 18 and 4 of the Philippines-Netherlands tax treaty provide
as follows:

"Article 18
"PENSIONS AND ANNUITIES

1. Subject to the provisions of paragraph 2 of this Article and paragraph 1 of Article 19,
pensions and other similar remuneration paid in consideration of past employment to a
resident of one of the States and any annuity paid to such a resident, shall be taxable only in
that State." DACTSH

"xxx xxx xxx"

"Article 4
"FISCAL DOMICILE

l. For the purposes of this Convention, the term "resident of one of the States " means any
person who, under the law of that State, is liable to taxation therein by reason of his
domicile, residence, place of management or any other criterion of a similar nature.

2. For the purposes of this Convention an individual, who is a member of a diplomatic or

consular mission of one of the States in the other State or in a third State and who is a
national of the sending State, shall be deemed to be a resident of the sending State.

3. Where by reason of the provisions of paragraph 1 an individual is a resident of both States,

then this case shall be determined in accordance with the following rules:

a) he shall be deemed to be a resident of the State in which he has a

permanent home available to him. If he has a permanent home available to him in
both States, he shall be deemed to be a resident of the State with which the personal
and economic relations are closer (centre of vital interest); (emphasis supplied)

b) if the State in which he has his centre of vital interests cannot be

determined, or if he has not a permanent home available to him in either State, he
shall be deemed to be a resident of the State in which he has an habitual abode,

c) if he has an habitual abode in both States or in neither of them, he shall

be deemed to be a resident of the State of which he is a national;

d) if he is a national of both States or of neither of them, the competent

authorities of the States shall settle the question by mutual agreement."

Based on the afore-cited provisions, pensions, annuities and other similar remuneration derived by a
resident of either the Philippines or The Netherlands shall be taxable only in the state where he is a
resident. For this purpose, an individual who is a resident of both Netherlands and the Philippines shall be
deemed to be a resident of the country, firstly, in which he has his permanent home, secondly, where his
center of vital interest is closer and thirdly, where he has an habitual abode and lastly, where he is a
national. Such being the case, and since you are maintaining your family residence in the Philippines and
has been granted permanent residency therein, you are deemed a resident of the Philippines under the
provisions of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD-017-03 dated January 30,
2003) Therefore, it is the Philippines, and not The Netherlands, which has taxing jurisdiction over the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 178
 subject annuities pursuant to the same treaty. ASTcaE

However, Section 23 (D) of the Tax Code of 1997 provides, viz:

"Sec. 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:

"xxx xxx xxx"

"(D) A alien individual, whether a resident or not of the Philippines, is taxable only on
income derived from sources within the Philippines; (Emphasis supplied)

"xxx xxx xxx"

Based on the above-mentioned provisions, it is clear that alien individuals, whether resident or not
of the Philippines, are subject to Philippine income tax only on taxable income derived from all sources
within the Philippines. In other words, income derived by aliens from sources without the Philippines shall
not be subject to Philippine income tax. Accordingly, as the subject annuities are considered income
derived from sources without the Philippines, more specifically, from The Netherlands, the said annuities
are not subject to Philippine income tax. (BIR Ruling No. 116-97 dated November 6, 1997)

In view of the foregoing, while the Philippines has taxing jurisdiction over the subject annuities
under the Philippines-Netherlands tax treaty, the Tax Code of 1997 however, provides that only income
derived by resident and non-resident alien from sources within the Philippines are subject to tax.
Accordingly, since the subject annuities are considered income derived from sources without the
Philippines, these are not subject to Philippine income tax, and consequently, you are not required to file
an income tax return in the Philippines for the said income in accordance with Section 51 (A) (2) (d) of the
Tax Code of 1997.

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. DCAHcT

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 179
 August 31, 2004

ITAD RULING NO. 092-04

Articles 5, 7, 12 & 14 Philippines-Singapore tax treaty

Section 23 (F); 28 (B); 108 (A) NIRC
BIR Ruling No. DA-ITAD-59-03
BIR Ruling No. DA-ITAD-26-03
BIR Ruling No. DA-ITAD-293-00

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Atty. E.C. Alcantara

Tax Division

Gentlemen :

This refers to your letter dated March 10, 2004 requesting confirmation on behalf of your client,
Hyatt International — SEA (Pte) Limited (Hyatt) that: (1) the sales and marketing fees to be paid by New
Coast Hotel, Inc. (NCHI) under the Sales and Marketing Agreement between NCHI and Hyatt are in the
nature of service income and are not to be considered as royalties; (2) the sales and marketing fees
constitute compensation for labor or personal services to be rendered outside of the Philippines and are not
subject to Philippine income tax/final withholding tax; and (3) the sales and marketing fees which
constitute compensation for labor or personal services to be rendered outside of the Philippines are not
subject to the 10% value-added tax (VAT). CTEaDc

It is represented that Hyatt, a wholly-owned subsidiary of Hyatt International Corporation (H.I.) is a

nonresident foreign corporation duly organized and existing under and by virtue of the laws of Singapore
with principal place of business at 10-12 Scotts Road Singapore; that Hyatt is not registered either as a
corporation or as a partnership licensed to do business in the Philippines per Certification of
Non-Registration issued by the Securities and Exchange Commission dated March 9, 2004; that NCHI is a
corporation duly organized and existing under and by virtue of the laws of the Philippines with registered
office and principal place of business at 12th Floor, Net One Center, 26th Street Corner 3rd Avenue,
Crescent Park West, Bonifacio Global City, Taguig, Metro Manila; that on December 12, 2003, Hyatt and
NCHI entered into a Sales and Marketing Agreement (Agreement); that pursuant to such Agreement,
NCHI is prepared to finance, plan, build, furnish and equip, in Manila, a modern and outstanding hotel
(Hyatt Hotel and Casino Manila) to be constructed as indicated in the agreement, to be operated under
standards comparable to those prevailing in H.I. hotels throughout the world; that under the said
Agreement NCHI retained Hyatt to provide, among others, appropriate worldwide sales and marketing for
the Hotel; that the sales and marketing services shall consist in: (a) appropriate worldwide sales and

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 180
 marketing services for the Hotel, including the definition of policies, and the determination of annual and
long-term objectives for occupancy, rates, revenues, clientele structure, sales terms and methods; and (b)
appropriate consultation, worldwide advertising and promotional services for the Hotel, including the
definition of policies and the preparation of advertising and promotional brochures (folders, leaflets, tariffs
and fact sheets, guide books, maps, etc.) to be distributed worldwide in H.I. hotels and sales offices; that,
furthermore, Hyatt shall provide (or cause to be provided) Hyatt's, H.I.'s or their affiliates' chain-wide sales
and marketing services, such as, Chain Marketing Services and centralized reservation services, and shall
coordinate the participation of the Hyatt Gold Passport program and any new sales and marketing or
promotional programs organized by Hyatt, H.I. or their affiliates or be implemented in H.I. hotels
worldwide; that as part of the worldwide marketing services to be provided for the Hotel, Hyatt shall
provide (or cause to be provided) from outside the Philippines, convention, business and sales promotion
services (including the maintenance and staffing of H.I.'s home office sales force and regional sales offices
in various parts of the world), publicity, public relations, and all other group benefits, services and
facilities including institutional advertising programs (which exclude advertising in which one or more
other H.I. hotels participate by mutual agreement and shares the cost thereof), comparable to or to the
same extent as furnished to other hotels operated by Hyatt and its affiliates; that these services shall be
provided by Hyatt from outside the Philippines; and that in consideration therefor, Hyatt shall be entitled
to receive monthly, as a preliminary installment of its sales and marketing fee, an amount equal to two
percent (2%) of the revenue of the Hotel.

In reply, please be informed of this Office's opinion on the following issues as follows:

1) The sales and marketing fees to be paid by NCHI to Hyatt under the Sales and Marketing
Agreement are in the nature of service income and are not to be considered as royalties.

Article 12(3) of the Philippines-Singapore tax treaty provides that:

"Article 12

"Royalties

"xxx xxx xxx

(3) The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or tapes for television or broadcasting, any patent, trade mark, design
or model, plan secret formula or process, or for the use of, or the right to use, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific experience.

"xxx xxx xxx

The treaty defines "royalties" to include "payment of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the commentaries
of the ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(royalties), (C) 1998, p. 151), such information alludes to the concept of "know-how". The definition of
know-how, which has been adopted by the said Committee, is "all the undivulged technical information,
whether capable of being patented or not, that is necessary for the industrial reproduction of a product or
process, directly and under the same conditions; inasmuch as it is derived from experience, know-how
represents what a manufacturer cannot know from mere examination of the product and mere knowledge

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 181
 of the progress of technique." In the know-how contract, one of the parties agree to impart to the other, so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public. (BIR Ruling No. DA ITAD No. 59-03 dated April 21, 2003) TcEAIH

Furthermore, in the case of Philippine Refining Company (PRC) vs CIR CTA Case No. 2872 dated
January 15, 1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from
royalties, to wit:

"To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensate for personal services, if the payee has proprietary interest
then the payment is royalty."

Applying the above discussions to the case at hand, it is clear in the Sales and Marketing
Agreement that the service fees do not fall within the definition of "royalties" under Article 12 of the
Philippines-Singapore tax treaty. Specifically, nothing in the Agreement, as represented herein, would
require transfer into the Philippines of technology, equipment or other property where the payee has
proprietary interest or would otherwise permit Hyatt to impart to NCHI their special knowledge and
experience, which remain unrevealed to the public. Inasmuch as Hyatt shall render these services using
their customary skills, then the compensation to be received therefor shall not constitute as consideration
for the use of, or the right to use, any copyright, patent, trademark, design or model, plan, secret formula
or process, or for the transfer of technology. Thus, the subject sales and marketing fees to be paid by
NCHI to Hyatt shall not be considered as royalties but shall constitute as business profits. (BIR Ruling No.
DA-ITAD-59-03 dated April 21, 2003)

2) Sales and marketing fees for services to be rendered outside the Philippines are not subject to
Philippine income tax/final tax.

In view of the representation that the services to be rendered by Hyatt in favor of NCHI shall be
provided from outside the Philippines, the fees to be paid by NCHI are to be considered income derived
from sources outside the Philippines which shall be governed by Section 23 (F) in relation to Section
28(B)(1), all of the 1997 Tax Code, to wit:

"Sec. 23. General Principles of Income Taxation in the Philippines.

(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

"xxx xxx xxx

(B) Tax on Nonresident Foreign Corporation. —

"(1) In General — Except as otherwise provided in this Code, a foreign

corporation not engaged in trade or business in the Philippines shall pay a tax equal
to thirty-five percent (35%) of the gross income received during each taxable year
from all sources within the Philippines, such as interests, dividends, rents, royalties,
salaries, premiums (except reinsurance premiums), annuities, emoluments or other
fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 182
 That effective January 1, 1998, the rate of income tax shall be thirty-four percent
(34%) effective January 1, 1999, the rate shall be thirty-three percent (33%); and
effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
(Emphasis supplied)

"xxx xxx xxx

It is clear from the aforequoted provisions that a nonresident foreign corporation is taxable only on
income derived from sources within the Philippines. However, since the services to be rendered by Hyatt
to NCHI shall be provided outside the Philippines, fees to be remitted by NCHI to Hyatt in consideration
for said services shall not be subject to Philippine income tax and consequently to withholding tax. (BIR
Ruling No. DA-ITAD-26-03 dated January 30, 2003)

3) The sales and marketing fees for services to be rendered outside Philippines are not subject to
the 10% value-added tax.

Section 108(A) of the said Tax Code of 1997 imposes a VAT equivalent to ten percent (10%) of the
gross receipts derived from the sale, or exchange of services, including the use or lease of properties. The
phrase "sale or exchange of services" means "the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration . . ." Inasmuch as it is represented that the sales and
marketing services are to be performed by Hyatt outside of the Philippines, then, the service fees to be
paid by NCHI are considered as income derived from services rendered outside the Philippines and shall
not be subject to the 10% value-added tax. (BIR Ruling [DA-293-00] dated July 28, 2000)

This ruling is issued based on 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. HIEAcC

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 183
 August 31, 2004

ITAD RULING NO. 091-04

Article 8 (Shipping and Air Transport) Philippines-Bahrain

tax treaty BIR Ruling No. 22-96

Gulf Air Company G.S.C.

Ground Floor, Don Chua Lamko Building
Leviste corner H.V. dela Costa Streets
Salcedo Village, Makati City

Attention: Mr. Roberto A. Hukom

Acting Manager (Philippines)

Gentlemen :

This refers to your letter dated May 7, 2004 requesting confirmation that profits derived by Gulf Air
Company G.S.C. (Gulf Air), beginning January 1, 2004, from the operation of aircraft in international
traffic are subject to one and one-half percent (1 1/2%) income tax pursuant to Article 8 of the recently
enforced Philippines-Bahrain tax treaty.

It is represented that Gulf Air is a foreign corporation primarily engaged in the operation of aircraft
in international traffic; that Gulf Air is organized and existing under the laws of Bahrain, with principal
office at Building 122, Road 2403, Block 224, Muharraq Town, Bahrain (as confirmed by the relevant
Registration/Renewal Certificate of a Closed Joint Stock Company issued by the Ministry of Commerce of
Bahrain); that Gulf Air is licensed by the Securities and Exchange Commission to establish a branch in the
Philippines that will provide international commercial air transport services to and from the Philippines
and Bahrain (as confirmed by the relevant Certificate issued by the Commission on January 15, 1982); and
that the branch's present address is Ground Floor, Don Chua Lamko Building, Leviste corner H.V. dela
Costa Streets, Salcedo Village, Makati City, Philippines.

In reply, please be informed that Article 8 of the Philippines-Bahrain tax treaty provides:

"Article 8

SHIPPING AND AIR TRANSPORT

"1. Profits derived by an enterprise which is a resident of a Contracting State from the
operation in international traffic of ships or aircraft shall be taxable in that State.

"2. Notwithstanding the provisions of paragraph 1, profits from sources within a Contracting
State derived by an enterprise of the other Contracting State from the operation of ships or aircraft in
international traffic may be taxed in the first-mentioned State but the tax so charged shall not exceed
the lesser of:

a) one and one-half (1 1/2) per cent of the gross revenues derived from
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 184
 sources in that State; and

b) the lowest rate that may be imposed on profits of the same kind derived
under similar circumstances by a resident of a third State.

"xxx xxx xxx"

Paragraph 1 states that profits derived by Gulf Air from the operation of aircraft in international
traffic shall be taxable in Bahrain, the State of its residence. Paragraph 2 states that such profits derived by
Gulf Air from sources in the Philippines may be taxed in the Philippines, but the tax so charged shall not
exceed 1 1/2% of the gross amount of the profits, and the lowest rate of tax that may be imposed on profits
of the same kind derived under similar circumstances by a resident of a third State (the
most-favored-nation tax rate). SaTAED

Accordingly, since the Philippines, as of this date, has not yet granted to a resident of a third State a
most-favored-nation tax rate on profits from the operation of aircraft in international traffic, such profits
derived by Gulf Air from sources in the Philippines shall be subject to tax at l 1/2% of the gross amount of
the profits. (BIR Ruling No. 22-96 dated February 22, 1996). The 1 1/2% tax shall cover profits derived by
or which accrued to Gulf Air beginning January 1, 2004, the date on which the relevant
Philippines-Bahrain tax treaty begins to take effect in the two countries (as confirmed by the reply letter
dated December 2, 2003 of this Bureau to the Department of Foreign Affairs).

The term "profits" or "revenues" as used in paragraph 2 (of Article 8) is not defined in the
Philippines-Bahrain tax treaty, hence, such term shall (under paragraph 2, Article 3 (General Definitions)
of the tax treaty) "have the meaning that it has at that time under the law of that State (Philippines) for the
purposes of the taxes to which the Convention (tax treaty) applies." Profits or revenues from the operation
of aircraft in international traffic from sources in the Philippines are described as an international air
carrier's Gross Philippine Billings under Section 28(A)(3)(a) of the National Internal Revenue Code of
1997 (Tax Code), defined below:

"Gross Philippine Billings refers to the amount of gross revenue derived from carriage of
persons, excess baggage, cargo and mail originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the place of payment of the ticket or
passage document: Provided, That tickets revalidated, exchanged and/or indorsed to another
international airline form part of the Gross Philippine Billings if the passenger boards a plane in a port
or point in the Philippines; Provided, further, that for a flight which originates from the Philippines,
but transshipment of passenger takes place at any port outside the Philippines on another airline, only
the aliquot portion of the cost of the ticket corresponding to the leg flown from the Philippines to the
point of transshipment shall form part of Gross Philippine Billings."

The computation of an international air carrier's Gross Philippine Billings is explained in detail in
Revenue Regulations No. 15-02 dated May 30, 2002, which we attached herewith for your reference.

Finally, aside from the 1 1/2% income tax on Gross Philippine Billings, Gulf Air is also liable to
pay a tax of three percent (3%) of its quarterly gross receipts, as required under Section 118 of the Tax
Code. The tax base of the 3% common carrier's tax shall be same as that for computing the Gross
Philippine Billings (Section 10, Revenue Regulations No. 15-02).

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

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 185
 herein parties are concerned.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

August 24, 2004

ITAD RULING NO. 090-04

Sections 23 (F), 42 (A) (3) and 108 (A)

National Internal Revenue Code of 1997
BIR Ruling No. DA-ITAD 56-04

Laya Mananghaya & Co.

Certified Public Accountants and Management Consultants
22 Floor Philamlife Tower
8767 Paseo de Roxas Street
Makati City

Attention: Atty. Francisco G. Tagao

Principal
Mr. Ronald L. Carreon
Director
Tax and Corporate Services

Gentlemen :

This refers to your letter dated July 9, 2004 requesting confirmation that the service fees to be paid

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 186
 by Inter-National Starch & Chemical Co., Inc. (NSC Philippines) to National Starch & Chemical
(Singapore) Pte., Ltd. (NSC Singapore) 1 are exempt from Philippine income tax and from value-added tax
(VAT) pursuant to the pertinent sections of the National Internal Revenue Code of 1997 (Tax Code).

It is represented that NSC Singapore is a foreign company organized and existing under the laws of
Singapore with principal office at 10 Science Park Road, Nos. 04-21 The Alpha, Singapore Science Park
II, Singapore 117684, as confirmed by the Certificate of Incorporation of Private Company issued by the
Register of Companies on November 1, 1982; that NSC Singapore is not registered either as a corporation
or as a partnership licensed to engage in business in the Philippines as confirmed by the Certification of
Non-Registration issued by the Securities and Exchange Commission on June 23, 2004; that NSC
Philippines, on the other hand, is a domestic company organized and existing under the laws of the
Philippines with principal office at 2 Perfecto Drive, Sta. Maria Industrial Estate, Bagumbayan, Taguig,
Metro Manila, Philippines; that NSC Philippines and NSC Singapore are both in the business of
production and sales of adhesives, resins, starch, and other similar products; that, on April 26, 1999, NSC
Philippines and NSC Singapore entered into a Service Level Agreement (Agreement) whereby NSC
Singapore agreed to provide NSC Philippines the following services, all done entirely in Singapore:

1. Human Resources Support — advice relating to payroll, recruitment, contracts of

employment, labor laws, trade union relations, unfair dismissal (or similar) claims,
employment of expatriates, and other associated matters;

2. Engineering Expertise and Project Management — assistance in implementing good

manufacturing practices and in planning and outsourcing plant equipment resources;

3. Finance and Administration Support — advice and assistance on cost and investment
accounting, financial and management reporting, and business analysis;

4. Purchasing Support — advice and assistance on the negotiations of contracts for the
purchase of key materials;

5. Marketing Support — market intelligence, newsletters, and advice on new product

launches; and

6. Other Services — other ancillary services like advice relating to public affairs and
public relations;

that the provision of the subject services will not involve the provision or licensing by NSC Singapore of
any know-how to NSC Philippines; that the Agreement, which retroactively took effect on January 1,
1998, shall continue from year to year unless terminated by either party; that, in consideration for said
services, NSC Philippines shall pay NSC Singapore, in US dollars and on a quarterly basis, service fees
calculated based on the data sheet or spreadsheet prepared by NSC Singapore as of December l of a
particular year, reflecting therein the projected charges of each person who provides such services and the
basis of allocation for such charges; that for 1998, the service fees due and payable to NSC Singapore was
US$ 254,000; and that on May 11, 2004, NSC Philippines and NSC Singapore have agreed that the
Agreement shall expire on December 31, 2004, but shall be subject to renewal for another three years if
the parties will agree.

In reply, please be informed that Section 23(F) of the Tax Code provides:

"Section 23. General Principles of Income Taxation in the Philippines. — Except when
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 187
 otherwise provided in this Code:

"xxx xxx xxx

"(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines."

According to Section 23(F), a foreign corporation like NSC Singapore is taxable only on income
derived from sources within the Philippines. In the case of income from the provision of services, such
income is considered derived from sources within the Philippines if the services are performed in the
Philippines, as stated in Section 42(A)(3) of the Tax Code below:

"Section 42. Income from Sources Within the Philippines. —

"(A) Gross Income from Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx

"(3) Services. — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx

Accordingly, since the subject services will be carried out entirely in Singapore, service fees
therefor, including those for 1998 amounting to US$ 254,000, to be paid by NSC Philippines to NSC
Singapore, being income not derived from sources within the Philippines by a foreign corporation, are
therefore exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 56-04 dated May 31, 2004)

Similarly, the subject fees are not subject to ten percent (10%) VAT imposed under Section 108(A)
of the Tax Code below:

"Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.

The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration . . . "

Section 108(A) clearly states that the sale or-exchange of services subject to VAT include only
those services that are performed in the Philippines. Accordingly, since the subject services will not be
performed in the Philippines, service fees therefor, including those for 1998 amounting to US$254,000, to
be paid by NSC Philippines to NSC Singapore are therefore exempt from VAT. (BIR Ruling No.
DA-ITAD 56-04 dated May 31, 2004)

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. TaDCEc

Very truly yours,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 188
 Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue
Footnotes
1. Formerly, National Starch & Chemical (Asia) Pte., Ltd., and, originally, Staybond Adhesives (Pte.) Ltd.

August 20, 2004

ITAD RULING NO. 089-04

Article 10, Philippines-Japan tax treaty

BIR Ruling No. ITAD-20-99

Miyasaka Polymer (Phils.), Inc.

20 Ampere Street
Light Industry & Science Park of the Phils.
Bo. Diezmo, Cabuyao, Laguna

Attention: Hiroki Itoh

VP-Treasurer

Gentlemen :

This refers to your letter dated April 23, 2004 requesting for the approval of a preferential tax treaty
rate of ten (10%) percent on the dividend payments by Miyasaka Polymer (Philippines), Inc. (Miyasaka
Polymer) to Miyasaka Rubber Co. Ltd. (Miyasaka Rubber) under the Philippines-Japan tax treaty.

It is represented that Miyasaka Rubber is a nonresident foreign corporation with business address at
5350 Toyohira Chino-shi, Nagano-ken, Japan; that it is not registered either as a corporation or a
partnership licensed to do business in the Philippines per certification issued by the Securities and
Exchange Commission dated May 5, 2004; that Miyasaka Polymer is a corporation organized and existing
under the laws of the Philippines with its place of business at 20 Ampere St., Light Industry and Science
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 189
 Park of the Philippines, Bo. Diezmo, Cabuyao, Laguna; that as of December 1, 2003, Miyasaka Rubber is
the registered and legal owner of One Million Seven Hundred Forty Nine Thousand Nine Hundred Ninety
Five (1,749,995) shares valued at One Hundred Seventy Four Million Nine Hundred Ninety Nine
Thousand Five Hundred Pesos (P174,999,500.00), consisting of 99.99% of the total voting shares of
Miyasaka Polymer; that on April 19, 2004, Miyasaka Polymer declared cash dividends in the total amount
of P26,250,000.00 to be distributed in favor of all its stockholders of record in proportion to their
respective equity holdings in the corporation on June 1, 2004; that the cash dividends of Miyasaka Rubber
shall be paid in Japanese Yen through offsetting from the accounts receivable of Miyasaka Rubber.

In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:

"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. CADacT

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

"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

Based on the abovequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a company which is a resident of Japan at a rate not exceeding 10 % of the gross amount of
dividends if the latter holds directly at least 25 percent either of the voting shares or of the total shares of
the during the period of six (6) months immediately preceding the date of payment of the dividends.

Considering that during the period from December 1, 2003 up to June 1, 2004, which is 6 months
from date of payment per Board Resolution dated April 19, 2004, Miyasaka Rubber directly holds 99.99%
of the voting shares of Miyasaka Polymer, this Office is of the opinion as it hereby holds that the dividend
payments of Miyasaka Polymer to Miyasaka Rubber are subject to the 10 % preferential tax rate pursuant
to Article 10(2)(a) of the Philippines-Japan tax treaty. (BIR Ruling No. ITAD-20-99 dated August 18,
1999)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 190
 This ruling is issued based on 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
Bureau of Internal Revenue

August 20, 2004

ITAD RULING NO. 088-04

Sec. 28 (B) (5) (b) of the NIRC of 1997

BIR Ruling No. ITAD-189-00

Picazo Buyco Tan Fider & Santos

Law Offices
18th, 19th & 17th Floors, Liberty Center
104 H.V. dela Costa Street
Salcedo Village, Makati City

Attention: Ms. Ma. Adelina S. Gatdula

Gentlemen :

This refers to your letter dated June 4, 2004, on behalf of your client ITW TEXWIPE
PHILIPPINES, INC. (ITW-Phil), requesting confirmation of your opinion that an American resident
company which receives cash dividends from a domestic corporation is entitled to avail of the preferential
tax rate provided for under the National Internal Revenue Code of 1997 (NIRC of 1997) in relation to the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 191
 Philippines-United States of America tax treaty.

It is represented that ILLINOIS TOOL WORKS INC. (ITW-US) is a nonresident foreign

corporation duly organized and existing under the laws of the United States of America (USA) with
principal office at 3600 West Lake Avenue, Glenview, Illinois 60025, USA; that it is not registered either
as a corporation or as a partnership licensed to do business in the Philippines per certification issued by
the Securities and Exchange Commission dated April 15, 2004; that ITW-Phil is a corporation organized
and existing under the laws of the Philippines with principal office at 4 Circuit Street, LISP l, SEPZ, Bgy.
Diezmo, Cabuyao, Laguna; that ITW-US owns 99.99% of the issued and outstanding capital stock of the
ITW-Phil as of November 30, 2003, February 20, 2004 and as of June 4, 2004; that on February 20, 2004,
the Board of Directors of ITW-Phil declared cash dividends, in the amount of One Hundred Ninety
Million Four Hundred Thousand Pesos (P190,400,000) out of its unrestricted retained earnings in the
amount of Three Hundred Eleven Million Eight Hundred Fifteen Thousand Six Hundred Thirty Pesos
(P311,815,630) available in its books as of November 30, 2003, to all stockholders of record as of the date
of dividend declaration in proportion to their respective shareholdings therein.

In reply, please be informed that Section 28(B)(5)(b) of the NIRC of 1997 provides:

Section 28. Rates of income tax on foreign corporation. —

"xxx xxx xxx"

"(B) Tax Nonresident Foreign Corporations. —

"xxx xxx xxx"

"(5) Tax on Certain Incomes Received by a Nonresident Foreign

Corporation. — SITCEA

"xxx xxx xxx"

(b) Intercorporate Dividends. — A final withholding tax at the rate of fifteen percent (15%)
is hereby imposed on the amount of cash and/or property dividends received from a domestic
corporation, which shall be collected and paid as provided in Section 57(a) of this Code, subject to the
condition that the country in which the nonresident foreign corporation is domiciled, shall allow a
credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in
the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent for 1998, eighteen
percent (18%) for 1999, and seventeen percent (17%) thereafter, which represents the difference
between the regular income tax of thirty-five percent (35%) in 1997, thirty-four percent (34%) in
1998, thirty-three percent (33%) in 1999 and thirty-two percent (32%) thereafter on corporations and
fifteen percent (15%) tax on dividends as provided in this subparagraphs;

"xxx xxx xxx"

Based on the foregoing, the regular income tax rate of thirty-two percent (32%) applicable to
dividend remittances to nonresident foreign corporate stockholders of a Philippine corporation shall allow
such foreign corporation a tax credit for taxes deemed paid in the Philippines. In other words, in the
instant case, the reduced fifteen percent (15%) dividend tax rate is applicable if the USA shall allow tax
credit in favor of ITW-US for "taxes deemed paid in the Philippines" against its US taxes.

The Supreme Court in Commissioner of Internal Revenue vs. Procter and Gamble Philippine

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 192
 Manufacturing Corp. (PNG) and Court of Tax Appeals (December 2, 1991), in ruling that the USA
domiciled stockholders of PNG is entitled to the preferential fifteen percent (15%) dividend tax rate,
further declared that the NIRC, as amended, does not in fact require that the "deemed paid" tax credit shall
actually been granted but merely that the country of domicile of the foreign stockholder corporation shall
allow such foreign corporation a tax credit for "taxes deemed paid in the Philippines," applicable against
the tax payable to the domiciliary country by the foreign stockholder corporation.

Such being the case, and in conformity with the aforementioned Supreme Court decision, your
opinion that the dividends to be remitted by your company to ITW-US are subject to the preferential tax
rate of 15 percent pursuant to the provisions of the Tax Code of 1997 is hereby confirmed. (BIR Ruling
No. ITAD-189-00 dated December 7, 2000)

However, ITW-Phil is required to submit to this Bureau an authenticated certification of the amount
of the "deemed paid" tax credit actually and subsequently granted by the U.S. tax authorities to ITW-US
for the taxable year involved. Failure to submit the said certification within a reasonable time would result
in the imposition of a deficiency assessment for the seventeen (17) percentage points differential.

This ruling is issued on the basis of the foregoing facts represented. However, if upon investigation,
it will 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
Bureau of Internal Revenue

August 12, 2004

ITAD RULING NO. 087-04

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 193
 Articles 5 & 12, Philippines-Netherlands tax treaty
Sec. 28 (A) (i) & 108 (B) (2), Tax Code of 1997
BIR Ruling No. DA-ITAD 100-03

Lina Lavares Didulo Guiao & Leviste-Avellana

Law Offices
Unit 2202 Asia Tower
Paseo de Roxas corner Benavidez Street
Legaspi Village, Makati City

Attention: Atty. Jose Leonilo V. Didulo

Gentlemen :

This refers to your application for relief from double taxation dated May 26, 2004, on behalf of
United International Pictures B.V. (UIP BV), requesting confirmation that: (1) the execution of the
License Agreement between UP BV and Solar Entertainment Corporation (Solar) will not create a
permanent establishment under the Philippines-Netherlands tax treaty; (2) the income generated by UIP
BV on the exhibition of motion pictures in the Philippines relative to the License Agreement with Solar is
subject to a fifteen percent (15%) preferential tax rate on royalty payments; and (3) the execution of a
Service Agreement between UIP BV and United International Pictures Aktiebolag-Philippine Branch (UIP
AB Philippine Branch) in the areas of management, accounting and administration, data gathering,
advisory and marketing services will not create a permanent establishment in the Philippines.

It is represented that UIP BV is a corporation organized and existing under the laws of the
Netherlands with principal address at Rijswijkstraat 175, 1062 EV Amsterdam, The Netherlands; that it is
not registered either as a corporation or as a partnership licensed to do business in the Philippines per
Certification of Non-Registration issued by the Securities and Exchange Commission dated March 22,
2004; that Solar is a corporation organized and existing under the laws of the Philippines with principal
address at No. 16, Jupiter corner Antares Sts., Bel Air Village III, Makati City; that on March 18, 2004,
UIP BV and Solar entered into a License Agreement whereby UIP BV granted Solar exclusive license
under copyright to exploit the Theatrical Rights and the Non-Theatrical Rights in the Pictures in the
Philippines during the License Period as specified in the License Agreement; that "Theatrical Rights"
include the right to exploit a motion picture by exhibition in 35mm or larger gauge widths in cinemas or
other places of viewing where the general public is admitted and where an admission price is charged,
while "Non-Theatrical Rights" refers to the right to exploit a motion picture by exhibition in any gauge
widths, video cassettes, video discs or any analogous means before an audience (a) by institutions or
organisations not primarily engaged in the business of exhibiting motion pictures to the public including,
without limitation, educational institutions, churches, restaurants, bars, clubs, trains, coaches, libraries,
government or military installations, Red Cross facilities, oil fields and oil rigs, (b) by exhibition in hotels,
motels, apartment complexes, condominiums and hospitals by means of closed-circuit television systems
where the transmission originates within or in the immediate proximity of such place, or (c) by exhibition
on ocean-going vessels, wherever located and having whatever destination, flying the flag of the
Philippines or customarily supplied out of the Philippines; that in consideration thereof, UIP BV shall pay
Solar Distribution Fee equal to 6 ½% of the gross receipts, and UIP BV shall receive the amount equal to
the gross receipts for each picture after payments of (a) the Distribution Fee of Solar and (b) Distribution

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 194
 Costs.

It is further represented that UIP BV entered into a Service Agreement with United International
Pictures AB — Philippine Branch (UIP AB Philippine Branch), a branch of United International Pictures
AB (UIP AB), a foreign corporation organized under the laws of Sweden licensed to do business in the
Philippines through a branch as certified by the Securities and Exchange Commission; that under the said
Service Agreement, UIP AB Philippine Branch undertakes to provide UIP BV corporate support services
in the areas of management, accounting and administration, data gathering, advisory and marketing
services relative to the implementation of the License Agreement in the Philippines; that UIP AB
Philippine Branch is not authorized to conclude contracts on behalf of UIP BV either with Solar or with
any other third party in the Philippines, nor does it have any power legally or contractually to bind UIP BV
in any manner; and that it is not an agent of UIP BV and the Service Agreement does not create a
partnership or joint venture relationship between the two contracting parties; that in consideration for the
provision of the services by UIP AB Philippine Branch, UIP BV shall reimburse to or cause to be
reimbursed to UIP AB Philippine Branch all costs and operating expenses authorized in advance by UIP
BV and incurred by UIP AB Philippine Branch in connection with the services; and pay to UIP AB
Philippine Branch a fee equal to five percent (5%) of such costs and operating expenses. AEHTIC

In reply, please be informed of this Office's opinion on the following issues as, follows:

(1) The execution of the License Agreement between UIP BV and Solar Entertainment
Corporation (Solar) will not create a permanent establishment of UIP BV under the
Philippines-Netherlands tax treaty

Article 5 of the Philippines-Netherlands tax treaty provides that:

"Article 5

"PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on:

"2. The term "permanent establishment" includes especially:

"(a) a place of management;

"(b) a branch;

"(c) an office;

"(d) a factory;

"(e) a workshop;

"(f) a mine, quarry or other place of exploration or extraction of natural

resources;

"(g) a building site or construction or assembly project or supervisory

activities in connection therewith, where such site, project or activity continues for a
period of more than 183 days;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 195
 "(h) the furnishing of services including consultancy services by an
enterprise through an employee or other personnel where activities of that nature
continue (for the same or a connected project) for a period or periods exceeding in
the aggregate 183 day within any twelve-month period.

"xxx xxx xxx"

The aforementioned provisions clearly enumerate what comprises a permanent establishment.

Considering that UIP BV does not have a fixed place of business in the Philippines to which its business is
carried on, UIP BV is considered as not having a permanent establishment in the Philippines. However, if
in furtherance of the execution of the License Agreement, UIP BV will furnish services to Solar through
the former's employees, in the Philippines for a period or periods exceeding in the aggregate 183 days,
then such would constitute a permanent establishment of UIP BV.

(2) The income generated by UIP BV on the payments made for the right to exploit a motion
picture by exhibition in the Philippines relative to the License Agreement with Solar is subject to 15%
preferential tax rate on royalty payments

Article 12 of the same treaty provides:

"Article 12

"ROYALTIES

"1. Royalties arising in one of the States and paid to a resident of the other State may be
taxed in that other State.

"2. However, such royalties may also be taxed in the State in which they arise, and according
to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged
shall not exceed:

"(a) 10 per cent of the gross amount of the royalties where the royalties are
paid by an enterprise registered, and engaged in preferred areas of activities in that
State; and

"(b) 15 per cent of the gross amount of the royalties in all other cases.

"3. The competent authorities of the States shall by mutual agreement settle the mode of
application of paragraph 2.

"4. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films or tapes for radio or television broadcasting, any patent, trademark,
design or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial, commercial or scientific
experience. . . " (emphasis supplied)

Based on the above, royalties arising in the Philippines and paid to a resident of Netherlands who is
the beneficial owner thereof may be subject to the Philippine income tax at a rate not exceed ten percent
(10%) where the royalties are paid by an enterprise registered, and engaged in preferred areas of activities,
or 15% of the gross amount of royalties in all other cases.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 196
 It is clear that Article 12(4) of the above treaty specifically defines royalties to include payments
received as consideration for "artistic or scientific work including cinematograph films or tapes for radio
or television broadcasting". Therefore, this Office is of the opinion and so holds that the income of UIP
BV under the subject License Agreement including the right to exploit a motion picture by exhibition in
the Philippines are royalties subject to the preferential tax rate of 15% of the gross amount of royalties
pursuant to the Philippines-Netherlands tax treaty. (BIR Ruling No. DA-ITAD-100-03 dated July 16, 2003)

Moreover, the herein royalties are subject to the 10% value-added tax (VAT) pursuant to Section
108 of the Tax Code of 1997. Accordingly, Solar, being the resident withholding agent and payor in
control of the payment, shall be responsible for the withholding of the 10% VAT on such license fees
before paying them to UIP BV. In remitting the VAT withheld, Solar shall use BIR Form No. 1600
(Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). If Solar is a
VAT-registered taxpayer, the duly filed BIR Form No. 1600 and proof of payment thereof shall serve as
documentary substantiation for the claim of input VAT by Solar upon filing its own VAT. If Solar is a
non-VAT-registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service
purchased which may be treated as an "expense" or "asset" whichever is applicable. In addition, Solar is
required to issue the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate
upon request of UIP BV, the first three copies thereof to be given to UIP BV and the fourth copy to be
retained by Solar as its file copy.

In view of all the foregoing, Solar shall be responsible for the withholding of the 10% VAT and
income tax at the rate of 15% of the gross amount of royalties.

(3) The execution of a Service Agreement between UIP BV and United International Pictures
Aktiebolag-Philippine Branch (UIP AB Philippine Branch) in the areas of management, accounting and
administration, data gathering, advisory and marketing services will not likewise create a permanent
establishment in the Philippines.

Considering that the services/activities in the Philippines under the Service Agreement shall be
performed by UIP AB Philippine Branch, a Philippine entity which, as represented, is neither an agent
authorized to conclude contracts for UIP BV nor does it have power to legally bind UIP BV in any
manner, then this Office is of the opinion and so holds that the execution of the above Service Agreement
will not create a permanent establishment of UIP BV in the Philippines.

The fees in payment for the herein services rendered by UIP AB Philippine Branch under the
Service Agreement shall be subject to tax at either the Minimum Corporate Income Tax (MCIT) of two
percent (2%) of its gross income as defined in Section 28(2) or the thirty two (32%) of its taxable income
under Section 28(1) both of the Tax Code of 1997, whichever is higher. For this purpose, the comparison
between the normal income tax payable by the corporation and the MCIT shall be made at the end of the
taxable year. On the other hand, payments received by UIP AB — Philippine Branch in foreign currency
inwardly remitted into its Philippine bank account qualifies as VAT zero-rated pursuant to Section
108(B)(2) of the Tax Code, as amended, provided that UIP AB Philippine Branch is a VAT registered
entity. (American Express International, Inc. — Philippine Branch vs. Commissioner of Internal Revenue,
CTA Case No. 5813)

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. TEAcCD

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 197
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

August 12, 2004

ITAD RULING NO. 086-04

Articles 13 (2) (b) (iii), Philippines-United States tax treaty;

Article 12 (2) (b), Philippines-China tax treaty; Section 108,
NIRC; RMC No. 46-2002

Quisumbing Torres Law Offices

12th floor, Net One Center
26th Street corner 3rd Avenue
Crescent Park West
Bonifacio Global City
Taguig, Metro Manila

Attention: Atty. Jose R. Sandejas

Gentlemen :

This refers to your letter dated May 5, 2004, on behalf *(1) ITW International Holdings, Inc.
(ITWIHI), requesting confirmation that the royalty payments by ITW Ampang Industries Phil., Inc.
(ITWAIPI) to ITWIHI will be subject to the preferential tax rate of ten percent (10%) pursuant to the
"most-favored-nation clause" (MFN) of the Philippines-United States tax treaty.

It is represented that ITWIHI is a nonresident foreign corporation duly organized and existing under
and by virtue of the laws of the State of Delaware, United States of America with principal place of
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 198
 business at 1300 Market St., Suite 504, Wilmington, Delaware 19801, USA; that ITWIHI is not registered
either as a corporation or as a partnership licensed to do business in the Philippines per Certification of
Non-Registration issued by the Securities and Exchange Commission dated April 27, 2004; that ITWIHI is
the owner of the right, title and interest in and to the data, experience and know-how relating to the
manufacture, assemble, sales and use of certain products (Products), including all designs, drawings,
technical data, specifications, bills of materials and the like (Collectively referred to as Licensed
Technology); that ITWIHI is also the owner of the right, title and interest in and to the patents and the
trademarks applicable to the Products and it has substantial marketing expertise in connection with the
Products and trademarks; that ITW Ampang Industries Philippines, Inc. (ITWAIPI) is a corporation duly
organized and existing under and by virtue of the laws of the Philippines with principal place of business
at G/F SFB#1, Baguio Ecozone, Loakan Road, Baguio City; that on September 17, 2003, ITWIHI and
ITWAIPI entered into a License Agreement whereby ITWIHI grants to ITWAIPI a right and license to
practice the former's patents, Licensed Technology and improvements thereto for the manufacture of the
Products in the Philippines; that ITWAIPI is also granted the license for the use of the patents, trademarks
and the marketing support on and in connection with the sale of the Products in and outside the Philippines
throughout the rest of the world, and is allowed to affix ITWIHI trademarks to or on the Products,
packaging, labeling, advertising, promotional and display material sold, used or distributed in connection
with the Products; that in consideration for the use of the patents, trademarks, Licensed Technology and
other intellectual property rights that will be provided by ITWIHI, ITWAIPI will pay ITWIHI a royalty
equal to four percent (4%) of the net sales price of each of the Products and all other products
manufactured or sold by ITWAIPI, except products sold to other subsidiaries and/or affiliates of ITWIHI.

In reply, please be informed that Article 13 of the Philippines-United States tax treaty provides,
viz.: AaSHED

"Article 13

"Royalties

"(1) Royalties derived by a resident of one of the Contracting States from sources

within the other Contracting State may be taxed by both Contracting States.

"(2) However, the tax imposed by that other Contracting State shall not exceed —

(a) In the case of the United States, 15 percent of the gross amount of the
royalties, and

(b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties,

(ii) 15 percent of the gross amount of the royalties, where the

royalties are paid by a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, and

(iii) the lowest rate of Philippine tax that may be imposed on

royalties of the same kind paid under similar circumstances to a resident of a
third State. (Emphasis supplied)

"(3) The term "royalties" as used in this Article means payments of any kind received as a

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 199
 consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic film or films or tapes used for radio or television broadcasting, any
patent, trademark, design or model, plan, secret formula or process, or other like right or property,
or for information concerning industrial, commercial or scientific experience. The term "royalties"
also includes gains derived from the sale, exchange or other disposition of any such right or
property which are contingent on the productivity, use, or disposition thereof.

"xxx xxx xxx"

and in relation thereto, Article 12 of the Philippines-China tax treaty provides, viz.:

"Article 12

"Royalties

"(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State. ESTcIA

"(2) However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the recipient is the beneficial owner of the royalties,
the tax so charged shall not exceed:

(a) 15 per cent of the gross amount of royalties arising from the use of, the
right to use, any copyright of literary, artistic or scientific work including
cinematograph films or tapes for television or broadcasting, or

(b) 10 per cent of the gross amount of royalties arising from the use of, or
the right to use, any patent, trademark, design or model, plan, secret formula or
process, or from the use of, or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial, commercial or scientific
experience.

"xxx xxx xxx"

Based on the above-mentioned provisions, the tax imposed on royalties derived by a resident of the
United States from sources within the Philippines shall be the lowest rate of Philippine tax that may be
imposed on royalties of the same kind paid under similar circumstances to a resident of a third State.
Relative thereto, it is noteworthy that under Article 12 (2) (b) of the Philippines-China tax treaty, the tax
charged shall not exceed 10% of the gross amount of royalties.

In the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. and Court of
Appeals, G.R. No. 127105, promulgated on June 25, 1999, the Supreme Court interpreted the
"most-favored-nation" clause, particularly the phrase "paid under similar circumstances", as referring to
the manner of payment of taxes and not to the subject matter of the tax which is royalties. (BIR Ruling No.
DA-ITAD-16-04 dated February 20, 2004) EICDSA

A plain reading of Article 23 of the Philippines-United States tax treaty and Article 23 of the
Philippine-China tax treaty, though differently worded, plainly reveal a similarity on the provisions on
relief from or avoidance of double taxation to their respective residents. Thus, the tax on royalty payments
to residents of United States and China are paid under similar circumstances, i.e., the amount of royalty
income tax paid and accrued to the Philippines under the respective tax treaties is available tax credit

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 200
 against the income tax payable in their respective countries.

Such being the case, this Office is of the opinion and so holds that the royalty payments of
ITWAIPI and ITWIHI under the said License Agreement are subject to final withholding tax at the rate of
10% pursuant to the "most-favored-nation" provision of the Philippine-United States tax treaty in relation
to the Philippines-China tax treaty effective January 1, 2002. [Revenue Memorandum Circular (RMC) No.
46- * (2)payment is paid or payable, or the income payment is accrued or recorded as an expense or asset,
whichever is applicable, and whichever comes first. The term "payable" refers to the date the obligation
become due, demandable, or legally enforceable. [Section 4-Time of Withholding, Revenue Regulations
(RR) No. 12-2001]

Moreover, under Section 108 of the National Internal Revenue Code (Tax Code) of 1997, the lease
or the use of property or property rights is embraced within the definition of "sale or exchange of services"
and is subject to VAT. Under current regulations, the sale of services to ECOZONE Enterprises may be
considered effectively zero-rated for VAT purposes but subject to the limitation that the sales of service is
made to persons or entities who enjoy indirect tax exception [Section 4.102 (c), Revenue Regulations No.
7-95]. Since there is no express provision under Republic Act (RA) No. 7916 or the PEZA law granting
indirect tax exemption to ECOZONE Enterprises, the recognition of zero-rated sale of services is made to
rest on the Cross Border Doctrine or Destination Principle of the VAT system, viz.: "the country taxes all
value-added, at home and abroad, for goods that have as their destination the consumers of that country.
Exports are exempt, imports are taxable. . . ." (VAT Ruling No. 009-99 dated January 21, 1999)

The same principle is applicable to the case at hand. It should be noted that the transfer of
technology is in connection with the manufacture of products for export. However, instead of zero-rating
which the non-resident supplier cannot avail of, the provision for exempt transaction under Section 109 of
the Tax Code which provides VAT exemptions for transactions which are exempt under special laws, e.g.,
RA 7916 or PEZA law, is particularly applicable to the instant case. In the case of payment for lease or
royalties to a non-resident owner, the responsibility for withholding the VAT and paying the same rest on
the payor. However, since PEZA-registered export enterprise may not be passed on with nor claim input
VAT, then its payment of royalties to a non-resident lessor, such as ITWIHI should be, as it is hereby
confirmed to be exempt from VAT. (VAT Ruling No. 095-99 dated September 14, 1999.)

This ruling is issued based on 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. EHScCA

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 201
 August 12, 2004

ITAD RULING NO. 085-04

Art. 5&7, Philippines-Singapore tax treaty

Sec. 108 of the NIRC of 1997
BIR Ruling No. DA-ITAD-53-02

Abenson, Inc.
Benito Building, #11 Sheridan Street
Mandaluyong City

Attention: Ms. Ruby Muñoz

Accounting Manager

Gentlemen :

This refers to your letter dated April 13, 2004, requesting for a relief from double taxation for the
payments made by Abenson, Inc. (Abenson) to Addison Design Consultants Pte Ltd. (Addison), under the
"Retail Brand Identity Program" Agreement between the parties pursuant to the Philippines-Singapore tax
treaty.

It is represented that Addison is a nonresident foreign corporation organized and existing under the
laws of Singapore with office address at 200 Cantonment Road, #04-02/03 Southpoint, Singapore 089763;
that it has a representative office in the Philippines located at 9/F Unit 908 National Life Insurance Bldg.,
Ayala Ave., Makati City; that the representative office undertakes the promotion of the company's
business activities and explores the potential of the Philippine market; that on March 16, 2004, Abenson
and Addison entered into a "Retail Brand Identity Program" (Agreement, for brevity), the scope of work
under the Agreement includes the creation of a new retail brand design system for Flagship Store, Home
Plus, and Shopping Center for Abenson; that the final deliverable under the agreement will be a
Trademark Production Artwork in the form of soft copy CD-ROM only for all printed materials listed and
design intent drawings and technical specifications for signage requirements; that the duration of the
design project between Addison and Abenson will take less than one month to complete per certification
issued by Abenson dated April 14, 2004; that in consideration for the services rendered by Addison,
Abenson will pay them a service fee in a total amount of P555,000.00; that when the whole program is
completed and upon full payment of fees and out-of-pocket expenses due to Addison, Addison will
transfer the copyright of the design to Abenson; and that any other work developed in the course of the
program remains the property of Addison.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 202
 In reply, please be informed that Article 7(1) of the Philippines-Singapore tax treaty provides:

"Article 7

Business Profits

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated herein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx"

In relation thereto, paragraphs (1), (2) and (3) of Article 5 of the same treaty provide, viz:

"Article 5

"Permanent Establishment

"1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on. DaEcTC

"2. The term "permanent establishment" includes especially but is not limited to:

a) A seat of management;

b) A branch;

c) An office,

d) A store or other sales outlet;

e) A factory ;

f) A workshop;

g) A warehouse, in relation to a person providing storage facilities for

others;

h) A mine, quarry, or other place of extraction of natural resources;

i) A building site or construction or assembly project or installation

project or supervisory activities in connection therewith, provided such site, project
or activity continues for a period more than 183 days; and

j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days.

"3. Notwithstanding paragraphs 1, 2, and 4, a permanent establishment shall be deemed not

to include:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 203
 a) the use of facilities solely for the purpose of storage, display or
occasionally delivery of goods or merchandise belonging to the enterprise;

b) the maintenance of a stock of goods or merchandise belonging to the

enterprise solely for the purpose of storage, display or occasional delivery;

c) the maintenance of a stock of goods or merchandise belonging to the

enterprise solely for the purpose of processing by another enterprise;

d) the maintenance of a fixed place of business solely for the purpose of

purchasing goods or merchandise, or for collecting information, for the enterprise;

e) the maintenance of a fixed place of business solely for the purpose of

advertising, for the supply of information, for scientific research or for similar
activities which have a preparatory or auxiliary character, for the enterprise.

"xxx xxx xxx"

Based on the foregoing, if a corporation which is a resident of Singapore does not carry on business
in the Philippines through a permanent establishment situated therein, the profits of the Singaporean
corporation shall not be subject to Philippine income tax. For this purpose, a corporation which is a
resident of Singapore may be deemed to have a permanent establishment in the Philippines if, among
others, the furnishing of services through its employees continue (for the same or a connected project)
within the Philippines for a period or periods aggregating more than 183 days.

Considering that the abovementioned services will be performed by Addison staff based in
Singapore who will liaise with Abenson staff, and in case it would be necessary for Addison staff to
conduct regular visits in the Philippines, their stay here will not exceed 183 days in any calendar year,
Addison cannot be considered to have a permanent establishment in the Philippines. Hence, the services
fees paid to Addison under their Agreement are not subject to Philippine income tax. (BIR Ruling No.
DA-ITAD-53-02 dated April 16, 2002)

However, the fees paid by Abenson for the services rendered in the Philippines are subject to the
10% value-added tax pursuant to Sec. 108 of the Tax Code. Accordingly, Abenson being the payor in
control of the payment shall be responsible for the withholding of VAT on such fees on behalf of Addison
by filing a separate VAT return for and on behalf Addison using BIR Form 1600 (Monthly Remittance
Return of Value-Added Tax and other Percentage Taxes Withheld). The duly filed BIR Form 1600 and
proof of payment thereof shall serve as sufficient basis for the claim of input tax to be applied against the
output tax that may be due from Abenson if it is a VAT-registered taxpayer. In case Abenson is a
non-VAT registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service
purchased or treated as expense, whichever is applicable. In addition, Abenson is required to issue the
Certificate of Creditable Tax Withheld at Source (BIR Form 2307) in quadruplicate upon request of
Addison, the first three copies thereof to be given to Addison and the fourth copy to be retained by
Abenson as its file copy. [Section 4,& 6, Revenue Regulations 4-2002]

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. aDTSHc

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 204
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

August 4, 2004

ITAD RULING NO. 084-04

Article 5 & 8, Philippines-United States tax treaty

Sec. 28 (B) (1), Tax Code of 1997
BIR Ruling No. ITAD-59-98

Atty. Nestor P. Nuez & Associates

8/F, CIF Towers, J. Luna Ave.,
cor R. Humabon Ave.
North Reclamation Area, Cebu City

Attention: Atty. Nestor P. Nuez

Gentlemen :

This refers to your application for relief from double taxation dated May 14, 2004, on behalf of
your client CP Kelco Philippines Inc. (CP Kelco-Phils), requesting confirmation that the payment of
service fees to CP Kelco US, Inc. (CP Kelco-US), a US-based company, is not subject to income tax,
withholding tax and value-added tax (VAT), pursuant to the Philippines-United States tax treaty.

It is represented that CP Kelco-US is a nonresident foreign corporation organized and existing

under the laws of the State of Delaware, USA with principal office at 311 S. Wacker Drive, Suite 3700,
Chicago, Illinois 60606, USA; that it is not registered either as a corporation or as a partnership licensed to
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 205
 engage in trade or business in the Philippines per certification issued by the Securities and Exchange
Commission dated December 17, 2003; that CP Kelco-Phil is a corporation duly organized and existing
under the laws of the Philippines with principal office at Barangay Abugon, Sibonga, Cebu; that on
January 1, 2004, both CP Kelco-Phil and CP Kelco-US entered and executed an Administrative Support
Services Agreement (Agreement), whereby the former will provide administrative and operational
advisory support services to the latter in connection with the manufacturing, marketing, and sale of
biogum and food gum related products, including but not limited to the areas of operations, information
systems, finance, treasury, legal, human resources, insurance and risk management, general and strategic
management and administration and other services; that all of the said services are to be performed
entirely in the United States, per certification issued by CP Kelco-Phil dated May 14, 2004; that for the
said services rendered by CP Kelco-US, CP Kelco-Phil will pay them the amount of basic fee payable
annually and shall be based upon a pro-rata share of the cost of providing the services plus 5% (which
shall include direct and indirect overhead costs in rendering services); and that the Agreement will take
effect on January 1, 2004 and shall be automatically renewed annually and may be terminated at any time
upon the mutual agreement of both parties.

In reply, please be informed that pursuant Section 28(B)(1) of the Tax Code of 1997, which reads:

"(B) Tax on Nonresident Foreign Corporation.

"(1) In General. — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the
gross income received during each taxable year from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate shall
be thirty-two percent (32%).

Based on the above-cited, to be subject to Philippine income tax, such income of a nonresident
foreign corporation not engaged in trade or business in the Philippines must have been derived from
sources within the Philippines. If the services are performed within the Philippines, such income is subject
to a final tax of 32%, based on the gross income of the said nonresident foreign corporation, in accordance
with the above-cited provision of the Tax Code. Thus, for the source of income to be considered as coming
from the Philippines, it is sufficient that the income is derived from an activity within the Philippines.
(Commissioner vs. BOAC & CTA, GR Nos. 65773-74, April 30, 1987)

Since the subject services rendered by CP Kelco-US are done entirely outside the territorial
jurisdiction of the Philippines, the payment of service fees paid by CP Kelco-Phil to CP Kelco-US are
considered as income from without the Philippines pursuant to Section 23(F) of the Tax Code of 1997.

Furthermore, Article 8 in relation to Article 5 of the existing treaty between the Philippines and the
United States provides, viz:

"Article 8

Business Profits

"1. Business profits of a resident of one of the Contracting States shall be taxable only in

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 206
 that State unless the resident has a permanent establishment in the other Contracting State. If the
resident has a permanent establishment in the other Contracting State, tax may be imposed by that
other Contracting State on the business profits of the resident but only on so much of them as are
attributable to the permanent establishment.

"xxx xxx xxx"

"Article 5

Permanent Establishment

"1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business through which a resident of one of the Contracting State engages in a trade or
business.

"2. The term "fixed place of business" includes but is not limited to:

"xxx xxx xxx"

"(j) The furnishing of services, including consultancy services, by a resident of one of the
Contracting State through employees or other personnel, provided activities of that nature continue
(for the same or connected project) within the other Contracting State for a period or periods
aggregating more than 183 days. DcAEIS

"xxx xxx xxx"

In view thereof, this Office is of the opinion and so holds that since the services covered by the
subject Administrative Support Services Agreement are to be rendered by CP Kelco-US outside the
Philippines, and are considered income from sources without the Philippines, the payments made by CP
Kelco-Phil to CP Kelco-US for said services shall not be subject to Philippine income tax and
consequently to the withholding tax under Section 28(B)(1) of the tax Code of 1997. (BIR Ruling No.
ITAD-59-98 dated May 21, 1998)

Finally, the administrative support services provided by CP Kelco-US to CP Kelco-Phil under the
Agreement which are rendered outside the Philippines are not subject to the 10% VAT imposed under
Section 108 of the Tax Code of 1997.

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
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 207
 Legal Service
Bureau of Internal Revenue

August 5, 2004

ITAD RULING NO. 083-04

Sec 108, 109 & 149 of the National Internal Revenue Code
of 1997;
Article 34, Vienna Convention
BIR Ruling No. 119-02

Embassy of the Socialist Republic of Vietnam

670 Pablo Ocampo Street
Malate, Manila

Gentlemen :

This has reference to your Note No. 89 VN/2004 dated July 14, 2004 referred to this Office by the
Immunities and Privileges Division, Office of Protocol of the Department of Foreign Affairs (DFA),
requesting for exemption from payment of VAT and ad valorem taxes on a locally purchased motor
vehicle for the official use of the Embassy of the Socialist Republic of Vietnam, specifically described as
follows:
Make: Toyota Camry 2.0E A/T
Model Year: 2004
Color: Extreme Black
Engine No.: 1AZ-1459443
Chassis No.: ACV31-9001442
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 208
 the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
the Socialist Republic of Vietnam or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs that your Government allows
similar exemption to the Philippine Embassy and its personnel on their purchases of goods and services in
your country.

Hence, the local purchase of one (1) Toyota Camry A/T for the official use of the Embassy of the
Socialist Republic of Vietnam is exempt from VAT and ad valorem taxes. (BIR Ruling No. 119-02 dated
July 1, 2002) EHIcaT

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

August 5, 2004

ITAD RULING NO. 082-04

Article 13 Philippines-United States of America tax treaty

Article 12 Philippines-China tax-treaty
BIR Ruling No. ITAD 140-03
RMC No. 46-2002

Platon Martinez Flores San Pedro & Leaño

6th Floor Tuscan Building, 114 Herrera Street
Legaspi Village, Makati City

Attention: Carlos G. Platon

Anthony Brett M. Abenir
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 209
 Gentlemen :

This refers to your application for relief from double taxation dated June 24, 2004, requesting
confirmation of your opinion that the royalties paid by Havi Food Services Philippines, Inc. (Havi Phil) to
Havi Group LP are subject to withholding tax at the rate of ten percent (10%) pursuant to the
"most-favored-nation" clause of the Philippines-United States of America (Philippines-US) tax treaty in
relation to the Philippines-China tax treaty.

It is represented that Havi Group LP, formerly Perlman Acquisition LP and TFP Acquisition LP is a
corporation organized and existing under the laws of the State of Delaware, U.S.A. with office address at
3010 Highland Parkway, Suite 400, Downers Grove, IL 60515, U.S.A; that it is not registered either as a
corporation or partnership in the Philippines per certification issued by the Securities and Exchange
Commission dated May 19, 2004; that Havi Phil is a corporation organized and existing under the laws of
the Philippines with office address at Sumulong Highway, Marikina, Metro Manila; that on January 1,
2003, Havi Group LP and Havi Phil entered into a Distribution Technology Transfer Agreement whereby
Havi Group LP granted Havi Phil the right to use its processes and methods, procedures and techniques on
storing, handling, transporting and distributing perishable and non-perishable goods; that Havi Group LP
also transferred to Havi Phil expertise, know-how, technical information, and substantial valuable
knowledge of a specialized nature relating to basic operational technical aspects of such processes,
methods, procedures and techniques relative to the operation of a warehouse and distribution centers; that
in consideration of the rights, licenses and assistance granted to Havi Phil by Havi Group LP, Havi Phil
shall pay Havi Group LP a minimum annual fee of Four Hundred Twenty Thousand US Dollars
(US$420,000.00); that the said annual fee, however, may, upon written agreement by both parties, increase
but shall in no event be less than the said amount; and that the said Distribution Technology Transfer
Agreement was duly registered with the Intellectual Property Office (IPO) as evidenced by the Certificate
of Compliance issued by the IPO on May 6, 2004.

In reply, please be informed that Article 13 of the Philippines-US tax treaty provides as follows,
viz:

"Article 13

"ROYALTIES

"1. Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States.

"2. However, the tax imposed by that other Contracting State shall not exceed —

a) In the case of the United States, 15 percent of the gross amount of the
royalties, and

b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties,

(ii) 15 percent of the gross amount of the royalties, where the

royalties are paid by a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, and

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 210
 (iii) the lowest rate of Philippine tax that may be imposed on
royalties of the same kind paid under similar circumstances to a resident of a
third State.

"3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or films or tapes used for radio or television broadcasting, any
patent, trade mark, design or model, plan, secret formula or process, or other like right or property, or
for information concerning industrial, commercial or scientific experience. The term `royalties' also
includes gains derived from the sale, exchange or other disposition of any such right or property
which are contingent on the productivity, use, or disposition thereof.

"xxx xxx xxx"

and, in relation thereto, Article 12 of the Philippines-China tax treaty provides, viz:

"Article 12

"ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the
tax so charged shall not exceed:

a) 15 per cent of the gross amount of royalties arising from the use of, or
the right to use, any copyright of literary, artistic or scientific work including
cinematograph films or tapes for television or broadcasting, or

b) 10 per cent of the gross amount of royalties arising from the use of, or
the right to use, any patent, trade mark, design or model, plan, secret formula or
process, or from the use of; or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial, commercial or scientific
experience.

"xxx xxx xxx"

Pursuant to the aforequoted "most-favored-nation" clause under Article 13(2)(b)(iii) of the

Philippines-US tax treaty, the tax imposed on royalties derived by a resident of the United States of
America (US) from sources within the Philippines shall be the lowest rate of Philippine tax that may be
imposed on royalties of the same kind paid under similar circumstances to a resident of a third State.
Relative thereto, pursuant to Article 12(2)(b) of the Philippines-China tax treaty, the tax charged shall not
exceed 10% of the gross amount of royalties.

It is noteworthy that in the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son,
Inc. and Court of Appeals, G.R. No. 127105, promulgated on June 25, 1999, the Supreme Court
interpreted the "most-favored-nation" clause, particularly the phrase "paid under similar circumstances", as
referring to the manner of payment of taxes and not to the subject matter of the tax which is royalties. (BIR
Ruling No. DA-ITAD 140-03 dated September 18, 2003)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 211
 Article 23 of the Philippines-US tax treaty and Article 23 of the Philippines-China tax treaty,
though differently worded, plainly reveal a similarity in the provisions on relief from or avoidance of
double taxation to their respective residents. Thus, the tax on royalty payments to residents of US and
China are paid under similar circumstances, i.e., the amount of royalty income tax paid or accrued to the
Philippines under the respective tax treaties is available as tax credit against the income tax payable in
their respective countries. US residents may, therefore, invoke the preferential tax rate of 10% on
royalties, accruing beginning January 1, 2002, arising in the Philippines "from the use of, or the right to
use, any patent, trademark, design or model, plan, secret formula or process, . . ., or for information
concerning industrial, commercial or scientific experience" under the Philippines-China tax treaty,
pursuant to the "most-favored-nation" clause of the Philippines-US tax treaty. (Revenue Memorandum
Circular (RMC) No. 46-2002 dated September 2, 2002)

Such being the case, this Office is of the opinion and so holds that the royalty payments of Havi
Phil to Havi Group LP under the Distribution Technology Transfer Agreement shall be subject to the tax
rate of ten percent (10%), pursuant to the Philippines-US tax treaty in relation to Article 12(2)(b) of the
Philippines-China tax treaty. (RMC No. 46-2002 dated September 2, 2002 and BIR Ruling No. DA-ITAD
140-03 dated September 18, 2003)

Moreover, the said royalty payments to be paid by Havi Phil to Havi Group LP are subject to the
10% value-added tax (VAT) pursuant to Sec. 108 of the Tax Code of 1997. Accordingly, Havi Phil, being
the resident withholding agent and payor in control of the payment shall be responsible for the withholding
of the 10% final VAT on such royalty before making any payment to Havi Group LP. In remitting the
VAT withheld, Havi Phil shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax
and Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and the proof of payment
thereof shall serve as documentary substantiation for the claim of input tax by Havi Phil upon filing its
own VAT, if it is a VAT-registered taxpayer. In case Havi Phil is a non-VAT registered taxpayer, the
passed on VAT withheld shall form part of the cost of the service purchased which may be treated as an
"expense" or "asset" whichever is applicable. In addition, Havi Phil is required to issue the Certificate of
Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate upon request of Havi Group LP, the
first three copies thereof to be given to Havi Group LP and the fourth copy to be retained by Havi Phil as
its file copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-2000; Section 3 of RR 8-2002; Section 7 of
RR 14-2002]

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. TCaSAH

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 212
 Bureau of Internal Revenue

August 5, 2004

ITAD RULING NO. 081-04

Articles 5 (Permanent Establishment), 7 (Business Profits)

and 14 (Personal Services) Philippines-Singapore tax treaty
BIR Ruling No. DA-ITAD 38-03

Joaquin Cunanan & Co.

29th Floor, Philamlife Tower
8767 Paseo de Roxas Avenue
Makati City

Attention: Ms. Mary Assumption Bautista-Villareal

Principal, Tax Services

Gentlemen :

This refers to your letter dated May 7, 2004 requesting confirmation that service fees to be paid by
Jardine Lloyd Thompson Insurance Brokers, Inc. (Jardine Philippines) to Jardine Lloyd Thompson Asia
Pte., Ltd. (Jardine Singapore) under the Onshore Services Agreement between the parties are exempt from
Philippine income tax pursuant to Articles 5 (Permanent Establishment) and 7 (Business Profits) of the
Philippines-Singapore tax treaty.

It is represented that Jardine Singapore is a nonresident foreign company organized and existing
under the laws of Singapore with principal office at 78 Shenton Way, Nos. 29-02, Singapore, as confirmed
by the Certificate of Residence issued by the Inland Revenue Authority of Singapore on May 11, 2004;
that Jardine Singapore is not registered either as a corporation or as a partnership and has not been
licensed to engage in business in the Philippines as confirmed by the Certification of Non-Registration
issued by the Securities and Exchange Commission on May 17, 2004; that Jardine Philippines, on the
other hand is a domestic company organized and existing under the laws of the Philippines with principal
office at 25th Floor, Philamlife Tower, 8767 Paseo de Roxas Avenue, Makati City, Philippines; that
Jardine Philippines and Jardine Singapore are both engaged primarily in the insurance business; that, on
January 1, 2004, Jardine Philippines and Jardine Singapore entered into an Onshore Services Agreement
where Jardine Singapore agreed to provide Jardine Philippines the following services, as requested by the
latter, all entirely in the Philippines and for an aggregate period not exceeding 183 days:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 213
 — onsite technical assistance and facilitation of the bespoke broking system ("BOSS") and
the installation of any upgrades thereto;

— onsite training and assistance to Jardine Philippines' personnel on BOSS;

— onsite training and assistance to Jardine Philippines' staff on financial reporting

software and any system upgrades or enhancements thereto;

— onsite assistance and advice on reporting requirements formulated by the Group 1 which
enable Jardine Philippines to ensure its compliance with Industry Best Practice;

— conducting special assignments within the Philippines to ensure Jardine Philippines'

adherence to Industry Best Practice; and

— any other services as may be agreed from time to time between the parties;

and that, in consideration, Jardine Philippines shall pay Jardine Singapore fees for the above services, in
Singapore dollars and on a quarterly basis.

In reply, please be informed that fees to be paid by Jardine Philippines to Jardine Singapore for the
above services are business profits taxable under paragraph 1, Article 7 (Business Profits) of the
Philippines-Singapore tax treaty below:

"Article 7

BUSINESS PROFITS

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx"

Applying paragraph 1 above to the instant case, the subject fees to be paid by Jardine Philippines to
Jardine Singapore may be taxed in the Philippines if such fees are attributable to a permanent
establishment which Jardine Singapore has in the Philippines. A permanent establishment, as defined in
paragraphs 1 and 2, Article 5 (Permanent Establishment) of the Philippines-Singapore tax treaty, means "a
fixed place of business in which the business of the enterprise is wholly or partly carried on," and
includes, for example; a seat of management, a branch, an office, a store or other sales outlet, and a
factory. A permanent establishment also includes the furnishing of services by a resident of a Contracting
State (through employees or other personnel thereof) in the other Contracting State, where this activity
continues within the other State for a period or periods aggregating more than 183 days.

Accordingly, since Jardine Singapore does not have a fixed place of business in the Philippines and
since Jardine Singapore will provide the above services in the Philippines for an aggregate period not
exceeding 183 days so as no permanent establishment of Jardine Singapore would be constituted in the
Philippines, the subject fees to be paid to Jardine Singapore by Jardine Philippines for the above services
are therefore exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 38-03 dated February 21,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 214
 2003)

The remuneration of the personnel who will personally carry out the above services is generally
subject to Philippine income tax, unless the conditions set forth in paragraph 2, Article 14 (Personal
Services) of the Philippines-Singapore tax treaty are all complied with, to wit:

"Article 14

PERSONAL SERVICES

"1. Subject to the provisions of Articles 15, 17, 18, and 19, salaries, wages and other similar
remuneration or income for personal (including professional) services derived by a resident of a
Contracting State, shall be taxable only in that Contracting State, unless the services are performed in
the other Contracting State. If the services are so performed, such remuneration. or income as is
derived therefrom may be taxed in that other Contracting State.

"2. Notwithstanding the provisions of paragraph 1, remuneration or income derived by a

resident of a Contracting State for personal (including professional) services performed in the other
Contracting State shall be taxable only in the firstmentioned Contracting State if

a) the recipient is present in the other Contracting State for a period or

periods not exceeding in the aggregate 90 days in the case of professional services
and 183 days in other cases, in the calendar year concerned; and

b) the remuneration or income is paid by, or on behalf of, a person who is

a resident of the first-mentioned Contracting State; and

c) the remuneration or income is not borne directly by a permanent

establishment which that person has in the other Contracting State.

"xxx xxx xxx"

Paragraph 2 above states that the subject remuneration will be exempt from tax if: (a) the personnel (taken
individually) are present in the Philippines for an aggregate period or periods' not exceeding 183 days in
the calendar year concerned, (b) the remuneration is paid by an employer who is a resident of Singapore
and (c) the remuneration is not borne by a permanent establishment which the employer has in the
Philippines. DTcACa

Based on the representations made herein, all the three conditions required in paragraph 2 above
can be satisfied considering that (a) the length of stay in the Philippines of the concerned personnel of
Jardine Singapore will not exceed 183 days; (b) the remuneration is paid by an employer, Jardine
Singapore, who is a resident of Singapore; and (c) the remuneration is not borne directly by a permanent
establishment which Jardine Singapore has in the Philippines since Jardine Singapore, as represented, is
not licensed to engage in business in the Philippines to be deemed as having a permanent establishment
therein. This being so, the subject remuneration of the concerned personnel are not subject to Philippine
income tax. (BIR Ruling No. DA-ITAD 38-03 dated February 21, 2003)

Finally, the provision of the above services in the Philippines by Jardine Singapore, being "the
supply of services by a nonresident person or his employee with the use of property or rights belonging to
the nonresident person" and "the supply of technical advice, assistance or services rendered in connection
with technical management," fall within the definition of sale or exchange of services subject to 10

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 215
 percent value-added tax (VAT) under Section 108(A)[(5) and (6)] of the National Internal Revenue Code
of 1997. Accordingly, the subject fees to be paid by Jardine Philippines to Jardine Singapore for the above
services are subject to 10 percent VAT. (BIR Ruling No. DA-ITAD 38-03 dated February 21, 2003)

With regard to the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations No. 4-2000, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue
Regulations No. 14-2002 provide that the resident person making the payments to a nonresident person,
Jardine Philippines, shall responsible for the withholding of the 10 percent VAT on such payments before
remitting them to the nonresident person, Jardine Singapore. In remitting to the Bureau of Internal
Revenue the VAT withheld on such payments, Jardine Philippines shall use BIR Form No. 1600 (Monthly
Remittance Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer, Jardine
Philippines may use as documentary substantiation for its claim of input VAT the duly filed BIR Form No.
1600 and the proof of payment accompanying it. If a non-VAT-registered taxpayer, Jardine Philippines
may include as part of the cost of the services provided to it by Jardine Singapore the VAT consequently
shifted or passed on to it and it may treat such VAT either as expense or asset, whichever is applicable. In
addition, upon Jardine Singapore's request, Jardine Philippines is required to issue in quadruplicate the
relevant Certificate of Final Tax Withheld at Source (BIR Form No. 2306), the first three copies to be
given to Jardine Singapore and the fourth copy to be retained by Jardine Philippines as its file copy.

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
Bureau of Internal Revenue
Footnotes
1. Jardine Lloyd Thompson Group plc (a company registered and incorporated in the United Kingdom) and its
worldwide subsidiaries.

August 5, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 216
 ITAD RULING NO. 080-04

Sections 23 (F), 42 (A) (3) and 108 (A) National Internal

Revenue Code of 1997
BIR Ruling No. DA-ITAD 56-04
BIR Ruling No. DA-ITAD 80-04

Joaquin Cunanan & Co.

29th Floor, Philamlife Tower
8767 Paseo de Roxas Avenue
Makati City

Attention: Ms. Mary Assumption Bautista-Villareal

Principal, Tax Services

Gentlemen :

This refers to your letter dated May 7, 2004 requesting confirmation that service fees to be paid by
Jardine Lloyd Thompson Insurance Brokers, Inc. (Jardine Philippines) to Jardine Lloyd Thompson Asia
Pte., Ltd. (Jardine Singapore) under the Offshore Services Agreement between the parties are exempt from
Philippine income tax and from value-added tax (VAT) pursuant to the pertinent sections of the National
Internal Revenue Code of 1997 (Tax Code).

It is represented that Jardine Singapore is a foreign company organized and existing under the laws
of Singapore with principal office at 78 Shenton Way, Nos. 29-02, Singapore, as confirmed by the
Certificate of Residence issued by the Inland Revenue Authority of Singapore on May 11, 2004; that
Jardine Singapore is not registered either as a corporation or as a partnership licensed to engage in
business in the Philippines as confirmed by the Certification of Non-Registration issued by the Securities
and Exchange Commission on May 17, 2004; that Jardine Philippines, on the other hand, is a domestic
company organized and existing under the laws of the Philippines with principal office at 25th Floor,
Philamlife Tower, 8767 Paseo de Roxas Avenue, Makati City, Philippines; that Jardine Philippines and
Jardine Singapore are both engaged primarily in the insurance business; that, on January 1, 2004, Jardine
Philippines and Jardine Singapore entered into an Offshore Services Agreement where Jardine Singapore
agreed to provide Jardine Philippines the following offshore services, as requested by the latter:

— bespoke accounting and reporting system hosted and maintained on a server or servers
outside the Philippines;

— remote assistance, technical support and advice on Jardine Philippines' IT (information

technology) hardware and software, including, in particular, its bespoke broking
management system;

— access to the Group's 1 intranet site for the Asian region and worldwide;

— assistance and advice on security checks and controls formulated by the Group which
allow Jardine Philippines to ensure its compliance with Industry Best Practice;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 217
 — advice within the Asian region to assist Jardine Philippines in meeting its clients' needs
for specialist risk covers;

— advice on Jardine Philippines' marketing and promotional activities and on its business
to potential clients;

— advice on underwriting risks, risk surveys, loss control and claims settlement;

— advice on product development within the Asian region;

— advice on general economic trends and conditions, buyer demographics and profiles,
and competition from substitute products around the wider Asian region;

— any other services as may be agreed from time to time between the parties;

that all of the foregoing services shall be provided at Jardine Singapore's place of business in Singapore or
such other place or places as Jardine Singapore may designate from time to time, except in the territory of
the Philippines; and that, in consideration, Jardine Philippines shall pay Jardine Singapore fees for the
above services, in Singapore dollars and on a quarterly basis.

In reply, please be informed that Section 23(F) of the Tax Code provides:

"Section 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:

"xxx xxx xxx

"(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines."

According to Section 23(F), a foreign corporation like Jardine Singapore is taxable only on income
derived from sources within the Philippines. In the case of income from the provision of services, it is
considered derived from sources within the Philippines if the services are performed in the Philippines, as
stated in Section 42(A)(3) of the Tax Code below:

"Section 42. Income from Sources Within the Philippines. —

"(A) Gross Income from Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx

"(3) Services. — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx"

Applying the above provisions to the instant case, the subject fees to be paid Jardine Philippines to
Jardine Singapore from the provisions of services all entirely outside the Philippines, are therefore exempt
from Philippine income tax. (BIR Ruling No. DA-ITAD 56-04 dated May 31, 2004)

Similarly, the subject fees are not subject to 10 percent value-added tax (VAT) imposed under
Section 108(A) of the Tax Code below:
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 218
 "Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.

The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration. . . "

Section 108(A) states that sale or exchange of services subject to VAT means "the performance of
all kinds of services in the Philippines." In the instant case where the subject services will not be
performed in the Philippines, fees to be paid in consideration thereof by Jardine Philippines to Jardine
Singapore are therefore exempt from VAT. (BIR Ruling No. DA-ITAD 56-04 dated May 31, 2004)

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
Bureau of Internal Revenue
Footnotes
1. Jardine Lloyd Thompson Group plc (a company registered and incorporated in the United Kingdom) and its
worldwide subsidiaries.

August 5, 2004

ITAD RULING NO. 079-04

Sec 106, 108 & 149 of the Tax Code 1997;

Article 34, Vienna Convention
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 219
 BIR Ruling No. ITAD-24-01

Embassy of Australia
Level 23 — Tower 2, RCBC Plaza
6819 Ayala Avenue
Makati City

Gentlemen :

This has reference to your Note No. 181/04 dated July 1, 2004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs (DFA), requesting for exemption from
payment of ad valorem and value-added taxes (VAT) on a locally purchased motor vehicle for the
personal use of Col. Christopher Mark Burns, Defence Attaché of the Embassy of Australia, specifically
described as follows:

Make: Ford Escape 4X2 AT

Model Year: 2004

Color: Vitro Silver

Frame Number: PE2ET71141GD00780

Engine Number: YF002170

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
Australia or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs that your Government allows similar exemption to the
Philippine Embassy and its personnel on their purchases of goods and services in your country.

Hence, the local purchase of one (1) Ford Escape 4X2 A/T for the personal use of Col. Christopher
Mark Burns, Defence Attaché of the Australian Embassy is exempt from VAT and ad valorem taxes. (BIR
Ruling No. ITAD-24-01 dated March 12, 2001)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 220
 Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

August 4, 2004

ITAD RULING NO. 078-04

Article 12, Philippines-Australia tax treaty

BIR Ruling No. ITAD 003-03

Cochingyan & Peralta Law Offices

6th Floor, Richmonde Plaza
21 San Miguel Avenue
Ortigas Center, Pasig City

Attention: Jose Cochingyan, III

Gentlemen :

This refers to your application for relief from double taxation dated May 11, 2004, on behalf of
your client Computershare Technology Services Pty Ltd. (CTS Australia) requesting confirmation that the
royalty payments made by Computershare Technology Services (Philippines) Inc. (CTS Philippines) to
Computershare Australia, is subject only to a 25% preferential tax rate, pursuant to the
Philippines-Australia tax treaty.

It is represented that CTS Australia, is nonresident foreign corporation organized and existing
under the laws of Australia with principal office at 18-62 Trenerry Crescent, Abbotsford, Victoria, 3067,
Australia; that it is not registered either as a corporation or as a partnership engaged in trade or business in
the Philippines per certification issued by the Securities and Exchange Commission dated February 4,
2004; that CTS Philippines is a corporation duly organized and existing under the laws of the Philippines
with principal office address at Unit 17-62 Cititower, 8741 Paseo de Roxas, Makati City, Philippines; that
CTS Australia owns a software known as "Computershare X-Stream" (Software) and all its updates; that
on October 20, 2003, CTS Australia and CTS Philippines entered into an agreement wherein CTS
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 221
 Australia agreed to grant CTS Philippines a non-exclusive license to market the Software in the
Philippines and to license any person to use the Software in the Philippines; and that CTS Philippines
agreed to pay CTS Australia the amount of 70% of the revenue, net of tax, received by CTS Philippines
from the licensed users of the Software;

In reply, please be informed that Article 12 of the Philippines-Australia tax treaty provides as
follows:

"Article 12

"ROYALTIES

"1. Royalties arising in one of the Contracting States, being royalties to which a resident of
the other Contracting State is beneficially entitled, may be taxed in that other State.

"2. Such royalties may also be taxed in the Contracting State in which they arise, and
according to the law of that State. However, the tax so charged shall not exceed —

a) 15 per cent of the gross amount of the royalties where the royalties are
paid by an enterprise registered with the Philippine Board of Investments and
engaged in preferred areas of activities; and

b) in all other cases, 25 percent of the gross amount of the royalties.

"3. The term "royalties " in this Article means payments or credits, whether periodical or
not, and however described or computed, to the extent to which they are made as consideration for —

a) the use of, or right to use, any copyright, patent, design or model, plan,
secret formula or process, trademark, or other like property or right;

b) the use of, or the right to use, any individual, commercial or scientific
equipment;

c) the supply of scientific, technical, industrial or commercial knowledge

or information;

d) the supply of any assistance that is ancillary and subsidiary to, and is
furnished as a means of enabling the application or enjoyment of, any such property
or right as is mentioned in paragraph (a), any such equipment as is mentioned in
paragraph (b) or any such knowledge or information as is mentioned in paragraph
(c);

e) the use of, or the right to use —

(i) motion picture films;

(ii) films or video tapes for use in connection with television; or

(iii) tapes for use in connection with radio broadcasting; or

f) total or partial forbearance in respect of the use of a property or right

referred to in this paragraph.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 222
 "xxx xxx xxx"

Based on the above, royalties arising in the Philippines and paid to a resident of Australia may be
subject to Philippine income tax at a rate not to exceed 15 per cent of the gross amount of the royalties
where such are paid by an enterprise registered with the Philippine Board of Investments and engaged in
preferred areas of activities, or 25 per cent of the gross amount of the royalties in all other cases, where the
recipient is the beneficial owner of the royalties.

The license fees to be paid by CTS Philippines to CTS Australia are considered "payments of any
kind received as a consideration for the use of, or the right to use information concerning industrial,
commercial or scientific experience" and as such are royalties within the meaning of the aforequoted
Article. Since CTS Philippines is not an enterprise registered with the Philippine Board of Investments and
engaged in preferred areas of activities, this Office is of the opinion and so holds that the subject license
fees are subject to the preferential tax rate of 25 per cent of the gross amount of royalties pursuant to the
Philippines-Australia tax treaty. (BIR Ruling No. 003-03 dated January 15, 2003)

Moreover, the royalty payments by CTS Philippines to CTS Australia pursuant to the Software
license granted are subject to the 10% value-added tax (VAT) pursuant to Sec. 108 of the Tax Code of
1997. Accordingly, CTS Philippines, being the resident withholding agent and payor in control of the
payment, shall be responsible for the withholding of the 10% final VAT before making any payment to
CTS Australia. In remitting the VAT withheld, CTS Philippines shall use BIR Form No. 1600 (Monthly
Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form
1600 and proof of payment thereof shall serve as documentary substantiation for the claim of input tax by
CTS Philippines upon filing its own VAT, if it is a VAT-registered taxpayer. In case CTS Philippines in a
non-VAT registered taxpayer, the passed on VAT withheld shall form part of the cost of the service
purchased which may be treated as "expense" or "asset" whichever is applicable. In addition, CTS
Philippines is required to issue the Certificate of Final Tax Withheld at Source (BIR Form 2306) in
quadruplicate upon request of CTS Australia, the first three copies thereof to be given to CTS Australia
and the fourth copy to be retained by CTS Philippines as its file copy. [Section 4 & 6, Revenue
Regulations (RR) No. 4-2000; Section 3 of RR 8-2002; Section 7 of RR 14-2002]

In view of all the foregoing, CTS Philippines shall be responsible for the withholding of the 10%
VAT and income tax at the preferential rate of 25%, both rates shall be based on the gross amount of
royalty payments by CTS Philippines to CTS Australia.

This ruling is issued based on 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. ITaCEc

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 223
 July 28, 2004

ITAD RULING NO. 077-04

NIRC, Sec. 109

VAT Ruling No. 142-90

Filipinas Eye Center Foundation, Inc.

Philippine General Hospital
Taft Avenue, Manila

Attention: Marita V.T. Reyes, MD

President

Gentlemen :

This refers to your letter dated June 10, 2004 (your reference: 2004-147) requesting for a ruling on
the tax exemption of the equipment to be purchased by Filipinas Eye Center Foundation, Inc. (FECFI) as
part of the grant of the Government of Spain.

It is represented that the Statement of the Fourth Philippines-Spain Joint Commission for
Cooperation was signed in Madrid, Spain on July 3, 2001 for the implementation of the Fourth Joint
Commission for Cooperation between the two governments; that pursuant to the said Statement, the
National Eye Referral Center of the Philippine General Hospital in the Philippines was established
designating FECFI, a non-governmental organization, as its implementing agency; that part of the grant by
the Government of Spain for the establishment of the National Eye Referral Center is an equipment which
is expected to arrive in the Philippines during the second quarter of 2004.

In this regard, your Office now requests for confirmation that the importation of the subject
equipment in the Philippines is exempt from Philippine taxes pursuant to the tax privileges and immunities
accorded under the General Friendship and Cooperation Treaty dated June 30, 2000 and the Basic
Agreement of Technical Cooperation between the Government of Spain and the Government of the
Republic of the Philippines signed and entered into on September 20, 1974.

In reply, please be informed that Section 109(q) of the Tax Code of 1997 provides as follows:

"SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added
tax:

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 224
 "(q) Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590;"

"xxx xxx xxx"

In this connection, Article VIII of the Basic Agreement of Technical Cooperation between the
Government of Spain and the Government of the Republic of the Philippines signed and entered into on
September 20, 1974, as recognized under the Statement of the Fourth Philippines-Spain Joint Commission
for Cooperation, provides as follows:

"Article VIII

"In the execution of programs and projects envisaged in the Present Agreement and in
Supplementary Agreements derived from the same, the following rules shall be observed::

1. The articles sent by one High Contracting Party to the Other which are necessary for the
execution of programs and projects shall be exempt from the payment of Customs duties and any
other taxes, and may not be sold, donated or transferred, in the territory of the receiving State."

"xxx xxx xxx"

Based on the afore-quoted provisions, articles sent by the Government of Spain to the Philippines
which are necessary for the execution of programs and projects shall be exempt from the payment of
customs duties and other taxes. Such being the case, and considering that the subject equipment is part of
the grant of the Government of Spain necessary for the establishment of the National Eye Referral Center
in the Philippines, a bilateral project of Spain and the Philippines under the Fourth Joint Commission, this
Office is of the opinion and so holds that the importation of the subject equipment is exempt from the
payment of VAT imposed under Section 107(A) of the Tax Code of 1997. (VAT Ruling No. 142-90 dated
May 23, 1990)

For confirmation on whether the subject equipment is exempt from customs duties or not, the
matter should be brought to the attention of the Bureau of Customs having jurisdiction over issues
concerning import duties, for their appropriate action.

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

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 225
 Bureau of Internal Revenue

July 28, 2004

ITAD RULING NO. 076-04

Article 10, Philippines-Japan

BIR Ruling No. DA ITAD 23-04
BIR Ruling No. DA ITAD 31-04

Sycip Gorres Velayo & Co.

6760 Ayala Avenue,
1226 Makati City

Attention: E.C. Alcantara

Tax Division

Gentlemen :

This refers to your letter dated April 26, 2004, on behalf of your client, PHILIPPINE SINTER
CORPORATION (PSC), requesting confirmation of your opinion that the dividend remittances by PSC to
JFE STEEL CORPORATION (JSC) are subject to withholding tax at the preferential tax rate of ten (10%)
percent pursuant to Article 10 of the Philippines-Japan tax treaty.

It is represented that JSC is a nonresident foreign corporation duly organized and existing under
and by virtue of the laws of Japan, with principal address at Hibiya Kokusai Bldg. 2-3, Uchisaiwai-cho
2-chome Chiyoda-ku, Tokyo 100-0011, Japan; that per Certificate of Corporate Filing/Information issued
by the Securities and Exchange Commission (SEC) dated March 29, 2004, JSC (formerly Kawasaki Steel
Corporation) was licensed to engage in business in the Philippines on November 29, 1978; that per
Amended SEC License No. F-830, the change of name from Kawasaki Steel Corp. to JFE Steel
Corporation was approved on July 31, 2003; that JSC has a representative office in the Philippines
registered and licensed to engage in the following activities: (a) to make and conduct surveys and studies
in market, economic and financial conditions in the Philippines; (b) to advice and render assistance to
local distributors, investors and customers in the Philippines; and (c) to coordinate and monitor
Kawasaki's various existing and proposed investments in the Philippines, as evidenced by the Certificate
of Registration issued by the SEC dated November 29, 1978; that PSC is a domestic corporation organized
and existing under the laws of the Philippines, registered with the Board of Investments (BOI) on a
preferred pioneer status per BOI Certificate of Registration No. 75-382 dated January 29, 1975; that on
April 1, 2004, the Board of Directors of PSC unanimously adopted and approved the declaration of cash

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 226
 dividends in the total amount of Seven Hundred Seventy Six Million Pesos (P776,000,000.00) in favor of
all stockholders of record as of April 1, 2004, payable on or before September 30, 2004; that JSC owns
and holds since 1974 Four Hundred Eighty Four Million Nine Hundred Ninety-Nine Thousand One
Hundred (484,999,100) shares out of PSC's Four Hundred Eighty-Five Million (485,000,000) declared
authorized capital stock equal to 99.9999% of PSC's total issued and outstanding shares.

In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:

"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.

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

"3. Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the dividends paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends,
shall not exceed 10 per cent of the gross amount of the dividends.

"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.

"5. The provisions of paragraphs (1), (2) and (3) shall not apply if the beneficial owner of
the dividends, being a resident of a Contracting State, carries on business in the other Contracting
State of which the company paying the dividends is a resident, through a permanent establishment
situated therein, or performs in that other Contracting State independent personal services from a
fixed base situated therein, and the holding in respect of which the dividends are paid is effectively
connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or
Article 14, as the case may be, shall apply. ScEaAD

"xxx xxx xxx"

Based on the aforequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding 10% based on the gross amount of dividends if the
latter holds directly at least 25% either of the voting shares or of the total shares of the former for a period

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 227
 of six (6) months immediately preceding the date of payment of the dividends, and/or if the Philippine
company is a BOI-registered enterprise engaged in preferred pioneer areas of investment, or at a rate of
25% of the gross amount of dividends in all other cases. However, the said preferential rates shall not
apply if the beneficial owner of the dividends carries on business in the Philippines through a permanent
establishment and the holding in respect of which the dividends are paid is effectively connected with such
permanent establishment or fixed base.

In the instant case, while the JSC maintains a representative office in the Philippines, it is
represented that said office is not privy and does not have any participation whatsoever in the holding of
JSC's shares of stocks in PSC. Such being the case, any income derived by JSC independently of its
representative office shall be considered income of JSC alone, applying the rule enunciated in the case of
Marubeni vs. CIR (GR. No. 76573 dated September 14, 1989), pertinently quoted hereunder:

"The general rule that a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the principal-agent relationship theory.
It is understood that the branch becomes its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal agent relationship is set aside.
The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer
is the foreign corporation, not the branch or the resident foreign corporation. Corollarily, if the
business transaction is conducted through the branch office, the latter becomes the taxpayer, and not
the foreign corporation." (emphasis ours)

In view thereof, since JSC holds directly 99.9999% of the shares of stock of PSC during the period
of six months immediately preceding the date of payment of the dividends, and that the holding of the
subject shares are not effectively connected with JSC's representative office as the latter is not privy to the
transactions between JSC and PSC, and considering further that the latter company is a BOI-registered
enterprise engaged in preferred pioneer areas of investment, this Office is of the opinion and so holds that
the dividends received by JSC are subject to the preferential tax rate of 10% of the gross amount of
dividends pursuant to Article 10(2)(a) and (3) of the Philippines-Japan tax treaty. (BIR Ruling No.
DA-ITAD 23-04 dated March 9, 2004 and BIR Ruling No. DA-ITAD 31-04 dated April 2, 2004)

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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 228
 July 28, 2004

ITAD RULING NO. 075-04

Article 7 (1) & 5 (6) Philippines-Germany tax treaty BIR

Ruling No. DA-ITAD 49-03 BIR Ruling No. DA-ITAD
134-00

Schering Philippine Corporation

36th Floor, PBCom Tower
6597 Ayala Avenue, cor. Herrera St.
Makati City

Attention: Gerry D. Bibit

Director, Financial & Administrative

Gentlemen :

This refers to your application for relief from double taxation dated February 3, 2003, on behalf of
Infonet Network Services Deutschland GmbH (Infonet), requesting, in effect, for a tax refund on the
income tax withheld, and a ruling on the proper income tax rate to be applied, by Schering Philippine
Corporation (Schering Phils), pursuant to the Philippines-Germany tax treaty.

It is represented that Infonet is a corporation organized and existing under the laws of the Federal
Republic of Germany with business address at (Lyoner Str. 14) 60494 Frankfurt am Main, Germany; that
Infonet is not registered either as a corporation or as a partnership licensed to do business in the
Philippines per certification dated February 11, 2003 issued by the Securities and Exchange Commission
(SEC); that Infonet concluded a Master Agreement dated January 2002 with Schering AG, Berlin (the
Head Office of Schering Phils), under which it will provide Schering AG and its affiliates and partners a
worldwide intranet to enable Schering AG, its affiliates and partners to exchange data quickly, safely and
with reliability; that specifically, the services to be performed by Infonet are electronic messaging
services, electronic data interchange services, data communication services and enterprise define network
services; that under said Agreement, Infonet has concluded with Schering Phils individual contracts by
means of Order Forms which include: a) a port to the Infonet Worldwide Frame Relay Network, b) the
capacity of the PVC (private virtual circuit) between Manila and Hongkong, and c) the necessary items to
link Schering Phils with the Infonet Worldwide Net, in this case a local line and a customer premise
router; that the said services are to be performed in Germany; that Schering Phils is a corporation
organized and existing under the laws of the Philippines with office address at 36th Floor, PBCom Tower,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 229
 Ayala Avenue cor. Herrera St., Salcedo Village, Makati City; that Schering Phils paid Infonet certain
service fees and a monthly charge for the billing services; that Schering Phils remitted directly to Infonet
net of 32% withholding tax; and that said payments are to be considered as business profits and not
royalties.

In reply, please be informed of this Office's ruling on the following issues as follows:

1. The service fees are not in the nature of royalties.

Article 12(3) of the Philippines-Germany tax treaty provides that:

"Article 12

"Royalties

"3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or tapes for television or broadcasting, any patent, trade mark,
design or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial, commercial or
scientific experience."

The tax treaty defines "royalties" to include "payments of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the commentaries
of the ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(royalties), © 1998, p. 151], such information alludes to the concept of "know-how". The definition of
know-how, which has been adopted by the said Committee, is "all the undivulged technical information,
whether capable of being patented or not, that is necessary for the industrial reproduction of a product or
process, directly and under the same conditions; inasmuch as it is derived from experience, know-how
represents what a manufacturer cannot know from mere examination of the product and mere knowledge
of the progress of technique." In the know-how contract, one of the parties agree to impart to the other, so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public. (BIR Ruling No. DA-ITAD-49-02 dated April 15, 2002)

Furthermore, in the case of Philippine Refining Company (PRC) vs. CIR, CTA Case No. 2872 dated
January 15, 1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from
royalties, to wit:

"To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensation for personal services, if the payee has proprietary interest
then the payment is royalty."

Based on the above, the subject payments under the Master Agreement and/or the individual
contracts by means of Order Forms are not within the definition of royalties under Article 12(3) of the
Philippines-Germany tax treaty. Nothing in the said agreements would require transfer in the Philippines
of "know-how" or any property of which the payee has proprietary interest. CaASIc

2. The service fees are business profits not subject to Philippine taxation.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 230
 Article 5 of the Philippines-Germany tax treaty provides:

"Article 5

"Permanent Establishment

"1. For the purposes of this Agreement, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

"2. The term 'permanent establishment' includes specially but is not limited to:

a) A place of management;

b) A branch;

c) An office;

d) A factory;

e) A workshop;

f) A warehouse, in relation to a person providing storage facilities for

others;

g) A mine, quarry, or other place of extraction of natural resources;

i) A building site or construction or assembly project or supervisory

activities in connection therewith, where such site, project or activity continues for a
period more than six months.

"xxx xxx xxx"

In relation thereto, Article 7 of Philippines-Germany tax treaty also provides:

"Article 7

"Business Profits

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State but only so much of them as is attributable to that
permanent establishment.

"xxx xxx xxx"

The aforequoted Article 7 of the Philippines-Germany tax treaty allows the Philippines to tax the
business profits of an enterprise which is a resident of Germany if such enterprise has a permanent
establishment located in the Philippines.

Inasmuch as Infonet does not have a permanent establishment in the Philippines to which its
business profits or income may be attributed, income derived by Infonet, arising from the above-stated
individual contracts by means of Order Forms it entered into with Schering Phils, is not subject to

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 231
 Philippine income tax. (BIR Ruling No. DA-ITAD-134-00 dated September 19, 2000)

This ruling is issued based on the foregoing facts as represented and is rendered only for the
purpose of determining whether Infonet is entitled to the benefits of the Philippines-Germany tax treaty.
The determination on whether your request for tax refund should be given due course is upon the Office
which will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including
a copy of this ruling) shall be indorsed to the proper Office for processing and investigation.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

July 23, 2004

ITAD RULING NO. 074-04

Art. 12, Philippines-Finland tax treaty

Art. 12, Philippines-Singapore tax treaty
Section 108, NIRC
BIR Ruling No. DA-ITAD-163-02
BIR Ruling No. DA-ITAD-39-03
BIR Ruling No. DA-ITAD-63-03

Sycip Gorres Velayo & Co

6760 Ayala Avenue
1226 Makati City

Attention: Veronica A. Santos

Tax Division

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 232
 Gentlemen :

This refers to your letter dated May 17, 2004 requesting confirmation that the Service Fee payments
of your client, Wireless Service Asia, Inc (WSA), to Oy Wireless Service Europe, Ltd. (OWSE) and
Wireless Service Asia Pte. Ltd. (WSS), under two separate Service Agreements, are not subject to
Philippine income tax and value-added tax (VAT).

It is represented that OWSE is a nonresident foreign corporation duly organized and existing under
the laws of Finland with principal address at Itamerenkatu 5, 2nd Floor, 00180 Helsinki, Finland; that
WSS is a nonresident foreign corporation duly organized and existing under the laws of Singapore with
principal address at 80 Raffles Place, UOB Plaza 1, No. 35-26 Singapore; that OWSE and WSS are not
registered either as corporations or as partnerships licensed to do business in the Philippines per
certifications issued by the Securities and Exchange Commission dated December 11, 2003; that the WSA
is a corporation duly organized and existing under the laws of the Republic of the Philippines with
principal place of business at 11th Floor, NOL-Tower, Commerce Avenue, Madrigal Business Park, Ayala
Alabang, Muntinlupa City; that on December 15, 2002, OWSE and WSA entered into a Services
Agreement whereby OWSE shall market, within Europe, products and services of WSA, specifically,
those that carry the trademarks "Mbox" and "Gamechannel"; that on December 15, 2002, WSA and WSS
also executed a similar Services Agreement whereby WSS will market the same WSA's products and
services within the Asian Region; that in both Agreements, the services include, but are not limited to the
following:

a. Market Development

b. Provision of information on potential customers for WSA

c. Liaison with WSA's potential customers and dispersing information on WSA's products
and services;

d. Liaison with customers for obtaining feedback on behalf of WSA;

e. Exploration of expansion of WSA's product and services lines

It is further represented that in consideration for the abovementioned services, WSA shall pay
OWSE and WSS an annual service fee in the amount of Ninety Thousand Euros (Euro90,000.00) and Four
Hundred Twenty Thousand Singapore Dollars (S$420,000.00), respectively; that in both Service
Agreements, WSA is given the option to pay an Annual Bonus Fee; that neither of the above Service
Agreements involves the grant of a license for the use of any proprietary rights or transfer of technology;
and that both Agreements contemplate the performance of services entirely outside the Philippines.

In reply, this Office is of the opinion and so holds that:

1. The service fees payable by WSA to OWSE and WSS are ordinary business profits and not
royalties.

Article 12 of the Philippines-Finland and Philippines-Singapore tax treaties define the term
"royalties", as follows:

Philippines-Finland tax treaty

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 233
 "Article 12

ROYALTIES

"xxx xxx xxx

"3. The term "royalties" as used in this Article means payments of any kind received as a
consideration

a) for the use of, or the right to use, any copyright of literary, artistic or scientific work;

b) for the use of, or the right to use, any patent, trade mark, design or model, plan, secret
formula or process, or any industrial, commercial, or scientific equipment;

c) for information concerning industrial, commercial or scientific experience.

"xxx xxx xxx"

Philippines-Singapore tax treaty

"Article 12

ROYALTIES

"xxx xxx xxx

"3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or tapes for television or broadcasting, any patent, trade mark, design
or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific experience.
TcHEaI

"xxx xxx xxx"

The above tax treaties define "royalties" to include "payment of any kind received as a
consideration for information concerning industrial, commercial or scientific experience." According to
the commentaries of the ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
(OECD) Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(royalties), © 1998, p. 151), such information alludes to the concept of "know-how". The definition of
know-how, which has been adopted by the said Committee, is "all the undivulged technical information,
whether capable of being patented or not, that is necessary for the industrial reproduction of a product or
process, directly and under the same conditions; inasmuch as it is derived from experience, know-how
represents what a manufacturer cannot know from mere examination of the product and mere knowledge
of the progress of technique." In a know-how contract, one of the parties agrees to impart to the other, so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public. (BIR Ruling No. DA-ITAD No. 163-02 dated September 23, 2002)

Further, in the case of Philippine Refining Company vs. CIR, CTA Case No. 2872 dated January 15,
1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from royalties, to
wit:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 234
 "To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensation for personal services, if the payee has proprietary interest
then the payment is royalty."

Applying the above discussions to the instant case, there is nothing in the above Service
Agreements that would require transfer into the Philippines of technology, equipment or other property
where either OWSE or WSS has proprietary interest or would otherwise permit OWSE or WSS to impart
to WSA their special knowledge and experience which remain unrevealed to the public. Likewise,
inasmuch as OWSE and WSS shall render the services using their respective customary skills, then the
compensation to be received therefor shall not constitute as consideration for the use of, or the right to use,
any copyright, patent, trademark, design or model, plan, secret formula or process, or for the transfer of
technology. Accordingly, the service fees to be paid by the WSA to OWSE and WSS are not within the
purview of the definition of "royalties" but rather, shall constitute as ordinary business profits derived
from sources outside the Philippines. (BIR Ruling No. DA-ITAD-39-03 dated March 4, 2003)

2. The service fees being derived from sources outside the Philippines shall be exempt from
Philippine income tax.

Inasmuch as it has been represented that the subject services are to be performed by OWSE and
WSS outside the Philippines, then the Philippines-Finland and Philippines-Singapore tax treaties do not
apply as the herein transactions do not result in a case of double taxation for which a tax treaty relief is
sought. (BIR Ruling No. DA-ITAD-63-03 dated April 15, 2003). In this regard, Section 28(B)(1), in
relation to Section 42(A)(3), both of the National Internal Revenue Code (NIRC) provide, viz:

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

"xxx xxx xxx"

"(B) Tax on Nonresident Foreign Corporation. —

"(1) In General. — Except as otherwise provided in this Code, a foreign corporation not engaged in
trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross
income received during each taxable year from all sources within the Philippines, such as interests,
dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate
shall be thirty-two percent (32%).

"SEC. 42. Income from Sources Within the Philippines. —

"(A) Gross Income From Sources Within the Philippines. — The following items of gross income
shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx

"(3) Services. — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 235
 Under the afore-cited provisions, a nonresident foreign corporation is taxable only on income
derived from sources within the Philippines. Considering that the aforementioned services under the two
Service Agreements are to be performed by OWSE and WSS outside the Philippines, the subject service
fees are income derived from sources outside the Philippines. Accordingly, the service fees (consisting of
the annual service fees and annual bonus fees, if any) by WSA to OWSE and WSS under the subject
Service Agreements are considered income derived from sources outside the Philippines and are,
therefore, not subject to Philippine income tax and consequently to withholding tax, pursuant to Section
28(B)(1) of the NIRC.

3. Since the subject services will be performed outside the Philippines, the said service fees are
not subject to Philippine income tax and the 10% value-added tax.

In defining the phrase "sale or exchange of services" subject to 10% VAT, Section 108 of the NIRC
provides:

"The phrase "sale or exchange of services" means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration, . . . " (emphasis supplied)

Clearly, the VAT imposed under Section 108 of the NIRC applies only to services performed in the
Philippines and not to services rendered outside the Philippines. Accordingly, since the services by OWSE
and WSS are to be performed outside the Philippines, then the subject service fees by WSA to OWSE and
WSS are not subject to VAT. (BIR Ruling No. DA-ITAD 39-03 dated March 4, 2003)

This ruling is issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed or 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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 236
 July 22, 2004

ITAD RULING NO. 073-04

Articles 5 (Permanent Establishment), 7 (Business Profits),

12 (Royalties) and 15 (Dependent Personal Services)
Philippines-Netherlands tax treaty BIR Ruling Nos.
DA-ITAD 169-02, 28-04, 56-04 and 67-04

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Ms. Veronica A. Santos

Tax Division

Gentlemen :

This refers to your letter dated May 17, 2004 requesting confirmation that royalties to be paid by
Wireless Services Asia, Inc. (Wireless (Philippines)) to Oy Wireless Services Europe, Ltd. (Wireless
(Finland)) are subject to 15 percent income tax under the existing Philippines-Finland tax treaty.

It is represented that Wireless (Finland) is a nonresident foreign company organized and existing
under the laws of Finland with principal office at Itamerenkatu 5, 2nd Floor, 00180 Helsinki, Finland, as
confirmed by the relevant Certification issued by the National Board of Patents and Registration of
Finland on December 11, 2003; that Wireless (Finland) is not registered either as a corporation or as a
partnership licensed to engage in business in the Philippines as confirmed by the Certification of
Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on
December 11, 2003; that, on the other hand, Wireless (Philippines) is a domestic company organized and
existing under the laws of the Philippines with principal office at 11th Floor, NOL Tower, Commerce
Avenue, Madrigal Business Park, Ayala Alabang, Muntinlupa City, Philippines; that Wireless (Finland)
and Wireless (Philippines) are engaged primarily in the sale of and the provision of services related to
digital products and in the hosting of applications for delivery over GSM networks; that, on December 15,
2002, Wireless (Finland) and Wireless (Philippines) entered into a License Agreement where Wireless
(Finland) granted Wireless (Philippines) the exclusive license to use and to sublicense in the Philippines
and in some other countries the Licensed Products and Trademarks developed and owned by Wireless
(Finland); that the Licensed Products (MBox© and GameChannel©) are software that enable downloading
of ringing tones, logos, Java, and MMS to mobile phones, picture messaging, and short message service
(SMS) games applications (MBox©), and that enable SMS TV arcade gaming, chatting, polling, and
voting (GameChannel©); that the Trademarks are MBox© Platform along with its wireless service
applications and software protocols, and GameChannel© along with its SMS TV applications; that in
consideration, Wireless (Philippines) shall pay Wireless (Finland) a royalty of not less than five percent (5
%) but not more than forty percent (40 %) based on actual payments received by Wireless (Philippines)
from end users, advertisers, sponsors, mobile phone operators, sublicensees, and other distribution
partners; that the initially agreed royalty fee is nineteen percent (19 %); that aside from the license,
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 237
 Wireless (Finland) shall provide Wireless (Philippines) support and maintenance services and updates and
add-ons related to the Licensed Products; that as regard the support and maintenance services, Wireless
(Finland) shall make available to Wireless (Philippines) during normal business hours in Finland a
technical advisor who will assist the latter in understanding and implementing the Licensed Products and
will furnish the latter general information relating to the Licensed Products; that as regard the updates and
add-ons, Wireless (Finland) shall use reasonable efforts to provide such updates and add-ons to the
Licensed Products; and that in consideration, Wireless (Philippines) shall pay Wireless (Finland) technical
fees for the actual support and maintenance services rendered and service fees for the actual updates and
add-ons provided.

In reply, please be informed that royalties to be paid by Wireless (Philippines) to Wireless (Finland)
for the exclusive license to use and to sublicense the Licensed Products and Trademarks in the Philippines
and in some other countries are royalties within the definition of the term in paragraph 3, Article 12
(Royalties) of the Philippines-Finland tax treaty, as "payments of any kind received as a consideration (a)
for the use of, or the right to use, any copyright of literary, artistic or scientific work; (b) for the use of, or
the right to use, any patent, trade mark, design or model, plan, secret formula or process, or any industrial,
commercial, or scientific equipment; and (c) for information concerning industrial, commercial or
scientific experience." In the case of the Licensed Products which are in the nature of software, payments
therefor are "payments for the use or the right to use of a copyright of literary, artistic, or scientific work"
and are royalties, as emphasized in Paragraph 13.1, Commentary on Article 12 of the OECD Model Tax
Convention on Income and on Capital (Updated as of April 29, 2000) and in Revenue Memorandum
Circular No. 77-2003 (Classification of Payments for Software for Income Tax Purposes) dated November
18, 2003, to wit:

OECD Model Convention:

"Payments made for the acquisition of partial rights in the copyright (without the transferor fully
alienating the copyright rights) will represent a royalty where the consideration is for granting of
rights to use the program in a manner that would, without such license, constitute and infringement
of copyright. . . "

Revenue Memorandum Circular No. 77-2003:

"Software is generally assimilated as a literary, artistic or scientific work protected by the

copyright laws of various countries including the Philippines, thus, payments in consideration for
the use of, or the right to use, a copyright or a copyrighted article relating to software are generally
royalties."

In the case of the Trademarks, payments therefor are clearly "payments for the use or the right to use of a
trade mark" and are also royalties.

This being so, the subject royalties to be paid by Wireless (Philippines) to Wireless (Finland) are
subject to taxation under Article 12 of the Philippines-Finland tax treaty, to wit:

"Article 12

ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State, if such resident is the beneficial owner of the royalties.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 238
 "2. Such royalties may also be taxed in the Contracting State in which they arise, and
according to the law of that State. However, the tax so charged shall not exceed

a) 15 per cent of the gross amount of the royalties, where the royalties are
paid by an enterprise registered with and engaged in preferred areas of activities, and
also royalties in respect of cinematographic films or tapes for television or
broadcasting, and royalties for the use of or the right to use, any copyright of literary,
artistic or scientific work; and

b) in all other cases, 25 per cent of the gross amount of the royalties."

"xxx xxx xxx"

Paragraph 1 states that the subject royalties may be taxed in Finland, where Wireless (Finland), the
beneficial owner of the royalties, is a resident. Paragraph 2 states that the subject royalties may also be
taxed in the Philippines where they arise, but the tax so charged shall not exceed: (a) 15 percent of the
gross amount of the royalties, if they are paid (i) by an enterprise registered with and engaged in preferred
areas of activities, (ii) in respect of cinematographic films or tapes for television or broadcasting, or (iii)
for the use or the right to use of a copyright of literary, artistic or scientific work; and (b) 25 percent of the
gross amount of the royalties in all other cases.

Applying the provisions of paragraph 2 to the subject royalties, the part that relates to the use or the
right to use of the Licensed Products, being "payments for the use or the right to use of software
assimilated as copyright of literary, artistic, or scientific work," are subject to income tax at the rate of 15
percent of the gross amount of the royalties, and the part that relates to the use or the right to use of the
Trademarks, being "payments for the use or the right to use of a trade mark," are subject to the rate of 25
percent of the gross amount of the royalties. (BIR Ruling Nos. DA-ITAD 28-04 dated March 29, 2004 and
DA-ITAD 67-04 dated July 9, 2004)

With regard to the technical fees for the support and maintenance services to be rendered by
Wireless (Finland) to Wireless (Philippines) where Wireless (Finland) shall make available to Wireless
(Philippines) during normal business hours in Finland a technical advisor who will assist the latter in
understanding and implementing the Licensed Products and will furnish the latter general information
relating to the Licensed Products, such technical fees, under Section 42(C)(3) 1 of the National Internal
Revenue Code of 1997 (Tax Code), are considered income from sources without the Philippines. This
being so, such technical fees derived by Wireless (Finland), being a foreign corporation, are not subject to
Philippine income tax, as provided under Section 23(F) 2 of the Tax Code. (BIR Ruling No. DA-ITAD
56-04 dated May 31, 2004)

With regard to the service fees for the updates and add-ons to the Licensed Products to be provided
by Wireless (Finland) to Wireless (Philippines), on the assumption that Wireless (Finland) will be sending
its personnel to the Philippines for this purpose, such service fees are to be considered as business profits
taxable under paragraph 1, Article 7 (Business Profits)'' of the Philippines-Finland tax treaty, quoted
below:

"Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that State

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 239
 unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State but only so much of them as is attributable to:

a) that permanent establishment; or

b) sales within that other Contracting State of goods or merchandise of the

same or similar kind as those sold, or from other business activities of the same or
similar kind as those effected, through that permanent establishment.

"xxx xxx xxx"

Paragraph 1 states that the subject service fees may be taxed in the Philippines if they are
attributable to a permanent establishment which Wireless (Finland) has in that country. A permanent
establishment, under paragraphs 1 and 2, Article 5 (Permanent Establishment) of the tax treaty, means a
fixed place of business through which the business of the enterprise is wholly or partly carried on, and
includes, for example, a place of management, a branch, an office, a factory, and a workshop. A permanent
establishment also includes the furnishing of services by a resident of a Contracting State (through
employees or other personnel thereof) in the other Contracting State, where this activity continues in the
other State for a period or periods aggregating more than 183 days. Accordingly, the subject service fees to
be paid by Wireless (Finland) to Wireless (Philippines) will be subject to Philippine income tax if the
activity giving rise to the subject service fees (i.e., the provision of updates and add-ons to the Licensed
Products) is carried out for an aggregate period of more than 183 days; otherwise, the subject service fees
are exempt. (BIR Ruling No. DA-ITAD 169-02 dated September 26, 2002)

As regards the remuneration of the personnel who will carry out the above activity, such
remuneration is generally subject to Philippine income tax, unless the following conditions set forth in
paragraph 2, Article 15 (Dependent Personal Services) of the Philippines-Finland tax treaty below are all
complied with:

"Article 15

DEPENDENT PERSONAL SERVICES

"1. Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similar
remuneration derived by a resident of a Contracting State in respect of an employment shall be
taxable only in that State unless the employment is exercised in the other Contracting State. If the
employment is so exercised, such remuneration as is derived therefrom may be taxed in that other
State.

"2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a

Contracting State in respect of an employment exercised in the other Contracting State shall be
taxable only in the first-mentioned State if the recipient is present in the other Contracting State for a
period or periods not exceeding in the aggregate 183 days in the calendar year concerned, and the
remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and such
remuneration is not borne by a permanent establishment or a fixed base which the employer has in the
other State.

"xxx xxx xxx"

Paragraph 2 states that the subject remuneration will be exempt from tax if: (a) the personnel are

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 240
 present in the Philippines for an aggregate period or periods not exceeding 183 days in the calendar year
concerned, (b) the remuneration is paid by an employer who is not a resident of the Philippines, and (c) the
remuneration is not borne by a permanent establishment which the employer has in the Philippines. The
second and third conditions are satisfied by reason that the employer, Wireless (Finland), is not a resident
of the Philippines and it does not have a permanent establishment or a fixed place of business in the
Philippines. Thus, remuneration of personnel involved in rendering the services mentioned herein shall be
taxable based on whether or not the first condition under Article 15, paragraph 2 of the
Philippines-Finland tax treaty is fulfilled. (BIR Ruling No. DA-ITAD 169-02 dated September 26, 2002)

Finally, Section 108(A)[(l) and (5)] of the Tax Code states that "the use of or the right or privilege
to use any copyright and trademark (like the use of the Licensed Products and Trademarks)" and "the
supply of services by a nonresident person or his employee in connection with the use of property or rights
belonging to the nonresident person (like the provision of updates and add-ons to the Licensed. Products)"
both fall within the definition of sale or exchange of services subject to ten percent (10%) value-added tax
(VAT). Accordingly, the subject royalties and service fees to be paid by Wireless (Philippines) to Wireless
(Finland) for services rendered in the Philippines are subject to 10% VAT. (BIR Ruling Nos. DA-ITAD
28-04 dated March 29, 2004 and DA-ITAD 67-04 dated July 9, 2004)

With regard to the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations No. 4-2000, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue
Regulations No. 14-2002 provide that the resident person making the payments to a nonresident person,
Wireless (Philippines), shall be responsible for the withholding of the 10% VAT on such payments before
remitting them to the nonresident person, Wireless (Finland). In remitting to the Bureau of Internal
Revenue the VAT withheld on such payments, Wireless (Philippines) shall use BIR Form No. 1600
(Monthly Remittance Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered
taxpayer, Wireless (Philippines) may use as documentary substantiation for its claim of input VAT the
duly filed BIR Form No. 1600 and the proof of payment accompanying it. If a non-VAT-registered
taxpayer, Wireless (Philippines) may include as part of the cost of the license granted and the services
furnished to it by Wireless (Finland), the VAT consequently shifted or passed on to it and may treat such
VAT either as expense or asset, whichever is applicable. In addition, upon Wireless (Finland)'s request,
Wireless (Philippines) is required to issue in quadruplicate the relevant Certificate of Final Tax Withheld
at Source (BIR Form No. 2306), the first three copies to be given to Wireless (Finland) and the fourth
copy to be retained by Wireless (Philippines) as its file copy.

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
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 241
 Bureau of Internal Revenue
Footnotes
1. "Section 42. Income from Sources Within the Philippines. —
(A) Gross Income from Sources Within the Philippines. — The following items of gross income shall be
treated as gross income from sources within the Philippines:
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in the Philippines;
xxx xxx xxx"
2. "Section 23. General Principles of Income Taxation in the Philippines. — Except when otherwise provided
in this Code:
xxx xxx xxx
(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only
on income derived from sources within the Philippines."

July 21, 2004

ITAD RULING NO. 072-04

Article 6 & 13, Philippines-Malaysia

Sycip Salazar Hernandez & Gatmaitan

SYCIPLAW — All Asia Capital Center
105 Paseo de Roxas
Makati City

Attention: Atty. Hector M. De Leon, Jr.

Atty. Francis Joseph H. Ampil

Gentlemen :

This refers to your letters dated November 28, 2000 and August 26, 2003 on behalf of your client,
UNITED ENGINEERS (Malaysia) BERHAD (UEM), applying for tax treaty relief on the gains realized
from the sale of its 100% stockholdings in UEM-MARA Philippines Corporation (UEM-MARA) to the
Coastal Road Corporation (CRC) pursuant to Article 13 of the Philippines-Malaysia Tax Treaty.

It is represented that UEM is a corporation duly organized and existing under and by virtue of the
laws of Malaysia with head office address at No. 5 Jalan 217 46050 Petaling Jaya Selangor Darul Ehsan,
Malaysia; that UEM is not registered as a corporation/partnership licensed to do business in the
Philippines per certification issued by the Securities and Exchange Commission dated August 23, 2000;
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 242
 that on December 27, 1994, the Public Estates, Authority (PEA), UEM (as assignee of the rights, liabilities
and obligations of Renong Berhad) and Majlis Amanah Rakyat (MARA) entered into a Joint Venture
Agreement (JVA) for the design, construction, operation and maintenance of the R-1 Expressway, R-1
Expressway Extension and the C-5 Link Expressway toll facilities, collectively referred to as the Manila
Cavite Toll Expressway Project (hereinafter referred to as "MCTEP"); that UEM-MARA was
subsequently incorporated to perform the obligation of UEM and MARA under the JVA; that
UEM-MARA is a corporation duly organized and existing under and by virtue of the laws of the
Philippines and with office address at 9th Floor, PDCP Building Center, 8737 Paseo de Roxas, Makati
City; that as of December 15, 1999, UEM owns 283,744 shares of stock with a par value of P100.00 per
share which represents 99% of the entire outstanding capital stock of UEM-MARA as confirmed by the
certification issued by the corporate secretary on November 20, 2000; that on December 15, 1999, UEM
sold to CRC the said 283,744 shares of stock for and in consideration of Forty-Four Million Seven
Hundred Sixty Eight Thousand Eight Hundred Fifty-Seven Pesos (P44,768,857.00) as shown in the Deed
of Assignment.

It is your contention that the sale by UEM of its shares in UEM-MARA to CRC is exempt from
capital gains tax on the basis of Article 13(4) of the Philippines-Malaysia tax treaty, premised on the
ground that the concession assets of UEM-MARA reflected in its 1999 Audited Financial Statements do
not represent or constitute immovable property under Article 415 of the Civil Code of the Philippines.

In reply, please be informed that Article 13 of the Philippines — Malaysia tax treaty provides:

"ARTICLE 13

1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6,

may be taxed in the Contracting State in which such property is situated.

2. Gains from the alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the other Contracting State
or of movable property pertaining to a fixed base available to a resident of a Contracting State in the
other Contracting State for the purpose of performing professional services, including such gains from
the alienation of such a permanent establishment (alone or together with the whole enterprise) or of
such a fixed base may be taxed in the other State. However, gains from the alienation of ships or
aircraft operated by an enterprise of a Contracting State in international traffic and movable property
pertaining to the operation of such ships or aircraft shall be taxable only in the State of which the
enterprise is a resident.

3. Gains from the alienation of shares of a company, the property of which consists
principally of immovable property situated in a Contracting State, may be taxed in that State. Gains
from the alienation of an interest in a partnership or a trust, the property of which consists principally
of immovable property situated in a Contracting State, may be taxed in that State. (emphasis supplied)

4. Gains from the alienation of any property or assets, other than those mentioned in
paragraphs 1, 2 and 3 of this Article shall be taxable only in the Contracting State of which the
alienator is a resident."

In this connection, Article 6(2) of the same tax treaty defines "immovable property" as follows:

"ARTICLE 6

INCOME FROM IMMOVABLE PROPERTY

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 243
 1. ...

2. For the purposes of this Agreement, the term "immovable property" shall be defined in
accordance with the laws of the Contracting State in which the property in question is situated. The
term shall in any case include property accessory to immovable property, livestock and equipment
used in agriculture and forestry, rights to which the provisions of general law respecting landed
property apply, usufruct of immovable property and rights to variable or fixed payments as
consideration for the working of or the right to work, mineral deposits, oil or gas wells, quarries and
other places of extracting of natural resources including timber or other forest produce. Ships, boats
and aircraft shall not be regarded as immovable property. (Emphasis Supplied)

"xxx xxx xxx"

Based on the aforequoted provisions, capital gains derived by UEM from its transfer of shares of
stock to CRC is generally taxable in Malaysia. However, paragraph 3 of Article 13 above grants to the
Philippines the right to tax gains derived from the disposition of interest in a corporation if its assets
consist principally of real property interests located in the Philippines. "Real Property Interest" means
properties enumerated in Section 3 of Revenue Regulations No. 4-86 which, are not, however, exclusive of
others that are similarly situated. As used in the treaties and in the Regulations, it shall be understood to
include real properties as understood under Philippine Laws. Moreover, "Principally" means more than
50% of the entire assets in terms of value. (Sec. 2(a) and (b), Revenue Regulations No. 4-86).

Verification of the 1998 and 1999 Audited Financial Statements of UEM-MARA: Philippines
disclosed that its net property and equipment located in the Philippines are valued at Php1,110,261,852.00
(Php1,165,491,309.00 less depreciation in the amount of Php55,229,457.00) as of December 31, 1999.
Under the schedule or breakdown of these accounts, it has been shown to include the Concession Assets
account which amounted to P1,154,506,567.00, the carrying value of the completed segment of the
MCTEP under the aforementioned Joint Venture Agreement.

Since the greater part of the total assets of UEM-MARA consists of the Concession Assets account,
the controversy in the instant case revolves on the issue on whether these concession assets are immovable
properties. It is your opinion that these concession assets are not in the nature of immovable property
under Philippine Laws since these assets only represent the expenditures or cost advances by
UEM-MARA in the course of complying with their obligation to carry out the MCTEP. That this
concession asset account represents the deferred costs and expenses incurred by UEM-MARA for the
design and construction of the Project, the cost of investment of UEM and MARA in the joint venture
formed with PEA. Being mere return of investment, it is your opinion that these concession assets are
naturally movable property.

We do not agree with your opinion. On the contrary, this Office is of the opinion that the disputed
concession assets are immovable properties. Under the pertinent provisions of Revenue Regulations No.
4-86 in relation to Article 415 paragraph (10) of the New Civil Code of the Philippines, contracts for
public works and servitudes and other real rights over immovable property are considered real property
interest/immovable. The Joint Venture Agreement executed by UEM, MARA and PEA for the
construction of the MCTEP is clearly a contract for public works classified as immovable property. While
the piece of paper on which the contract for public works has been written is necessarily personal
property, but the contract itself, or rather the right to the contract, is real property (Paras citing Manresa,
Civil Code of the Philippines Annotated II 1994 Ed., p. 26). Accordingly, since the concession assets
represent the consideration or rights of UEM-MARA arising from the JVA, a contract for public work
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 244
 with PEA, concession assets are necessarily immovable properties.

Furthermore, a plain reading of Article 415 of the New Civil Code of the Philippines shows that the
contract itself is made immovable. It is but logical to consider the whole contract price or the subject
concession assets, the cause for UEM-MARA to enter into the JVA, as the basis for the computation of
real property interest, it being an essential element in the formation of a contract (Article 1318, New Civil
Code of the Philippines). In other words, as the contract itself is made immovable by law, the cause being
an essential element thereof, follows to be immovable as well, for without it there can be no contract to
speak of. Accordingly, the value of the concession assets which arose from the Joint Venture Agreement
shall be classified as real property in the determination of the value of the real property interest of
UEM-MARA.

Such being the case, the value of the real interest/real property of UEM-MARA located in the
Philippines consisting of the concession assets and leasehold improvements is more than 50% of its total
assets of Php1,575,480,587.00, thereby rendering the assets of UEM-MARA consisting principally of real
property situated in the Philippines. Therefore, as the capital gains derived by UEM on the sale of its
shares of stock in UEM-MARA to CRC shall be taxed in the Philippines pursuant to Article 13(3) of the
Philippines-Malaysia tax treaty, your application for tax treaty relief is hereby DENIED for lack of legal
basis. acHETI

Accordingly, such gains shall be subject to tax in accordance with Section 28(B)(5)(c) of the Tax
Code of 1997, quoted as follows, to wit:

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

(B) Tax on Nonresident Foreign Corporation. —

xxx xxx xxx

(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. —

xxx xxx xxx

(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange. — A final
tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic
corporation, except shares sold, or disposed of through the stock exchange:

"Not over P100,000 — 5%

"On any amount in excess of P100,000 — 10%

Finally, the Deed of Assignment of Shares of Stock shall be subject to documentary stamp tax
imposed under Section 176 of the Tax Code of 1997.

Very truly yours,

Commissioner of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 245
 By:

(SGD.) JOSE MARIO C. BUÑAG

Deputy Commissioner
Legal and Inspection Group
Bureau of Internal Revenue

July 21, 2004

ITAD RULING NO. 071-04

Philippines-Japan tax treaty, Article 5 & 10

BIR Ruling No. 175-85;
ITAD 192-02; ITAD 132-03; ITAD 137-02

FEC Development, Inc.

108 Trade Avenue, Phase 4
Special Processing Zone, Laguna Technopark
Biñan, Laguna

Attention: Mr. Masato Miyahara

President

Gentlemen :

This refers to your application for relief from double taxation dated December 2, 2003, on behalf of
your stockholder, Furukawa Electric Company Ltd. (FECL), requesting (1) confirmation of your opinion
that the dividend payments to be made by your company FEC Development Inc. (FDI) to FECL are subject
to the preferential tax rate of 10%, pursuant to Article 10 of the Philippines-Japan tax treaty, and (2) for
the issuance of a tax credit certificate in the amount of P277,870.77, representing overpayment of
withholding tax on the dividends paid by FDI to FECL.

It is represented that FECL is a corporation duly organized and existing under the laws of Japan
with office address at 6-1 Marunouchi, 2-Chome, Chiyoda-ku, Tokyo, Japan; that FECL is registered and
licensed to establish a representative office in the Philippines as evidenced by a certificate dated August
13, 2003 and a License to Transact Business (SEC License No. A199810861) issued by the Securities and
Exchange Commission; that under the said license, the representative office of FECL was established to
collect information; disseminate information; promote company products; conduct quality control of
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 246
 company products, market surveys, liaison and other activities of a representative office; that FDI is a.
corporation duly organized and existing under the laws of the Philippines, with principal office at 108
Trade Avenue, Phase 4 Special Export Processing Zone, Biñan, Laguna; that FECL is the beneficial owner
of One Thousand (1,000) Class B shares and Three Thousand (3,000) Class C shares in FDI; that since
April 19, 2002 FECL has been the beneficial owner of 40% of both the voting shares and the total shares
issued by FDI; that on March 27, 2003 FDI declared cash dividends in the amount of Four Hundred Sixty
Three Thousand One Hundred Seventeen and 95/100 (P463,117.95) for common stock (Class B) and One
Million Three Hundred Eighty Nine Thousand Three Hundred Fifty three and 85/100 (P1,389,353.85) for
redeemable stock (Class C) for the period covering March to December 2002; and that on June 4, 2003
and July 10, 2003 remittances in the amount of One Million Seven Hundred Ninety Three Thousand and
Eighty Four pesos (P1,793,084.00) and Two Hundred Eighty Seven Thousand Five Hundred Twenty
Three pesos (P287,523.00), respectively, were made to FECL.

In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:

"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.

The provisions of this paragraph shall not affect the taxation of the company
in respect of the profits out of which the dividends are paid.

"3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the
Philippines on the dividends paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends,
shall not exceed 10 per cent of the gross amount of the dividends.

"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".

Based on the above mentioned provisions, the Philippines may tax the dividends paid by a
Philippine company to a Japanese company at a rate not exceeding 10%, based on the gross amount of
dividends, if the latter is the beneficial owner thereof and holds directly at least 25% either of the voting
shares or of the total shares of the issuing company during the period of six months immediately preceding
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 247
 the date of payment of the dividends. In all other cases, the tax rate to be imposed shall be 25% based on
the gross amount of the dividends.

The term "permanent establishment" is defined in Article 5 of the Philippines-Japan tax treaty
which provides, to wit:

"Article 5

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

"2. The term 'permanent establishment' includes especially:

a) A store or other sales outlet;

b) A branch;

c) An office;

d) A factory;

e) A workshop;

f) A warehouse;

g) A mine, an oil or gas well, a quarry or other place of extraction of

natural resources.

"3. A building site or construction or installation projects constitutes permanent

establishment only if it lasts more than six months.

"xxx xxx xxx"

"6. An enterprise of a Contracting State shall be deemed to have a permanent establishment

in the other Contracting State if it furnishes in that other Contracting State consultancy services, or
supervisory services in connection with a contract for a building, construction or installation project
through employees or other personnel — other than an agent of an independent status to whom
paragraph 7 applies — provided that such activities continue (for the same project or two or more
connected projects) for a period or periods aggregating more than six months within any taxable year.
However, if the furnishing of such services is effected under an agreement between the Governments
of the two Contracting States regarding economic or technical cooperation, that enterprise shall,
notwithstanding any provisions of this Article, not be deemed to have a permanent establishment in
that other Contracting State.

"7. An enterprise of a Contracting State shall not be deemed to have a permanent

establishment in the other Contracting State merely because it carries on business in that other
Contracting State through a bona fide broker, general commission agent or any other agent of an
independent status, provided that such persons are acting in the ordinary course of their business.

"8. The fact that a company which is a resident of a Contracting State controls or is
controlled by a company which is a resident of the other Contracting State, or which carries on
business in that other Contracting State (whether through a permanent establishment or otherwise),
shall not of itself constitute either company a permanent establishment of the other. THaDEA

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 248
 "xxx xxx xxx"

Based on the foregoing provisions, since, as represented the activities of the said representative
office are limited to collecting information; disseminating information; promoting company products;
conducting quality control of company products, market surveys, liaison and other activities of a
representative office, it is clear that said representative office is not deemed to constitute a permanent
establishment of FECL in the Philippines. (BIR Ruling No. 175-85 dated September 30, 1985)
Accordingly, FECL is not deemed to have a permanent establishment in the Philippines to which its
dividend income from FDI may be attributed to. (BIR Ruling No. DA-ITAD 192-02 dated October 29,
2002)

Therefore, your opinion that the dividend payments by FDI to FECL is subject to the preferential
tax rate of 10% based on the gross amount of dividends, pursuant to Article 10 of the Philippines-Japan
tax treaty is hereby confirmed. (BIR Ruling No. DA-ITAD 132-03 dated August 26, 2003)

This ruling is issued based on the foregoing facts as represented and is rendered only for the
purpose of determining whether FECL is entitled to the benefits of the Philippines-Japan tax treaty. The
determination on whether your request for tax refund should be given due course is upon the Office which
will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including a copy
of this ruling) shall be indorsed to the proper Office for processing and investigation.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

July 13, 2004

ITAD RULING NO. 070-04

Article 13, Philippines-Netherlands tax treaty

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 249
 Section 176, NIRC of 1997
BIR Ruling No. ITAD 201-02

Punongbayan & Araullo

Ernst and Young International
20th Floor, Tower 1
The Enterprise Center
6766 Ayala Avenue, 1200 Makati City

Attention: Atty. Romeo H. Duran

Tax Partner

Gentlemen :

This refers to your application for relief from double taxation dated February 9, 2004, on behalf of
your client American Power Conversion (Phils) (APCP), requesting confirmation of your opinion: (1) that
any gain from liquidating dividends derived by American Power Conversion BV (APC-BV) from the
surrender of its shares of stock in APCP as a consequence of APCP's dissolution shall be considered as
income of APC-BV, and (2) that any gain realized by APC-BV arising from its receipt of liquidating
dividends from APCP as a result of APCP's dissolution is exempt from capital gains tax, pursuant to
Article 13 of the Philippine-Netherlands tax treaty.

It is represented that APCP is a corporation organized and existing under Philippine law and duly
registered with the Securities and Exchange Commission; that it is a wholly owned subsidiary of APC-BV,
a holding company based in the Netherlands; that APC-BV is a corporation organized and existing under
the laws of the The Netherlands; that APC-BV is fully owned by American Power Conversion
Corporation (APCC), a corporation existing and organized under the laws of the United States of
America; that APCP is registered with the Philippine Economic Zone Authority (PEZA) as an Export
Enterprise authorized to engage in the manufacture, assembly and export of uninterrupted power supply
equipment, such as power converters and voltage regulators at the Cavite Special Economic Zone; that as a
PEZA-registered enterprise, APCP was granted a four (4)-year income tax holiday effective in 1996,
which was further extended up to July, 2003; that after this date, APCP became subject to the 5% special
tax rate under Section 24 of Republic Act No. (RA) 7916, as amended (otherwise known as the Special
Economic Zone Act of 1995); that in accordance with the restructuring of APCC's operations worldwide,
the Philippine operations, previously undertaken through APCP, was converted from that of a subsidiary
into a branch; that, the Philippine operations shall be transformed from contract manufacturer to full time
manufacturer that hold its own technology; that after the conversion of the Philippine operations from a
subsidiary into a branch, the latter shall continue and carry-on the business of the existing subsidiary; that
to implement the conversion of the Philippine operations from a subsidiary into a branch, a branch would
be established, and the entire assets, business and liabilities of APCP shall be transferred to the branch;
that after said assets, business and liabilities of APCP shall have been transferred to the APC-Phil branch,
the latter shall continue the Philippine operations, and APCP shall permanently cease its business
operation in the Philippines and shall be dissolved and liquidated; that on January 11, 2002, APC-BV was
licensed by the SEC to transact business in the Philippines through the establishment of a Philippine
branch (APC-Phil branch); that while APC-BV maintains a Philippine branch, the said branch does not
have any participation whatsoever in the negotiation and implementation of the dissolution of APCP and
of the issuance of liquidating dividends; that when APCP was incorporated in May 15, 1996 (SEC

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 250
 Registration No. AS096-005079), during which the investment of APC-BV was made, APC-Phil branch
was not yet in existence, and thus, APC-Phil branch is not privy to the transactions between APC-BV and
APCP; that APC-Phil branch was likewise registered with PEZA on May 22, 2003 as an Ecozone Export
Enterprise under PEZA Certificate of Registration No. 02-023; that on May 27, 2002, a special
stockholders and director's meeting of the APCP was held approving (1) the conversion of the corporate
structure of APCP to a branch office of APC-BV, and (2) the dissolution of APCP, upon completion of the
sale of all or substantially all the business, property and assets of APCP to APC-Phil. branch; that on
August 25, 2003, APCP and APC-Phil branch signed an Agreement for the Sale and Purchase of the
Business and Business Assets, under which APCP sold to APC-Phil branch, and the latter purchased the
business and business assets, specific assets and other contracts specified in said Agreement; and that after
the transfer of the Philippine operations from APCP to APCP-BV Philippine branch, it is intended that
APCP shall permanently cease its business operations in the Philippines, and shall be dissolved and
liquidated.

In reply, please be informed as follows:

1. Gains derived by APC-BV from the surrender of its shares of stocks in APCP as a consequence of
APCP's dissolution shall be considered APC-BV's income and NOT of APC-Phil branch

The situation where a parent company enters into a business transaction without the participation of
its branch is recognized by the Supreme Court to be a separate and distinct activity of the parent company
from the branch for tax purposes. Thus, in the case of Marubeni vs. CIR, (G.R. No. 76573 dated
September 14, 1989), the Supreme Court said:

"The Solicitor General has adequately refuted petitioner's argument in this wise:

`The general rule that a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the principal-agent relationship theory.
It is understood that the branch becomes its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal-agent relationship is set aside.
The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer
is the foreign corporation, not the branch or the resident foreign corporation.

`Corollary, if the business transaction is conducted through the branch office, the latter
becomes the taxpayer, and not the foreign corporation.'

In the instant case, since it is represented (1) that while APC-BV maintains a Philippine branch, the
said branch does not have any participation whatsoever in the negotiation and implementation of the
dissolution of APCP and of the issuance of liquidating dividends, and (2) that APC-Phil branch is not
privy to the investment transaction between APC-BV and APCP, it is thus clear that the gains derived by
APC-BV arising from the surrender of its shares of stocks in APCP shall be considered as income of
APC-BV and not of APC-Phil branch.

2. Gains that may be derived by APC-BV arising from the payment of liquidating dividends is exempt
from capital gains tax, pursuant to Article 13 of the Philippines-Netherlands tax treaty

Article 13 of the Philippines-Netherlands tax treaty provides as follows, viz:

"Article 13

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 251
 "GAINS FROM THE ALIENATION OF PROPERTY

"1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6,
may be taxed in the State in which such property is situated.

"2. Gains from the alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of one of the States has in the other State, or of movable
property pertaining to a fixed base available to a resident of one of the States in the other State for the
purpose of performing professional services, including such gains from the alienation of such a
permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be
taxed in the other State.

"3. Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of

the States from the alienation of ships and aircraft operated in international traffic and movable
property pertaining to the operation of such ships or aircraft shall be taxable only in that State.

"4. Gains from the alienation of any property other than those mentioned in paragraphs 1, 2
and 3, shall be taxable only in the State of which the alienator is a resident.

"5. The provisions of paragraph 4 shall not affect the right of each of the States to levy
according to its domestic law a tax on gains from the alienation of any property derived by an
individual who is a resident of the other State and has been a resident of the first-mentioned State at
any time during the six years immediately preceding the alienation of the property."

The ordinary connotation of liquidating dividend involves the distribution of assets by a corporation
to its stockholder upon dissolution (Klein, Federal Income Taxation, 253-254 cited in the case of Wise &
Co., Inc. et al. vs. Meer, et al., G.R. No. 48231, June 30, 1947).

When a corporation is dissolved and in the process of complete liquidation and its shareholders
surrendered their stock to it and it paid sums of money to them in exchange, a transaction took place,
which is no different in its essence from a sale of the same stock to a third party who paid therefor (Read
the case of Wise & Co., Inc. et al. vs. Meer, et al., supra).

In addition, the annotations on the Corporation Code of the Philippines by Paras et al., define
"liquidating dividends" as follows

"These are dividends that are declared when a corporation liquidates by redeeming its
outstanding stock for cash, or by distributing its assets to stockholders in exchange for their stock.
Such distribution is also known as distribution in liquidation. For tax purposes, liquidating dividends
are treated, in effect, as sales of stock; hence any gain or loss to the stockholder is treated as capital
gain or loss."

It is clear from the aforequoted provisions of the Philippines-Netherlands tax treaty that capital
gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 of Article 13
of the tax treaty shall be taxable only in the State where the alienator is a resident.

Considering that the surrender of stock to APCP by APC-BV in exchange for the payment of
liquidating dividends is deemed a sale of shares of stock and such transaction is not among those
mentioned in said paragraphs 1, 2 and 3 of Article 13 of the said tax treaty, the gains that may be derived
by APC-BV, which is a resident of The Netherlands, from the surrender of its shares of stock in APCP, a
domestic corporation, shall not be subject to Philippine income tax under Section 28(B)(5)(c) of the Tax
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 252
 Code of 1997, but are subject to tax only in the Netherlands. (BIR Ruling No. DA-ITAD 201-02 dated
November 25, 2002)

This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall
be disclosed or discovered that the facts are different, then this ruling shall be without force and effect
insofar as herein parties are concerned. SDTaHc

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

July 13, 2004

ITAD RULING NO. 069-04

Article 5 & 7, RP-Japan tax treaty

ITAD Ruling No. 184-02

Punongbayan & Araullo

20th Floor, Tower 1
The Enterprise Center
6766 Ayala Avenue, Makati City

Attention: Ms. Benedicta Du-Baladad

Tax Partner

Gentlemen :

This refers to your letter dated May 12, 2004, requesting confirmation of your opinion that the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 253
 service fees paid by your client, Yamaki Philippine Corporation (YPC), to Yamaki Electric Corporation
(YEC), are not subject to Philippine income tax, pursuant to the Philippines-Japan tax treaty, and that such
service fees, being compensation for services abroad and rendered to a Philippine Economic Zone
Authority (PEZA) company, are not subject to value-added tax.

It is represented that YEC is a foreign corporation duly organized and existing under the laws of
Japan, with principal office at 7-22 3 Chroume, Shimomeguro, Meguroku, Tokyo, Japan; that it is not
registered either as a corporation or as a partnership licensed to do business in the Philippines as
evidenced by Certification dated February 10, 2004 issued by the Securities and Exchange Commission;
that YPC is a PEZA-registered corporation organized and existing under the laws of the Philippines with
principal office at MEPZ II, Basak, Lapu-lapu City, Cebu; that it is registered with the PEZA as an Export
Enterprise under Certificate of Registration No. 95-137; that YPC is engaged in the business of
manufacturing various kinds of electrical and electronic devices as well as communication equipment
while YEC operates the business of manufacturing in Japan as well as providing managerial, training, and
administrative supports to YPC; that on August 1, 2002, YPC and YEC entered into a Management
Agreement wherein:

"1. YEC shall conduct a monthly financial review of the operation of YPC. YPC will send
monthly reports to YEC in Japan. If necessary, YEC may recommend some improvements in relation
to the financial reporting of YPC and other areas;

"2. YEC shall train selected employees of YPC to attain skills in the manufacture of the
latter's products and to improve productivity;

"3. YEC shall assist YPC in the procurement and shipment of good quality raw materials
and supplies in Japan; and

"4. YEC shall promote the products manufactured by YPC."

that during the term of agreement, YEC shall hire necessary personnel to perform the services; that the
employees and personnel of YEC shall exclusively perform the services for YPC in Japan or in other
countries outside the Philippines, and should it be necessary for YEC to send its employees to the
Philippines, the stay of these individuals shall not in any case exceed six (6) months; that as a
compensation for the service performed by YEC, YPC shall pay YEC a monthly fee equal to Eight
Hundred Ten Thousand Japanese Yen (¥810,000), covering the period from August 1, 2002 to July 31,
2003; and that the said Service Agreement shall be effective for a twelve-month term commencing on
August 1, 2002 until July 31, 2003, subject to automatic renewal for another twelve-month term, unless
one of the parties serves a written notice of non-renewal to the other party not later than one (1) month
prior to the expiration of the current term.

In reply, please be informed that Article 7 of the Philippines-Japan tax treaty provides as follows:

"Article 7

"1. The profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits
of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 254
 "xxx xxx xxx"

Moreover, Article 5 of the said treaty provides, viz:

"Article 5

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

"xxx xxx xxx"

"6. An enterprise of a Contracting State shall be deemed to have a permanent establishment

in the other Contracting State if it furnishes in that other Contracting State consultancy services, or
supervisory services in connection with a contract for building, construction or installation project
through employees or other personnel — other than an agent of an independent status to whom
paragraph 7 applies — provided that such activities continue (for the same project or two or more
connected projects) for a period or periods aggregating more than six months within any taxable year.
However, if the furnishing of such services is effected under all agreement between the Governments
of the two Contracting States regarding economic or technical cooperation, that enterprise shall,
notwithstanding any provisions of this Article, not be deemed to have a permanent establishment in
that other Contracting State.

"xxx xxx xxx"

Based on the aforequoted provisions, it is clear that if a corporation which is a resident of Japan
carries on business in the Philippines through a permanent establishment situated therein, the profits of the
same shall be subject to Philippine income tax, but only so much of them as is attributable to that
permanent establishment. For this purpose, a corporation which is a resident of Japan may be deemed to
have a permanent establishment in the Philippines if, among others, the furnishing of consultancy or
supervisory services by such corporation, through its employees or other personnel, in the same or
connected project, continue within the Philippines for a period or periods aggregating more than six
months in any taxable year except when the furnishing of such services is effected under an agreement
between the Governments of Japan and Philippines regarding economic or technical cooperation, in which
case, the corporation shall not be deemed to have a permanent establishment in the Philippines.

Considering that the furnishing of services is performed by YEC in its office in Japan or in other
countries outside the Philippines and that although the above-mentioned services are performed in the
Philippines, the length of stay of personnel of YEC shall not exceed six (6) months, YEC is not deemed to
have a permanent establishment in the Philippines to which its business profits may be attributed to.
Therefore, the income derived by YEC from services rendered to YPC are not subject to Philippine
income tax, pursuant to Article 7(1) in relation to Article 5 of the Philippines-Japan tax treaty. (BIR Ruling
No. ITAD-184-02 dated October 17, 2002)

Moreover, Section 108 of the Tax Code of 1997 states that, "sale or exchange of services" is subject
to VAT. Under current regulations, the sale of services to Ecozone Enterprises may be considered
effectively zero-rated for VAT-purposes but subject to the limitation that the sale of service is made to
persons or entities who enjoy indirect tax exemption [Section 4.102-2(c), Revenue Regulations No. 7-95].
Since there is no express provision under the PEZA law granting exemption from indirect taxes to
Ecozone Enterprises, the recognition of zero-rated sale of services is made to rest on the Cross Border
Doctrine or Destination Principle of the VAT system, viz: "the country taxes all value-added, at home and

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 255
 abroad, for goods that have as their destination the consumers of that country. Exports are exempt, imports
are taxable. . . " (VAT Ruling No. 009-99 dated January 21, 1999)

The same principle is applicable to the case at hand. It should be noted that the sale of services is in
connection with the manufacture of products for export. However, instead of the zero-rating which is not
available to non-resident suppliers, the provision for exempt transactions under Section 109 of the Tax
Code of 1997 which provides VAT exemption for transactions which are exempt under special laws, e.g.,
Republic Act 7916 or PEZA law, is particularly applicable to the instant case. In the case of payment of
service fees to a nonresident service provider, the responsibility for withholding the VAT and paying the
same rest on the payor. However, since PEZA-registered export enterprises may not be passed on with nor
claim input VAT, then service fees paid to a nonresident service provider, such as YEC should be, as it is
hereby confirmed to be, exempt from VAT. (VAT Ruling No. 095-99 dated September 14, 1999)

This ruling is issued on the basis of the foregoing facts as represented. However, if upon
investigation, it will be disclosed that the facts are different, then this ruling shall be without force and
effect insofar as the herein parties are concerned. aIcCTA

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

July 8, 2004

ITAD RULING NO. 068-04

Article 5 & 7, Paragraph 1 (a) of the GADC between GRP

and GOA: Section 106 (A) (2) (c) of the National Internal
Revenue Code of 1997 DA-ITAD Ruling No. 160-03

Philippines-Australia Quality Technical Vocational

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 256
 Education and Training Project Phase II (PAQTVET II)
6/F TESDA Complex, East Service Road
South Superhighway, Taguig, M.M.

Gentlemen :

This refers to your letter dated March 8, 2004 indorsed to this Office by the Department of Foreign
Affairs (DFA), requesting exemption from payment of ad valorem and value-added taxes (VAT) on the
local purchase of a motor vehicle for the official use of the Philippines-Australia Quality "Technical
Vocational Education and Training Project Phase II (PAQTVET II), specifically described as follows:

Make: One (1) Nissan Patrol Station Wagon 4x4 AT

Model Year: 2003
Type of use: Official use
Organization: Philippines-Australia Quality Technical
Vocational Education and Training Project Phase II
Frame No.: TB45-062906
Engine No.: TGNSLHAY61-Y12521

In reply, please be informed that Section 106 (A)(2)(c) of the National Internal Revenue Code of
1997 (NIRC) provides, viz:

"Section 106. Value-added Tax on Sale of Goods or Properties. —

''(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the
gross selling price or gross value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor.

"xxx xxx xxx

"(2) [Zero-rated Sales] — The following sales by VAT-registered persons shall be subject to
zero percent (0%) rate:

"xxx xxx xxx

"(c) Sales to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory effectively subjects
such sales to zero rate.

"xxx xxx xxx"

Moreover, Article 5, paragraphs 1 & 2 of the General Agreement on Development Cooperation

(GADC) between the Government of the Republic of the Philippines (GRP) and the Government of
Australia (GOA) provides, viz:

"Article 5

"Subsidiary arrangements

1. In support of the objectives of this Agreement, the Government of Australia and the
Government of the Republic of the Philippines, or their agencies, statutory authorities or
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 257
 organizations, may conclude subsidiary arrangements in respect of specific activities.

"2. Subsidiary arrangements shall make specific reference to this Agreement and the terms
of this Agreement shall, unless otherwise stated, apply to such subsidiary arrangements. Wherever
possible, such subsidiary arrangements shall set out: (Emphasis supplied)

"(a) the name and duration of the activity;

"(b) a description of the activity and statement of its objectives:

"(c) the nominated implementing agencies in both countries;

"(d) potential benefits of the activity;

"xxx xxx xxx"

Relative thereto, Article 7, paragraph 1(a) of the GADC between GRP and GOA pertinently
provides as follows:

"Article 7

"Project supplies and professional and technical material and services

"1. In respect of project supplies and professional and technical material and services
whether to be imported from outside or procured within the Philippines, the Government of the
Republic of the Philippines shall:

"(a) for direct supplies of domestic goods and services, subject them to zero
rate for purposes of Value Added Tax (VAT); exempt direct importation of goods
from import duties, VAT and other taxes imposed in the Philippines (or pay such
duties thereon); and be responsible for inspection fees, storage charges and all other
levies, fees and charges;

"xxx xxx xxx"

Based on the abovequoted provisions, the terms of the GADC, unless otherwise stated, shall apply
to subsidiary arrangements with specific reference to said Agreement. Moreover, Article 7 of the GADC
states that the Government of the Philippines shall subject to zero rate, for purposes of VAT, direct
supplies of domestic goods and services in respect of project supplies and professional and technical
material and services whether to be imported from outside or procured within the Philippines.

Such being the case, since PAQTVET II is a subsidiary arrangement of GADC and falls within the
purview of Section 106 (A)(2)(c) of the NIRC, and which exemption under an international agreement
(i.e., GADC) to which the Philippines is a signatory effectively subjects such sales to zero rate, this Office
is of the opinion and so holds that the purchase of one (1) unit of Nissan Patrol Station Wagon 4X4 AT,
for PAQTVET II's official use shall be subject to VAT at zero percent (0%) rate.

However, considering that exemption from taxes other than VAT applies only to direct importation
of goods, your request for exemption from the payment of the ad valorem tax for the above purchases is
hereby denied for lack of legal basis. ASHaDT

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 258
 Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

July 9, 2004

ITAD RULING NO. 067-04

Articles 5 (Permanent Establishment), 7 (Business Profits),

12 (Royalties), and 15 (Dependent Personal Services)
Philippines-Netherlands tax treaty
BIR Ruling Nos. DA-ITAD 40-04 and DA-ITAD 176-02

Jardine Schindler Elevator Corporation

2307 Pasong Tamo Extension
Makati City

Attention: Mr. John Free

General Manager
Mr. Alan Molina
Finance Manager

Gentlemen :

This refers to your letter dated April 6, 2004 requesting confirmation that royalties paid by Jardine
Schindler Elevator Corporation (Jardine Philippines) to Jardine Schindler (Pacific) BV (Jardine
Netherlands) are subject to 15 percent income tax under the existing Philippines-Netherlands tax treaty.

It is represented that Jardine Netherlands is a foreign company organized and existing under the
laws of the Netherlands with principal office at Diepenbrockstraat 19, 1077 VX Amsterdam, The
Netherlands; that Jardine Netherlands is not registered either as a corporation or as a partnership and has
not been licensed to engage in business in the Philippines as confirmed by the Certification of
Non-Registration issued by the Securities and Exchange Commission on April 12, 2004; that, on the other
hand, Jardine Philippines is a domestic company organized and existing under the laws of the Philippines
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 259
 with principal office at 2307 Pasong Tamo Extension, Makati City, Philippines; that Jardine Netherlands
and Jardine Philippines are both engaged primarily in the sale, installation, maintenance, modernization,
refurbishment of elevators, dumbwaiters, escalators, passenger conveyors, and auxiliary equipment; that
on November 12, 2003, Jardine Netherlands and Jardine Philippines entered into a License and Technical
Assistance Agreement (Agreement) where Jardine Netherlands grants Jardine Philippines the exclusive
license to use in the Philippines the Schindler Rights for or in connection with the sale, installation,
servicing, refurbishment, modernization, and manufacture of the Schindler Products; that the Schindler
Products include elevators, dumbwaiters, escalators, passenger conveyors, and auxiliary equipment, which
(i) were designed or manufactured or otherwise dominantly contributed to by any member of the Schindler
Group or were designed or manufactured by any party not belonging to the Schindler Group but acting on
behalf of a member of the Schindler Group, and (ii) bear or are designed to bear a Schindler trademark;
that in consideration, Jardine Philippines will pay Jardine Netherlands a royalty of five percent (5%) (or
at any other rate as may be agreed mutually from time to time) based on Jardine Philippines' turnover of
the Schindler Products; that aside from the license, Jardine Netherlands agrees to provide to Jardine
Philippines (at its request and at its cost and expense) technical support and assistance relative to the use
of the license; that the Agreement (signed on November 12, 2003) has retroactively entered into force on
January 1, 2003 and shall continue to be in force for fourteen (14) years or until December 31, 2016; that
the Agreement is being renewed every year, the last one being on February 17, 2004; and that the
Agreement complies with the provisions of Sections 87 and 88, Chapter IX, Part II of the Intellectual
Property Code (Republic Act No. 8293) on Voluntary Licensing as confirmed by the Certificate of
Compliance No. 5-2003-00132 issued by the Intellectual Property Office on March 16, 2004.

In reply, please be informed that the royalties to be paid by Jardine Philippines to Jardine
Netherlands for the exclusive license to use the Schindler Rights in the Philippines are royalties within the
meaning of the term under paragraph 4, Article 12 (Royalties) of the Philippines-Netherlands tax treaty, to
wit:

"4. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films or tapes for radio or television broadcasting, any patent, trademark,
design or model, plan, secret formula or process, or for the use of, or the right to use, industrial,
commercial or scientific equipment, or for information concerning industrial, commercial or scientific
experience. TAEcCS

"xxx xxx xxx"

Under the Agreement, the "Schindler Rights" means all know-how, specialist technical knowledge
and industrial information and techniques and all patents, inventions, rights in designs, copyrights, and
similar proprietary rights and all other intellectual property (including registrations and applications for
registration therefor) owned by the Schindler Group which relate to or are used for the business in the
Philippines together with any future improvements, additions or modifications to such rights. Accordingly,
payments for the use of the Schindler Rights are, in fact, altogether, payments for the use of, or the right to
use, any copyright of scientific work, patent, trademark, design or model, and information concerning
industrial, commercial or scientific experience (know-how).

This being so, the subject royalties to be paid by Jardine Philippines to Jardine Netherlands are
subject to taxation under Article 12 of the Philippines-Netherlands tax treaty, to wit:

"Article 12

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 260
 ROYALTIES

"1. Royalties arising in one of the States and paid to a resident of the other State may be
taxed in that other State.

"2. However, such royalties may also be taxed in the State in which they arise, and according
to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged
shall not exceed:

a) 10 per cent of the gross amount of the royalties where the royalties are
paid by an enterprise registered, and engaged in preferred areas of activities in that
State; and

b) 15 per cent of the gross amount of the royalties in all other cases. ECTIHa

"xxx xxx xxx"

Paragraph 1 states that the subject royalties arising in the Philippines and paid to Jardine
Netherlands may be taxed in the Netherlands, where the latter is a resident. Paragraph 2 states that the
subject royalties may also be taxed in the Philippines, but the tax so charged shall not exceed: (a) 10
percent of the gross amount of the royalties if they are paid by a registered enterprise that is engaged in
preferred areas of activities in the Philippines, or (b) 15 percent of the gross amount of the royalties in all
other cases.

Since Jardine Philippines, the payor of the royalties, is not a registered enterprise contemplated in
subparagraph (a), this Office is of the opinion and so holds that the subject royalties to be paid by Jardine
Philippines to Jardine Netherlands are subject to 15 percent income tax, based on the gross amount of the
royalties. (BIR Ruling No. DA-ITAD 40-04 dated May 3, 2004)

On the other hand, with respect to the service fees to be paid by Jardine Philippines to Jardine
Netherlands for the technical support and assistance the latter will provide relative to the use of the license
(if Jardine Philippines so requests, at its cost and expense), please be informed that the subject service
fees are generally business profits subject to taxation under Article 7 (Business Profits) of the
Philippines-Netherlands tax treaty:

"Article 7

BUSINESS PROFITS

"1. The profits of an enterprise of one of the States shall be taxable only in that State unless
the enterprise carries on business in the other State through a permanent establishment situated
therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in
the other State but only so much of them as is attributable to that permanent establishment.

"xxx xxx xxx"

Paragraph 1 states that the subject service fees arising in the Philippines and derived by Jardine
(Netherlands) may be taxed in the Philippines if they are attributable to a permanent establishment which
Jardine (Netherlands) has in that country. The term "permanent establishment," as defined in paragraphs 1
and 2, Article 5 (Permanent Establishment) of the same tax treaty, means a fixed place of business through
which the business of an enterprise is wholly or partly carried on, and includes, for example, a place of

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 261
 management, a branch, and an office.

Aside from fixed places of business, the same paragraph 2 treats as a permanent establishment, the
furnishing of services including consultancy services in a Contracting State by an enterprise (through
employees or other personnel thereof) of the other Contracting State, where it continues for a period or
periods exceeding in the aggregate 183 days within any twelve-month period. Accordingly, the provision
by Jardine Netherlands (through personnel thereof) to Jardine Philippines of technical support and
assistance relative to the use of the license will constitute a permanent establishment if this activity is
carried out in the Philippines for more than 183 days within any twelve-month period. (BIR Ruling No.
DA-ITAD 176-02 dated October 9, 2002)

With respect to the remuneration of Jardine Netherlands' personnel who will provide the technical
support and assistance, such remuneration is generally subject to Philippine income tax, unless the
following conditions set forth in paragraph 2, Article 15 of the Philippines-Netherlands tax treaty are all
complied with, to wit:

"Article 15

DEPENDENT PERSONAL SERVICES

"1. Subject to the provisions of Articles 16, 18, 19 and 20 salaries, wages and other similar
remuneration derived by a resident of one of the States in respect of an employment shall be taxable
only in that State unless the employment is exercised in the other State. If the employment is so
exercised, such remuneration as is derived therefrom may be taxed in that other State. TAECSD

"2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of

one of the States in respect of an employment exercised in the other State shall be taxable only in the
first-mentioned State if:

a) the recipient is present in the other State for a period or periods not
exceeding in the aggregate 183 days in the fiscal year concerned, and

b) the remuneration is paid by, or on behalf of, an employer who is not a

resident of the other State, and

c) the remuneration is not borne by a permanent establishment or a fixed

base which the employer has in the other State.

"xxx xxx xxx"

Paragraph 2 states that the subject remuneration will be exempt from tax if: (a) the employees are
present in the Philippines for a period or periods not exceeding in the aggregate 183 days in the fiscal year
concerned; (b) the remuneration is paid by an employer who is not a resident of the Philippines; and (c)
the remuneration is not borne by a permanent establishment which the Jardine Netherlands has in the
Philippines. The second and third conditions are apparently both complied with by reason that the
employer, Jardine Netherlands, is not a resident of the Philippines and that it does not have a permanent
establishment (i.e., a fixed place of business) in the Philippines as confirmed by the relevant Certification
from the Securities and Exchange Commission. Accordingly, if the length of stay of the subject employees
will not exceed an aggregate of 183 days in the fiscal year concerned (first condition), then their
remuneration shall be exempt from Philippine income tax; otherwise, the remuneration is taxable. (BIR
Ruling No. DA-ITAD 176-02 dated October 9, 2002)
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 262
 Finally, Section 108(A)[(1) and (2)] of the National Internal Revenue Code of 1997 states that "the
use of or the right or privilege to use any copyright, patent, design or model, trademark or other like
property," "the supply of scientific, technical, industrial or commercial knowledge or information," and
"the supply of any assistance that is ancillary and subsidiary and is furnished as a means of enabling the
application or enjoyment of such (intangible) property or information" all fall within the definition of sale
or exchange of services subject to 10 percent value-added tax (VAT). Accordingly, the subject license fees
and the subject service fees paid by Jardine Philippines to Jardine Netherlands are both subject to 10
percent VAT. (BIR Ruling No. DA-ITAD 40-04 dated May 3, 2004)

With regard to the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations No. 4-2000, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue
Regulations No. 14-2002 provide that the resident person making the payments (Jardine Philippines) to a
nonresident person (Jardine Netherlands), shall be responsible for the withholding of the 10 percent VAT
on such payments before remitting them to Jardine Netherlands. In remitting to the Bureau of Internal
Revenue the VAT withheld on such payments, Jardine Philippines shall use BIR Form No. 1600 (Monthly
Remittance Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer, Jardine
Philippines may use as documentary substantiation for its claim of input VAT the duly filed BIR Form No.
1600 and the proof of payment accompanying it. If not a VAT-registered taxpayer, Jardine Philippines
may include as part of the cost of the license granted and the services furnished to it by Jardine
Netherlands, the VAT consequently shifted or passed on to it and may treat such VAT either as expense or
asset, whichever is applicable. In addition, upon Jardine Netherlands' request, Jardine Philippines is
required to issue in quadruplicate the relevant Certificate of Final Tax Withheld at Source (BIR Form No.
2306), the first three copies to be given to Jardine Netherlands and the fourth copy to be retained by
Jardine Philippines as its file copy.

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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 263
 July 7, 2004

ITAD RULING NO. 066-04

Article 10, Philippines-Spain tax treaty

BIR Ruling No. DA-ITAD-32-03

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Atty. E.C. Alcantara

Tax Division

Gentlemen :

This refers to your letter dated June 30, 2004, requesting confirmation of your opinion that the
dividend payments of your clients, Marubeni Mindanao Power Holdings Corporation (MMPHC),
Marubeni Pacific Energy Holdings Corporation (MPEHC), Marubeni Mindanao II Power Holdings
Corporation (MMIIPHC), Marubeni Pacific II Energy Holdings Corporation (MPIIEHC) and Marubeni
Energy Services Corporation (MESC) collectively referred to as the "Corporations," to Armada Power
Holdings, S.L. (AP), are subject to the preferential tax rate of 10% of the gross amount of royalties
pursuant to Article 10(2)(a) of the Philippines-Spain tax treaty.

It is represented that AP is a nonresident foreign corporation duly organized and existing under and
by virtue of the laws of Spain with principal office address at Pedro Teixeira, 8, 4th Floor, Madulo 1,
Edificio Iberia Mart 1, 28020, Madrid Spain; that AP is not registered either as corporation or as a
partnership licensed to do business in the Philippines per certification issued by the Securities and
Exchange Commission dated June 22, 2004; that the Corporations, on the other hand, are domestic
corporations organized and existing under Philippine laws; that AP is a stockholder of record, including
shares held by the nominee directors in trust and on behalf of AP, of the Corporations as follows:

Name of No. of Shares Percentage

Corporation Ownership
MMPHC 100,000 (Common) 100%
100,000 (Preferred)
MPEHC 52,613. (Common) 100%
69,477 (Preferred)
MMIIPHC 80,980 (Common) 100%
71,168 (Preferred)
MPIIEHC 80,980 (Common) 100%
87,400 (Preferred)
MESC 82,300 (Common) 100%
It is further represented that on June 21, 2004, the Board of Directors of MMPHC declared cash
dividends in the amount of US$55,000.00 to all of its stockholders of record as of June 21, 2004; and that
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 264
 MPEHC, MMIIPHC, MPIIEHC and MESC will also declare cash dividends in favor of AP.

In reply, please be informed that Article 10 of the Philippines-Spain tax treaty provides as follows:

"Article 10

DIVIDENDS

"1. Dividends paid by a corporation which is a resident of a Contracting State to a resident of

the other Contracting State may be taxed in that other State.

2. However, such dividends may be taxed in the Contracting State of which the corporation
paying the dividends is a resident, and according to the law of that 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 recipient is a corporation
(excluding partnership) which holds directly at least 10 per cent of the voting shares of the company
paying the dividends; (Emphasis supplied)

b) in all other cases, 15 per cent of the gross amount of the dividends.

This paragraph shall not affect the taxation of the company in respect of the profits out of
which the dividends are paid.

"3. The term "dividends" as used in this Article means income from shares, "jouissance"
shares or "jouissance" rights, mining shares, founder's shares or other rights not being debt-claims,
participating in profits, as well as income from other corporate rights which is subjected to the same
taxation treatment as income from shares by the taxation law of the State of which the company
making the distribution is a resident."

"xxx xxx xxx"

Based on the above, the Philippines may tax the dividends paid by a company which is a resident
thereof to a company which is a resident of Spain at a rate not exceeding 10% of the gross amount of
dividends if the last-mentioned company holds directly at least 10% of the voting shares of the company
paying the dividends.

Considering that AP is the beneficial owner of the 100% of the outstanding capital stock in each of
the Corporations, this Office is of the opinion and so holds that the dividend remittances of MMPHC to
AP are subject to a preferential rate of 10% of the gross amount of dividends pursuant to Article 10(2)(a)
of the Philippines-Spain tax treaty. (BIR Ruling No. DA-ITAD-32-03 dated February 13, 2003)

Moreover, similarly situated as MMPHC, MPEHC, MMIIPHC, MPIIEHC and MESC, all
wholly-owned subsidiaries of AP, once they declare dividends in favor of AP, the 10% preferential tax rate
may also apply to them, provided, the percentage ownership of AP in said corporations shall not change at
the time of declaration of dividends.

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. ICAcTa

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 265
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

July 5, 2004

ITAD RULING NO. 065-04

Sec 106, 108 & 149 of the National Internal Revenue Code
of 1997;
Article 34, Vienna Convention
BIR Ruling No. ITAD-24-01

Embassy of Australia
16F 2627 Roxas Boulevard
Pasay City

Gentlemen :

This has reference to your Note No. 109/04 dated April 20, 2004, referred to this Office by the
Department of Finance and the Department of Foreign Affairs (DFA), requesting for exemption from
payment of ad valorem and value-added taxes (VAT) on the local purchase of a motor vehicle for the
official use of the Australian Embassy/AFP, specifically described as follows:

Make: Ford Everest 4X2 M/T 2.5 Intercooled

Turbo Diesel
Model Year: 2004
Color: Twilight Blue/Med. Gray
Frame Number: MNCLS4D404W104999

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 266
 Engine Number: WLAT447756

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
Australia or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs that your Government allows similar exemption to the
Philippine Embassy and its personnel on their purchases of goods and services in your country.

Hence, the local purchase of one (1) Ford Everest 4X2 M/T 2.5 Intercooled Turbo Diesel for the
official use of the Australian Embassy/AFP is exempt from VAT and ad valorem taxes. (BIR Ruling No.
ITAD-24-01 dated March 12, 2001) SEcITC

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

June 29, 2004

ITAD RULING NO. 064-04

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 267
 Sec 106, 108 & 149 of the National Internal Revenue Code
of 1997;
Article 34, Vienna Convention
BIR Ruling No. ITAD-34-99

Embassy of the United States of America

Roxas Boulevard
Manila

Gentlemen :

This has reference to your Note No. 0527 dated May 26, 2004 referred to this Office by the
Department of Foreign Affairs (DFA), requesting for a tax-free local purchase of two (2) motor vehicles,
for the official use of an affiliated agency of the United States of America's Embassy, Naval Criminal
Investigative Service (NCIS), specifically described hereunder:

Make: Two (2) units of Ford Escape AT 3.0L

Model Year: 2004
Color: Panther Black & Harvest Gold
VIN Numbers: PE2ET73141GE00351 &
PE2ET73141GE00347
Engine Numbers: AJ011324 &
AJ011331

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
the United States of America or its personnel on their local purchases of goods and/or services it appearing
from the list submitted by the Department of Foreign Affairs that your Government allows similar
exemption to Philippine Embassy personnel on their purchases of goods and services in your country.

Hence, the local purchase of two (2) units of Ford Escape AT 3.0L for the official use of the Naval
Criminal Investigative Service, an affiliate agency of the Embassy of the United States of America is

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 268
 exempt from VAT and ad valorem taxes. (BIR Ruling No. ITAD-34-99 dated October 18, 1999) TcHCDE

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

June 29, 2004

ITAD RULING NO. 063-04

Article 10, Philippines-Netherlands tax treaty

BIR Ruling No. 070-81

Romulo Mabanta Buenaventura Sayoc & De Los Angeles

30th Floor, Citibank Tower
Citibank Plaza, 8741 Paseo de Roxas
Makati City

Attention: Jose Salvador Y. Mirasol

Ronaldo Modesto J. Ventura
Jayson L. Fernandez

Gentlemen :

This refers to your application for relief from double taxation dated February 18, 2004, on behalf of
your client, Summit Global Management II B.V. (Summit Global), requesting confirmation of your
opinion that the dividends paid by First Generation Holdings Corporation (First Generation) to Summit
Global are subject to the preferential tax rate of 15%, pursuant to Article 10 of the Philippines-Netherlands
tax treaty.

It is represented that Summit Global is a corporation organized and existing under the laws of the
Netherlands with address at Weena Zuid 108, 3012 NC Rotterdam, Netherlands; that it is a resident of the
Netherlands within the meaning of Article 4 of the Philippines-Netherlands tax treaty as evidenced by a
Declaration of Residence dated March 23, 2004 issued by the tax authority of the Netherlands; that it is

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 269
 not registered either as a corporation or partnership in the Philippines per certification dated February 2,
2004 issued by the Securities and Exchange Commission (SEC); that First Generation is a corporation
organized and existing under Philippine laws with office address at 6th Floor Benpres Building, Meralco
Avenue corner Exchange Road, Pasig City; that as of April 30, 2004, Summit Global is a stockholder of
record of First Generation and holds (1) 430,801 common shares at Php10 per share, equivalent to a total
par value of P4,308,010.00 representing 3.81% of the outstanding common stock of First Generation, and
(2) 141,392 preferred redeemable shares at Php100 per share, equivalent to a total par value of
P14,139,200.00, representing 3.88% of the outstanding preferred redeemable stock of First Generation;
that on June 14, 2004, the Board of Directors of First Generation declared cash dividends of Twenty
Million US Dollars (US$20,000,000.00) on all outstanding common shares for its stockholders of record
as of the date of the declaration proportionate to their shareholdings; and that the amount to be received by
Summit Global as a common stockholder is Seven Hundred Sixty Two Thousand US Dollars
(US$762,000.00).

In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as
follows, viz:

"Article 10

"DIVIDENDS

"1. Dividends paid by a Company which is a resident of one of the States to a resident of the
other State may be taxed in that other State.

"2. However, such dividends may also be taxed in the State of which the company paying
the dividends is a resident and according to the laws of that 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 recipient is a

company the capital of which is wholly or partly divided into shares and which holds
directly at least 10 per cent of the capital of the company paying the dividends;

b) 15 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, 'jouissance'
shares or 'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as
well as income from debt-claims participating in profits and income from other corporate rights which
is subjected to the same taxation treatment as income from shares by the taxation law of the State of
which the company making the distribution is a resident.

"xxx xxx xxx"

Based on the above-cited provisions, the 10 percent preferential tax rate on dividends apply
whenever the beneficial owner/recipient of the dividend owns at least 10 percent of the outstanding voting
shares of the paying company, and 15 percent preferential tax rate in all other cases. Such being the case
and considering that Summit Global holds approximately 7.69 percent of the capital of First Generation,
this Office is of the opinion and so holds that the dividend payments by First Generation to Summit Global
shall be subject to the preferential tax rate of 15 percent, based on the gross amount of dividends pursuant
to Article 10(2)(b) of the Philippines-Netherlands tax treaty. (BIR Ruling No. 070-81 dated April 8, 1981.)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 270
 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. aCATSI

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

June 15, 2004

ITAD RULING NO. 062-04

Articles 5 & 7, Philippines-Japan Tax Treaty

BIR Ruling No. ITAD 187-02

Aranas Consunji Barleta

Unit 106 G/F Le Metropole Building
326 Tordesillas cor. De la Costa Sts.,
Salcedo Village, Makati City 1226

Attention: Jesus Clint O. Aranas

Gentlemen :

This refers to your letter dated April 29, 2004, on behalf of your client, EPSON PRECISION
(PHILIPPINES), INC., (EPPI), requesting confirmation of your opinion that the sale of goods by a foreign
supplier, ICHIJO ELECTRONICS CO. LTD. (ICHIJO), to EPPI under a proposed "Vendor Management
Inventory Agreement" (VMIA) shall not be taxable in the Philippines.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 271
 It is represented that ICHIJO is a nonresident foreign corporation duly organized and existing under
the laws of Japan with office address at 11-5-1205 Tomihisacho Shinjuku-ku, Tokyo 162-0067; that it is
not registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification dated March 30, 2004 issued by the Securities and Exchange Commission; that EPPI is a
Philippine Economic Zone Authority (PEZA)-registered enterprise under Certificate of Registration No.
95-18 dated February 9, 1995; that in order to adequately manage the inventory level of raw materials to
be purchased from ICHIJO, EPPI entered into a VMIA with ICHIJO whereby the latter will deliver raw
materials to EPPI's warehouse but sales will be recognized only upon actual withdrawal of such raw
materials by EPPI for production purposes; that EPPI will in turn not recognize as its inventories the raw
materials stored in its warehouse until actual withdrawal for production purposes are made.

In reply, please be informed of the pertinent provisions of Article 5 and Article 7 of

Philippines-Japan tax treaty which provide, viz:

"Article 5

PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

2. The term 'permanent establishment' includes specially but is not limited to:

xxx xxx xxx

a) a warehouse;

xxx xxx xxx"

In relation thereto, Article 7 of the same tax treaty also provides:

"Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

xxx xxx xxx"

It is clear from the aforequoted provisions that the business profits to be derived by ICHIJO in the
Philippines from the sale of raw materials to EPPI shall be taxable in the Philippines if ICHIJO has a
permanent establishment situated therein and only so much of them as is attributable to that permanent
establishment.

A warehouse is considered a permanent establishment if the business of an enterprise of one of the

Contracting States is wholly or partly carried on through it.

In the instant case, the subject warehouse is being utilized by its owner, EPPI, for storing raw
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 272
 materials delivered by ICHIJO in accordance with the VMIA. As represented, ICHIJO will deliver raw
materials to EPPI's warehouse but sales will be recognized only upon actual withdrawal of such raw
materials by EPPI for production purposes. Based on this arrangement, it is clear that the use of the
warehouse is for the benefit of EPPI and not for the purpose of establishing a fixed place through which
the business of ICHIJO is to be wholly or partly carried on. If any, the relation between the warehouse and
ICHIJO under the arrangement is merely to attain the ultimate objective of carrying out the provisions of
the VMIA.

In view of the foregoing, the business profits to be derived by ICHIJO in the Philippines from the
sale of raw materials to EPPI are not taxable in the Philippines since ICHIJO does not maintain a
permanent establishment in the Philippines to which its profits as such may be attributed.

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. EHSTcC

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

June 14, 2004

ITAD RULING NO. 061-04

Articles 34, Vienna Convention on Diplomatic Relations

BIR Ruling No. DA 169-00

Department of Foreign Affairs

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 273
 2330 Roxas Blvd.,
Pasay City, Philippines

Attention: Romeo R. Garchitorena

Assistant Director,
Immunities and Privileges Division

Gentlemen :

This refers to your letter dated April 22, 2004 with the information that the Embassy of the State of
Qatar is requesting for value-added tax (VAT) Exemption Certificate (VEC) for the purchase of a
condominium unit for the official use of the Embassy.

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portions of which reads:

"Article 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services;

xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
VAT on its local purchases of goods and services. In other words, purchases by the Embassy of goods
and/or services shall be subject to the VAT prescribed under Sections 106 and 108 of the Tax Code of
1997.

However, applying the principle of reciprocity, this Office may grant VAT exemption to the
Embassy of Qatar on its local purchases of goods and/or services, it appearing from the list dated October
29, 2003 submitted by the Office of Protocol of the Department of Foreign Affairs (DFA) that the
Embassy of Qatar allows similar exemption to the Philippine Embassy and/or its diplomatic personnel on
their purchases of goods and services in the said country. Accordingly, since the Embassy of Qatar is
included in the above-mentioned DFA list, and has been issued with VAT Exemption Certificate (VEC)
No. 2004-681 on January 22, 2004 by this Bureau, it is, therefore, exempt from the payment of VAT on its
purchases of goods and services in the Philippines based on the principle of reciprocity. (BIR Ruling No.
ITAD-169-00 dated October 30, 2000)

As regards the supplier of goods or services, it is noteworthy that sales by a VAT-registered entity
under the above circumstances shall be treated as effectively zero-rated transactions. [Sec. 4.100-3,
Revenue Regulations No. 7-95] In this jurisdiction, the grant of VAT exemption alone would mean that
the suppliers shall bear the burden of the tax if they will not be allowed to pass-on the VAT to the foreign
embassies. To enable such local suppliers to refund the amount of the tax inputted into the cost of the
goods and services supplied to an embassy, another mechanism under the VAT system is resorted to by
local suppliers and this is referred as the process of VAT zero-rating. In other words, although the sale of
goods and services to a foreign embassy is a taxable transaction for VAT purposes, the process of

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 274
 zero-rating operates to nullify the output tax on the part of the local supplier and the input tax on his own
purchases of goods, properties or services related to such effectively zero-rated sale becomes available as
tax credit or refund. (VAT Ruling No. 008-00 dated February 7, 2000)

Treated as effectively zero-rated transactions, the VAT-registered seller of services to an exempt

embassy is required to file an application and secure prior approval for zero-rating to be able to claim tax
credit/refund on VAT (input tax) previously paid. The said application shall be filed, before an initial sale,
to the Audit Information, Tax Exemptions and Incentives Division (AITEID) of this Bureau, which, when
approved, shall be effective for 12 months from the date of issuance of the approval. (Revenue
Memorandum Circular No. 17-96). Without an approved application for effective zero-rating, the
transaction otherwise treated to be zero-rated shall be considered exempt. Consequently, failure on the part
of a VAT-registered seller to secure an approval for effective zero-rating of said transaction will result in
the forfeiture of his entitlement to claim tax credit/refund on the (VAT) input tax passed on to him. [Secs.
4.107-1(d), 4.102-2 and 4.103-1, Revenue Regulations 7-95] In other words, sale of services to an exempt
embassy requires a prior approved application for zero-rating in order to consider such sale to be
effectively zero-rated. (BIR Ruling No. 030-96 dated February 27, 1996)

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. caIDSH

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

June 8, 2004

ITAD RULING NO. 060-04

Articles 5 (Permanent Establishment), 7 (Business Profits),

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 275
 12 (Royalties), 15 (Dependent Personal Services) and 24
(Elimination of Double Taxation) Philippines-Norway tax
treaty
BIR Ruling Nos. DA-ITAD-169-02, 16-04 and 28-04

Ramon F. Garcia Company

Certified Public Accountants
30th Floor, Burgundy Corporate Tower
252 Sen. Gil Puyat Ayala Avenue
Makati City

Attention: Ms. Nhorie L. Paguio

Gentlemen :

This refers to your letter dated February 5, 2004 requesting confirmation that service fees and
royalties paid by Reime Philippines, Inc. (Reime Philippines) to Reime Network Implementation Services
AS (Reime NIS) are subject to preferential tax treatments under the existing Philippines-Norway tax treaty.

It is represented that Reime NIS is a foreign company organized and existing under the laws of
Norway with principal office at Jarlsovelen 45, N-3124 Tonsberg, Norway; that Reime NIS is not
registered either as a corporation or as a partnership and has not been licensed to engage in business in the
Philippines as confirmed by the Certification of Non-Registration of Corporation/Partnership issued by the
Securities and Exchange Commission on September 23, 2003; that, on the other hand, Reime Philippines
is a domestic company organized and existing under the laws of the Philippines with principal office at
Unit 906, Raffles Corporate Center, Ortigas Center, Pasig City, Philippines; that Reime Philippines is a
subsidiary of Reime NIS, and both are engaged in the provision of cellular towers and specialized designs
of such towers, of services related to installation of cellular towers, and of tools, equipment, and supplies
related to such installation; that, on June 15, 2003, Reime Philippines and Reime NIS entered into an Inter
Company Agreement (Agreement) for the provision of license and services, where Reime NIS grants
Reime Philippines the license to sell the former's products and to use the know-how on such products, and
where Reime NIS shall provide Reime Philippines support services related to the license; that the
Agreement complies with the specific provisions of the Intellectual Property Code (Republic Act No.
8923) on Voluntary Licensing as confirmed by the Certificate of Compliance No. 5-2003-00095 issued by
the Intellectual Property Office on December 11, 2003; that these products and know-how are:

Products

— The 'Reime Compact Site' all designs

— The full range of steel lower and mast designs (JAT, S5, SR5, LS, Panel, ST-A,
ST-B, BT-A, BT-B triangular and square guyed masts)

— The 'Reime Shelter' solutions, inclusive of complete interior solution specter

inclusive of the alarm system units

— Generator solutions inclusive of PLC

— The full range of standard accepted telecommunications products designed and

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 276
 supplied by third parties, where prices and delivery terms are negotiated by
Reime NIS

Know-how

— Product documentation and design drawings

— Manuals, flowcharts, procedures and routines developed by Reime NIS

— Quality management and manuals

— Roll out management skills, reporting standards and information technology

applications

— Financial management skills, reporting standards and information technology

applications

— Logistic management skills, reporting standards and information technology

applications

— Project management

— Site supervision

— Technical standards designs, drawings, technical solutions, specification

interpretations and analysis skills;

that, as compensation, Reime Philippines shall remit to Reime NIS a five percent (5%) royalty based on the
former's accounted revenue from the sale of the products; that, on the other hand, the support services and
their corresponding per-hour costs in U.S. dollars are:
Place of service
Philippines Abroad

1. Management monitoring and support 240.00 140.00

2. Project management support 130.00 80.00
3. Technical/Structural supervision 110.00 80.00
4. Marketing and sales support 150.00 80.00
5. Product technical support 120.00 70.00
6. Quality control and audits 150.00 90.00
7. Logistic support 120.00 70.00
8. Finance and information technology support 130.00 80.00
and, that these services will be performed almost entirely abroad, and if such services will be performed in
the Philippines, they will be carried out for only a period of less than six months.

In reply, with regard to the royalties paid by Reime Philippines to Reime NIS for the subject
licenses, please be informed that Article 12 of the Philippines-Norway tax treaty provides:

"Article 12

ROYALTIES

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 277
 "1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State if such resident is the beneficial owner of the royalties.

"2. Such royalties may also be taxed in the Contracting State in which they arise, and
according to the law of that State. However, when the royalties are taxable in the other Contracting
State, the tax so charged shall not exceed

a) in Norway, 10 per cent of the gross amount of the royalties including rentals or the rates
referred to in subparagraph 2(b)(ii) below, and

b) in the Philippines,

(i) 25 per cent of the gross amount of the royalties, including 25 per cent of
the gross rentals or amount paid for the use of, or the right to use, motion picture
films, films or tapes for radio or television broadcasting;

(ii) 7.5 per cent of the gross rentals or amount paid for the use of or the right
to use containers, or

(iii) the lowest rate of the Philippine tax that may be imposed on royalties of
the same kind paid in similar circumstances to a resident of a third State.

"3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the
Philippines on the royalties paid by a company, being a resident of the Philippines, registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Norway, who is the beneficial owner of the
royalties, shall not exceed 10 per cent of the gross amount of the royalties.

"4. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright, patent, trademark, design or model,
plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or
scientific equipment, or for information concerning industrial, commercial or scientific experience.

"xxx xxx xxx"

Based on the abovequoted paragraph 4, payments made by Reime Philippines to Reime NIS for the
license to sell the latter's products and to use the know-how on such products are payments for the use or
the right to use of a design or model and for the use or the right to use of information concerning,
commercial or scientific experience, and as such are to be considered as royalties for purposes of the
Philippines-Norway tax treaty. Based on the abovequoted paragraphs 2 and 3, royalties arising in the
Philippines and paid to a resident of Norway are subject to a preferential tax rate of (a) 25 percent; (b) 10
percent based on the gross amount of royalties if the company paying the royalties is registered with the
Philippine Board of Investments and engaged in preferred pioneer areas of investment under the
investment incentives laws of the Philippines; or (c) the lowest rate of Philippine income tax that may be
imposed on royalties of the same kind paid under similar circumstances to a resident of a third State (also
known as the most-favored-nation tax treatment on royalties).

With respect to the most favored-nation tax treatment on royalties, the Supreme Court, in
Commissioner of Internal Revenue vs. S. C. Johnson and Son Inc. and Court of Appeals (G.R. No. 127105
dated June 25, 1999), has cited two conditions in order for royalties arising in the Philippines and derived
by a resident of another country (in this case, Norway) to be subject to the most-favored-nation tax

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 278
 treatment (in this case, a rate lower than 25 percent) as that granted by the Philippines to a resident of a
third country under an existing tax treaty. First, the Court noted that the royalties arising and subject to tax
in the Philippines and derived by a resident of Norway must be of the same nature as those derived by a
resident of the third country. Second, the Court stressed that the mechanism for relieving double taxation
of income employed by Norway with respect to royalties arising in the Philippines and derived by a
resident of Norway must be the same as that employed by the third country with respect to royalties
arising in the Philippines and derived by a resident of the third country.

In looking for an existing Philippine tax treaty that provides a most-favored-nation tax treatment on
royalties, it is worthy to take into account and use as basis the Philippines-China tax treaty. Under the
Royalties article of this treaty, royalties for the use or the right to use of a design or model and for the use
or the right to use of information concerning, commercial or scientific experience (to which royalties paid
by Reime Philippines to Reime NIS for the subject licenses are categorized as) arising in the Philippines
and derived by a resident of China are subject to an income tax rate not exceeding 10 percent of the gross
amount of the royalties. On the other hand, under the Relief from Double Taxation article of the
Philippines-China tax treaty, the mechanism for relieving double taxation of income (specifically,
royalties) arising in the Philippines and derived by a resident of China is the ordinary credit method,
similar with that of Norway. Under this method, only income taxes actually paid by a resident taxpayer
with respect to income derived from foreign sources are allowed as credit against the taxpayer's taxable
income subject to certain limitations.

Such being the case, this Office is of the opinion and so holds that royalties paid by Reime
Philippines to Reime NIS for the subject licenses under the Agreement shall be subject to a preferential tax
rate of 10 percent based on the gross amount thereof. (BIR Ruling No. DA-ITAD 16-04 dated February 20,
2004)

On the other hand, with regard to the service fees paid by Reime Philippines to Reime NIS for the
subject support services, please be informed that such fees are business profits subject to tax under Article
7 of the Philippines-Norway tax treaty:

"Article 7

BUSINESS PROFITS

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx"

Based on the abovequoted paragraph 1, business profits arising in the Philippines and derived by an
enterprise of Norway is subject to Philippine income tax if the same are attributable to a permanent
establishment which the enterprise has in the Philippines; otherwise such profits are exempt. The term
"permanent establishment," as defined in paragraphs 1 and 2, Article 5 (Permanent Establishment) of the
Philippines-Norway tax treaty, means, generally, a fixed place of business through which the business of
an enterprise is wholly or partly carried on, and includes, for example, a place of management, a branch,
and an office. Aside from a fixed place of business, a permanent establishment includes also the
furnishing of services in a Contracting State by an enterprise of the other Contracting State through
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 279
 employees or other personnel thereof, where such activity is carried out for a period of more than six
months within a twelve-month period.

Accordingly, since Reime NIS does not have a fixed place of business in the Philippines, as
confirmed by the relevant Certification from the Securities and Exchange Commission, Reime NIS is not
considered to have a permanent establishment in the Philippines. Similarly, since Reime NIS will provide
the subject support services almost entirely abroad, and that should such services be performed in the
Philippines they be carried out only for a period of less than six months, no permanent establishment of
Reime NIS is created under the Philippines-Norway tax treaty. Thus, in the instant case where the service
fees paid by Reime Philippines to Reime NIS for the subject support services cannot be made attributable
to a permanent establishment of the latter in Philippines, this Office is of the opinion and so holds that
such fees are not subject to Philippine income tax. (BIR Ruling No. ITAD 28-04 dated March 29, 2004)

It should be noted that the service fees exempt from income tax in this case refers only to the
amount representing the income of Reime NIS itself; the amount which represents the remuneration of the
personnel who will furnish the subject support services in the Philippines should be distinguished from the
income of Reime NIS, and is governed by Article 15 of the Philippines-Norway tax treaty, and not by
Article 7 thereof. Article 15 provides:

"Article 15

DEPENDENT PERSONAL SERVICES

"1. Subject to the provisions of Articles 16, 17, 18, 19 and 20, salaries, wages and other
similar remuneration derived by a resident of a Contracting State in respect of an employment shall be
taxable only in that State unless the employment is exercised in the other Contracting State. If the
employment is so exercised, such remuneration as is derived therefrom may be taxed in that other
State.

"2. Notwithstanding the provisions of paragraph 1 remuneration derived by a resident of a

Contracting State in respect of an employment exercised in the other Contracting State shall be
taxable only in the first-mentioned State if:

a) the recipient is present in that other State for a period or periods not
exceeding in the aggregate 183 days in any twelve-month period; and

b) the remuneration is paid by, or on behalf of, an employer who is a

resident of the State of which the recipient is a resident, and whose business activities
do not wholly or mainly consist of hiring out of labour; and

c) the remuneration is not reasonably connected with the activities of a

permanent establishment or a fixed base which the employer has in that other State.

"However, to the extent that the above-mentioned remuneration is exempt from tax in the
first-mentioned State, or upon the application of this Article will be exempt from tax in that State, the
remuneration may be taxed in the other State.

"xxx xxx xxx"

Based on the abovequoted paragraph 1, the remuneration of the concerned personnel are generally
subject to Philippine income tax where the subject support services are performed in the Philippines.
However, such remuneration, according to the abovequoted paragraph 2, can be exempt if (a) the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 280
 concerned personnel is present in the Philippines for less than 183 days within any twelve-month period,
and (b) the remuneration is paid by, or on behalf of, an employer who is a resident of Norway whose
business activities do not wholly or mainly consist of hiring out of labour, and (c) the remuneration is not
reasonably connected with the activities of a permanent establishment which the employer (Reime NIS)
has in Philippines, and, more importantly, (d) if such remuneration is taxed in Norway, as emphasized by
the last sentence: "to the extent that the remuneration is exempt from tax in the first-mentioned State (i.e.,
Norway), or upon the application of this Article will be exempt from tax in that State, the remuneration
may be taxed in the other State (i.e., the Philippines)."

Whether such remuneration is taxed in Norway can be determined by taking into account the
methods of eliminating double taxation of income employed by Norway with respect to income arising in
the Philippines and derived by a Norwegian resident, as outlined in Article 24 of the Philippines-Norway
tax treaty below:

"Article 24

ELIMINATION OF DOUBLE TAXATION

"In Norway:

"1. Where a resident of Norway derives income or owns capital which, in accordance with
the provisions of this Convention, may be taxed in the Philippines, Norway shall, subject to the
provisions of paragraphs 2 and 3, exempt such income or capital from tax.

"2. Where a resident of Norway derives items of income which, in accordance with the
provisions of Articles 8, 10, 11, 12, 16 and 22 may be taxed in the Philippines, Norway shall allow as
a deduction from the tax on the income of that person an amount equal to the tax paid in the
Philippines. Such deductions shall not, however, exceed that part of the tax, as computed before the
deduction is given, which is attributable to such items of income derived from the Philippines . . . .

"3. Notwithstanding the provisions of paragraph 2 of this Article, dividend paid by a

company which is a resident of the Philippines to a company being resident of Norway which controls
directly or indirectly at least 10 per cent of the capital of the company paying the dividends shall be
exempt in Norway from tax mentioned in subparagraphs (ii), (iii) and (iv) of paragraph 3 of Article 2.

Where, in the cases mentioned in this paragraph, dividends are subject to national income tax
in Norway, then such tax shall not exceed 27.8 per cent of the gross amount of the dividends.

"4. Where in accordance with any provision of the Convention income derived or capital
owned by a resident of Norway is exempt from tax in Norway, Norway may nevertheless, in
calculating the amount of tax on the remaining income or capital of such resident, take into account
the exempted income or capital.

"xxx xxx xxx"

A perusal of the Article reveals that Norway, in fact, employs two methods of eliminating double
taxation, the ordinary credit method 1 (as specified in the abovequoted paragraph 2) and the exemption
with progression method 2 (as specified in the abovequoted paragraphs 1, 3 and 4). The ordinary credit
method applies to (1) shipping and air transport income (Article 8), (2) dividends (Article 10), except
dividends exempted under paragraph 3, (3) interest (Article 11), (4) royalties (Article 12), (5) directors'
fees (Article 16), and (6) offshore activities income (Article 22). On the other hand, the exemption with

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 281
 progression method applies to items of income to which the ordinary credit method is not relevant, which
certainly includes dependent personal services income under Article 15 of the tax treaty, among others.
This being the case, this Office is of the opinion and so holds that remuneration derived by the concerned
personnel of Reime NIS from the furnishing of the subject support services for Reime Philippines are
subject to Philippine income tax, where such activity is exercised in the Philippines. The rate of tax is 25
percent based on the remuneration received as that imposed on income of a nonresident alien not engaged
in business in the Philippines under Section 25(B) of the National Internal Revenue Code of 1997 (Tax
Code). (BIR Ruling No. DA-ITAD-169-02 dated September 26, 2002)

Finally, Section 108(A)(1) of the Tax Code states that "the use of or the right or privilege to use of
design or model" and "the supply of any assistance that is ancillary and subsidiary and is furnished as a
means of enabling the application or enjoyment of such design or model" both fall within the definition of
sale or exchange of services subject to 10 percent value-added tax (VAT). Accordingly, the subject license
fees and the subject service fees (for services actually performed in the Philippines) paid by Reime
Philippines to Reime NIS are both subject to 10 percent VAT. (BIR Ruling Nos. DA-ITAD-16-04 dated
February 20, 2004 and DA-ITAD-28-04 dated March 29, 2004) SEIaHT

With regard to the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations No. 4-2000, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue
Regulations No. 14-2002 provide that the resident person making the payments (Reime Philippines) to a
nonresident person (Reime NIS), shall be responsible for the withholding of the 10 percent VAT on such
payments before remitting them to Reime NIS. In remitting to the Bureau of Internal Revenue the VAT
withheld on such payments, Reime Philippines shall use BIR Form No. 1600 (Monthly Remittance Return
of VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer, Reime Philippines may use
as documentary substantiation for its claim of input VAT the duly filed BIR Form No. 1600 and the proof
of payment accompanying it. If not a VAT-registered taxpayer, Reime Philippines may include as part of
the cost of the license granted and the services furnished to it by Reime NIS, the VAT consequently shifted
or passed on to it and may treat such VAT either as expense or asset, whichever is applicable. In addition,
upon Reime NIS' request, Reime Philippines is required to issue in quadruplicate the relevant Certificate of
Final Tax Withheld at Source (BIR Form No. 2306), the first three copies to be given to Reime NIS and the
fourth copy to be retained by Reime Philippines as its file copy.

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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 282
 Footnotes
1. Under the ordinary credit method, the residence State (Norway) calculates a taxpayer's tax on the basis of
its total income including the income from the source State (Philippines) which, according to the tax treaty,
may be taxed in that other State. The residence State then allows a deduction from the taxpayer's own tax
for the tax paid in the source State, but the deduction is restricted to that part of the tax which is appropriate
to the income which may be taxed in the source State.
2. Under the exemption with progression method, the residence State (Norway) does not tax the taxpayer's
income which, according to the tax treaty, may be taxed in the source State (Philippines). However, when
determining the tax to be imposed on the rest of the taxpayer's income (i.e., income from the residence
State and from third States), the residence State retains the right to take into consideration the exempted
income in the source State.

June 3, 2004

ITAD RULING NO. 059-04

Article 5 and 7 Philippines-Singapore tax treaty

Section 28 (B) (1), 42 (C) (3) & 108 (A)
of the Tax Code of 1997
BIR Ruling No. 100-99

Bernaldo Mirador Law Offices

Unit 1807 Cityland Condominium 10-Tower 1
6815 Ayala Avenue corner H.V. Dela Costa Street,
Makati City 1200

Attention: Atty. Rosario S. Bernaldo

Managing Partner

Gentlemen :

This refers to your letter dated October 22, 2003, on behalf of Phil-Trident Land, Inc. (PTLI),
requesting for confirmation of your opinion that the service fees paid by PTLI to Neptune Orient Lines
Ltd., (NOL) in consideration for the services performed outside the Philippines are considered as income
sourced outside of the Philippines, and therefore, not subject to Philippine income tax, expanded
withholding tax, and value-added tax (VAT), and that PTLI shall be allowed to claim such service fees as
deduction for income tax purposes.

It is represented that PTLI is a domestic corporation duly organized and existing under the laws of
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 283
 the Philippines with principal address at 2nd Floor, NOL Towers, Madrigal Business Park, Commerce
Avenue, Ayala Alabang, Muntinlupa; that it is registered with the Securities and Exchange Commission
(SEC) under Reg. No. 177197 with primary purpose to acquire by purchase, lease, donation or otherwise,
and to own, use improve, develop, subdivide, sell, mortgage, exchange, lease, develop and hold for
investment or otherwise, real estate of all kinds, whether improve, manage or otherwise dispose of
buildings, houses, apartments, and other structures of whatever kind, together with their appurtenances;
that NOL is a foreign corporation duly organized and existing under the laws of Singapore, with principal
address at 456 Alexandra Road, 0600 NOL Building, Singapore; that it is likewise engaged in the same
line of business as that of PTLI; that it has no permanent establishment in the Philippines; that it is not
registered as a corporation or as a partnership in the Philippines per certification issued by the SEC dated
November 11, 2003; and that on October 8, 2003, PTLI and NOL entered into a Management and
Consultancy Services Agreement since PTLI is still at its start up of operations, and that it is not practical
or economical for PTLI to hire full-time employees to perform the following functions: a) IT support
services relating to accounting system, b) credit evaluation system, c) marketing service assistance, d)
treasury support services, e) personnel services, and f) other related services as agreed by the parties; that
under the Management and Consultancy Services Agreement, NOL agrees to provide certain consultancy
services to PTLI, such as, but not limited to the following: a) to canvass prospective buyers, b) to promote
the business and interests of PTLI, c) to provide advertising services and the like, d) to prepare the
strategic and marketing plans of PTLI, e) to provide advisory input to ensure the consistency on the
strategic and marketing plans of PTLI, f) to provide consultation on areas of marketing improvement,
accounting and cost control principles, procurement of supplies, human resource management and
information systems, g) to supervise the operations of business of PTLI on a quarterly basis, h) to give
advice on the operations of the business of PTLI, i) to advice PTLI on such other matters as may be
needed to the foregoing, and j) to perform all other services necessary to implement the foregoing; that the
services shall be carried out by NOL in its hone office in Singapore and in the Philippines, if necessary;
that the authorized representative of NOL who shall come to the Philippines as required by the nature of
his work, which is to perform services under the Management and Consultancy Services Agreement shall
stay in the Philippines for a period not exceeding 183 days during the entire duration of the project; that
the term of the Management and Consultancy Services Agreement, shall take effect in January 2003 and
will remain valid and existing until terminated by either party; and that in consideration of the
performance of the said services, PTLI shall pay NOL a management and consultancy service fee in the
total amount of Six Thousand US Dollars (US$6,000) per month, exclusive of out-of-pocket expenses,
such as airline ticket, hotel accommodation, meal allowances and the like, incurred by PTLI in coming to
the Philippines.

In reply, please be informed that Articles 7 and 5 of the Philippines-Singapore tax treaty provide:

"Article 7

"BUSINESS PROFITS

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 284
 "Article 5

"PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

"2. The term 'permanent establishment' includes specially but is not limited to:

"xxx xxx xxx

j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days.

"xxx xxx xxx"

Based on the foregoing, a corporation which is a resident of Singapore and does not carry on
business in the Philippines through a permanent establishment situated therein shall not be subject to
Philippine income tax for profits derived in the Philippines. For this purpose, a Singaporean corporation
may be deemed to have a permanent establishment in the Philippines if, among others, the furnishing of
services, including consultancy services, through its employees or other personnel continue for the same or
a connected project within the Philippines for a period or periods aggregating more than 183 days.

Inasmuch as it is represented that the consultancy services to be rendered by NOL for PTLI are to
be performed outside of the Philippines by NOL except for occasional visits to and consultation with
PTLI, which visits shall in no case exceed 183 days during the entire duration of the management
consultancy project, then the furnishing of said services by NOL through its employees or other personnel
shall not constitute carrying of business through a permanent establishment in the Philippines. Such being
the case, income derived by NOL which are in the nature of business profits are not subject to Philippine
tax pursuant to Article 7(1) in relation to Article 5 of the RP-Singapore tax treaty. (BIR Ruling No. 100-99
dated July 9, 1999) THcaDA

However, the fees to be paid by PTLI to NOL in the Philippines covering those occasional visits
and consultation with PTLI are subject to the 10% value-added tax pursuant to Sec. 108 of the National
Internal Revenue Code of 1997. Accordingly, PTLI, being the resident withholding agent and payor in
control of the payment shall be responsible for the withholding of the 10% final VAT on such fees before
any payment to NOL. In remitting the VAT withheld, PTLI shall use BIR Form No. 1600 (Monthly
Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form
1600 and proof of payment thereof shall serve as documentary substantiation for the claim of input tax by
PTLI upon filing its own VAT, if it is a VAT-registered taxpayer. In case PTLI is a non-VAT registered
taxpayer, the passed on VAT withheld shall form part of the cost of the service purchased which may be
treated as "expense" or "asset" whichever is applicable. In addition, PTLI is required to issue the
Certificate of Final Tax Withheld at Source (BIR Form 2306) in quadruplicate upon request of NOL, the
first three copies thereof to be given to NOL and the fourth copy to be retained by PTLI as its file copy.
[Section 4 & 6, Revenue Regulations No. (RR) 4-2000; Section 3 of RR 8-2002; Section 7 of RR 14-2002]

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
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 285
 herein parties are concerned.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue

June 3, 2004

ITAD RULING NO. 058-04

Principle of Sovereign Immunity

Revenue Regulations No. 2-98
Revenue Regulations No. 7-95
BIR Ruling No. ITAD-16-03
BIR Ruling No. 080-97
BIR Ruling No. ITAD-169-00
VAT Ruling No. 008-00
BIR Ruling No. 030-96

Lava Mananghaya & Co.

Certified Public Accountants and Management Consultants
22/F Philamlife Tower
8767 Paseo de Roxas
1226 Makati City

Attention: Francisco G. Tagao

Principal, Tax & Corporate Services
Melea B. Solis-Cruz
Manager, Tax & Corporate Services

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 286
 Gentlemen :

This refers to your letter dated May 7, 2004, on behalf of your client, Fort Bonifacio Development
Corporation (FBDC), requesting confirmation of your opinion that:

1) the Embassy of Singapore is exempt from withholding tax obligations, among others,
from withholding the 5% creditable tax on the sale of lots by FBDC to the former; CIcTAE

2) the subject sale between FBDC and the Embassy of Singapore described below is not
subject to value-added tax (VAT); and

3) the subject sale is subject to the documentary stamp tax imposed under Section 196 of
the Tax Code in relation to Section 173 of the same Code.

It is represented that FBDC is a domestic corporation duly registered and existing under Philippine
laws with principal office address at Bonifacio Centre, 2nd Floor Bonifacio Technology Centre, Taguig,
Metro Manila; that it is engaged in the business of development and sale of real estate properties; that
FBDC is the owner/developer of a specifically controlled and planned new city subdivision project known
as the "Global City" located at Fort Bonifacio, Taguig, Metro Manila; that FBDC negotiated with the
Singapore Embassy the sale of two (2) lots with a total area of 10,902 square meters for the price of Nine
Hundred Forty One Million Nine Hundred Thirty Two Thousand and Eight Hundred Pesos
(Php941,932,800.00) located in Global City; that the Singapore Embassy, thru H.E. Ambassador Lim
Kheng Hua, agreed to purchase the above lots as evidenced by a letter dated March 23, 2004; that such
conformity was acknowledged by FBDC thru its letter dated 29 March 2004; and that the execution of the
Deed of Absolute Sale, however, is still in process. TCSEcI

In reply, this Office is of the opinion and so holds as follows:

1. The Singapore Embassy cannot be constituted as a withholding agent, and, consequently, is

exempt from withholding tax obligations.

Section 2.57.2(J) of Revenue Regulations No. 2-98 provides as follows:

"Sec. 2.57.2. Except as herein otherwise provided, there shall be withheld a creditable
income tax at the rates herein specified for each class of payee from the following items of income
payments to persons residing in the Philippines:

"xxx xxx xxx"

(J) Gross selling price or total amount of consideration or its equivalent paid to the
seller/owner for the sale, exchange or transfer of. — Real property, other than capital assets, sold by
an individual, corporation, estate, trust, trust fund or pension fund and the seller/transferor is
habitually engaged in the real estate business in accordance with the following schedule —
Those which are exempt from a withholding
tax at source as prescribed in Sec. 2.57.5 of
these regulations Exempt
With a selling price of five hundred thousand
pesos (P500,000.00) or less 1.5%
With a selling price of more than five hundred
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 287
 thousand pesos (P500,000.00) but not more
than two million pesos (P2,000,000.00) 3.0%
With selling price of more than two million pesos
(P2,000,000.00) 5.0%
"xxx xxx xxx"

Based on the above provisions, the sale of real property by a seller/transferor which is habitually
engaged in the real estate business shall be subject to a creditable withholding tax (CWT) at the rate of
five percent (5%), if the gross selling price or total amount of consideration or its equivalent paid to the
seller/owner is more than Two Million Pesos (Php2,000,000.00). In other words, the buyer/transferee,
being constituted as the withholding agent, before making the payment to the seller/transferor, shall
deduct, withhold and remit to this Bureau the 5% creditable withholding tax of the latter. It is noteworthy
that in the case of CIR vs. CA 1, the Supreme Court held that "codal provisions on withholding tax are
mandatory and must be complied with by the withholding agent." Hence, unless there is a law or
agreement duly entered into which specifically provides that an entity is exempt from withholding tax
obligation, such entity has a legal duty to make the necessary deductions on its income payments subject
to withholding tax. (BIR Ruling No. ITAD-16-03 dated January 24, 2003)

Be that as it may, the buyer Singapore Embassy cannot be constituted as a withholding agent for the
reason that the Embassy is not subject to the jurisdiction of the Philippines under the generally accepted
principles of international law of sovereign immunity. Relative thereto, Article II, Section 2 of the
Philippine Constitution provides, viz:

"The Philippines renounces war as an instrument of national policy, adopts the generally
accepted principles of international law as a part of the low of the land, and adheres to the policy of
peace, equality, justice, freedom, cooperation and amity with all nations." (emphasis supplied)

The above provision has expressly placed international law in the same category as the other
components of Philippine law, i.e., the New Civil Code of the Philippines and the Tax Code of 1997.
Under the principle of sovereign immunity in international law, a state enjoys and is granted immunity
from the exercise of jurisdiction by another state for any activity or property in connection with the
governmental acts (acta jure imperii) of the former 2. Corollarily, a diplomatic agent is immune from the
civil, criminal and administrative jurisdiction of the receiving state except under certain cases 3. The
immunity contemplated herein includes, but is not limited, to the obligation to withhold Philippine taxes
on all income payments subject to withholding tax or being constituted as withholding agent for the
purpose of withholding the corresponding taxes, creditable or final, on all its income payments subject
thereto, as mandated by the Tax Code of 1997 and its implementing Revenue Regulations.

Moreover, by fiction of international law, the embassy is deemed an extension of the territorial
jurisdiction of a sending state in a host state for the purpose of conferring the exclusive sovereignty within
the embassy premises to the sending state. As the power of taxation may be exercised only within the
territorial jurisdiction of the taxing authority 4, it necessarily follows that power to obligate the
withholding of the tax is also limited by the same principle of territoriality. (BIR Ruling No. 080-97 dated
July 11, 1997)

Accordingly, the Singapore Embassy cannot be constituted as a withholding agent as defined under
the Philippine tax laws and regulations pursuant to the generally accepted principles of international law.
Consequently, the Embassy is not required to withhold and remit to this Bureau the 5% withholding tax as

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 288
 buyer/transferee of real property under Section 2.57.2(J) of Revenue Regulations No. 2-98.

2. The subject sale is not subject to value-added tax (VAT) imposed under Section 108 of the Tax
Code.

The tax exemption privilege of a foreign embassy and its diplomatic agents does not include
exemption from indirect taxes such as the value-added tax (VAT) on its local purchases of goods and
services 5. In other words, purchases by that Embassy of goods and/or services shall be subject to the
value-added tax prescribed under Sections 106 and 108 and ad valorem taxes under Section 149, all of the
Tax Code of 1997.

However, applying the principle of reciprocity, this Office may grant VAT and ad valorem tax
exemption to the Singapore Embassy on its local purchases of goods and/or services it appearing from the
list submitted by the Department of Foreign Affairs (DFA) that the Singapore Government allows similar
exemption to Philippine Embassy on its purchase of goods and services in your country. Accordingly,
since the Singapore Embassy is included in the above-mentioned DFA list, and is issued with a VAT
Exemption Certificate (VEC) No. 2004-738 by this Bureau, it is, therefore, exempt from the payment of
VAT on its purchases of goods and services in the Philippines based on the principle of reciprocity. (BIR
Ruling No. ITAD-169-00 dated October 30, 2000)

As regards the seller of goods or services which, in the instant case, is FBDC, it is noteworthy that
sales by a VAT-registered entity under the above circumstances shall be treated as effectively zero-rated
transactions. [Sec. 4.100-3, Revenue Regulations No. 7-95] In this jurisdiction, the grant of VAT
exemption alone would mean that the sellers shall bear the burden of the tax if they will not be allowed to
pass-on the VAT to an exempt embassy. To enable local sellers to refund the amount of the tax inputted
into the cost of services supplied to an exempt entity, VAT zero-rating is resorted to. In other words, from
the point of view of the VAT-registered seller, although the sale of services to an exempt embassy is a
taxable transaction for VAT purposes, the process of zero-rating operates to nullify the output tax on the
part of the local supplier and the input tax on his own purchase of services related to such effectively
zero-rated sale becomes available as tax credit or refund. (VAT Ruling No. 008-00 dated February 7,
2000) SCEDaT

Treated as effectively zero-rated transactions, the VAT-registered seller of services to an exempt

embassy is required to file an application and secure prior approval for zero-rating to be able to claim tax
credit/refund on VAT (input tax) previously paid. The said application shall be filed, before an initial sale,
with the Audit Information, Tax Exemptions and Incentives Division (AITEID) of this Bureau, which,
when approved, shall be effective for 12 months from the date of issuance of the approval (Revenue
Memorandum Circular No. 17-96). Without an approved application for effective zero-rating, the
transaction otherwise treated to be zero-rated shall be considered exempt. Consequently, failure on the part
of a VAT-registered seller to secure an approval for effective zero-rating of said transaction will result in
the forfeiture of his entitlement to claim tax credit/refund on the (VAT) input tax passed on to him [Secs.
4.107-1(d), 4.102-2 and 4.103-1, Revenue Regulations No. 7-95]. In other words, sale of services to an
exempt embassy, requires a prior approved application for zero-rating in order to consider such sale to be
effectively zero-rated. (BIR Ruling No. 030-96 dated February 27, 1996)

3. The subject sale is subject to the documentary stamp tax imposed under Section 196 of the Tax
Code.

Section 196 of the Tax Code provides as follows:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 289
 "SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property. — On all
conveyances, deeds, instruments, or writings, other than grants, patents or original certificates of
adjudication issued by the Government, whereby any land, tenement or other realty sold shall be
granted, assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other
person or persons designated by such purchaser or purchasers, there shall be collected a documentary
stamp tax, at the rates herein below prescribed, based on the consideration contracted to be paid for
such realty or on its fair market value determined in accordance with Section 6(E) of this Code,
whichever is higher: Provided, That when one of the contracting parties is the Government, the tax
herein imposed shall be based on the actual consideration:

"(a) When the consideration, or value received or contracted to be paid for such realty, after
making proper allowance of any encumbrance, does not exceed One thousand pesos (P1,000) Fifteen
pesos (P15.00).

"(b) For each additional One thousand pesos (P1,000), or fractional part thereof in excess of
One thousand pesos (P1,000) of such consideration or value, Fifteen pesos (P15.00).

"xxx xxx xxx"

Based on the above, a documentary stamp tax (DST) is imposed on the deed of sale of real property
at the rate of Fifteen Pesos (Php15.00) for the first One Thousand Pesos (Php1,000.00) based on the
consideration or value received or contracted to be paid for the realty or zonal value, whichever is higher,
after making proper allowance of any encumbrance; and P15.00 for each additional P1,000 or fractional
part thereof in excess of P1,000. It is noteworthy that Section 173 of the Tax Code of 1997 provides that
whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other
party thereto who is not exempt shall be the one directly liable for the tax. Accordingly, and since the
Singapore Embassy is exempt from direct taxes such as DST 6, FBDC shall be liable for the payment of
the same.

This ruling merely settles the tax issues involved in the above transaction and 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
Bureau of Internal Revenue
Footnotes
1. CIR vs. CA, 102 SCRA 134 (199) citing CIR vs. Malayan Insurance, 129 Phil. 165, 170 (1967).
2. Jovito R. Salonga, "Public International Law," 1998, p. 127.
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 290
 3. Article 31, Vienna Convention on Diplomatic Relations.
4. Jose C. Vitug and Ernesto D. Acosta, "Tax Law and Jurisprudence", 2000 p. 10.
5. Article 34, Vienna Convention on Diplomatic Relations.
6. Article 34, Vienna Convention on Diplomatic Relations

June 3, 2004

ITAD RULING NO. 057-04

Articles 5, 8 & 13, Philippines-United States tax treaty

NIRC, Sec. 28, 42 and 108
BIR Ruling No. DA-ITAD-49-02
BIR Ruling No. DA-ITAD-39-03
BIR Ruling No. DA-ITAD-136-03

Quiason Makalintal Barot Torres & Ibarra

21st Floor, Robinsons-Equitable Tower
4 ADB Avenue cor Pedro Poveda St.
1605 Ortigas Center, Pasig City

Attention: Atty. Wilfrido E. Sanchez

Atty. Ruelito Q. Soriano
Atty. Benedict R. Tugonon

Gentlemen :

This refers to your letter dated April 26, 2004, on behalf of your client, Tropical Hut, Inc. (Tropical
Hut), requesting confirmation of your opinion that:

(a) the service fees payable by the Mercury Group of Companies, Inc. ("Mercury Group")
to Tropical Hut as payment for the procurement, research, development, consultancy
and advisory services for the Mercury Group are ordinary business profits and not
royalties;

(b) the subject service fees by the Mercury Group to Tropical Hut are not subject to
Philippine income tax pursuant to the Philippines-United States tax treaty: and

(c) since the subject services will be performed outside the Philippines, the said service
fees are not subject to Philippine income tax and the 10% value-added tax.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 291
 It is represented that Tropical Hut is a nonresident foreign corporation duly organized and existing
under the laws of the State of California, United States of America (USA) with principal address at 3190
Stevens Creek Blvd., San Jose California, 95117 USA; 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 April 16, 2004; that the Mercury Group is a corporation duly
organized and existing under the laws of the Republic of the Philippines with principal place of business at
7 Mercury Avenue Bagumbayan, Quezon City; that on November 14, 2003, Tropical Hut and the Mercury
Group entered into a Memorandum of Agreement (MOA) whereby Tropical Hut will render the following
services to the Mercury Group outside the Philippines, particularly in California, USA, to wit:

a. Identify goods and merchandise that may be suitable or desirable for Mercury Group or
its subsidiaries/affiliates; caDTSE

b. Conduct market research and provide business development plans relative to the
Mercury Group's Business;

c. Evaluate developments and emerging trends in the global market that may affect any of
the Mercury Groups Businesses and make timely recommendations to the Mercury Group on the
trends which the latter can adopt;

d. Provide product development studies and reports as may be requested by the Mercury
Group from time to time;

e. Provide marketing and promotional plans as may be requested by the Mercury Group
from time to time;

f. Submit recommendations on office or store layout and branch expansion as may be

requested by the Mercury Group from time to time;

g. Provide advice on the value-added services and miscellaneous products which the
Mercury Group can offer to its customer;

h. Represent the Mercury Group in international conferences and conventions held outside
the Philippines relating to the Pharmaceutical Business, Personal Care Products, food, medical
supplies and equipments, chemicals and other products that the Mercury Group may be interested;

i. Advice on the use of generic products;

j. Such other services which are analogous to the foregoing."

It is further represented that in consideration for the abovementioned services, the Mercury Group
shall pay Tropical Hut an annual service fee in the amount of One Hundred Thousand United States
Dollars (US$100,000.00); that Mercury Group shall likewise pay Tropical Hut a fee equivalent to 3% of
the value of whatever goods, merchandise or products that the latter may order for the former; that the
aforementioned services do not involve the licensing of any technological or proprietary rights to the
Mercury Group; that none of the services to be performed by Tropical Hut requires performance within the
Philippines; that Tropical Hut will perform all the said services outside of the Philippines, particularly in
California, USA; and that the information needed by Tropical Hut in the performance of its services will
be provided for by Mercury Group and will be communicated electronically or by telephone to the staffs
of Tropical Hut who will liaise with Mercury Group's staff in the course of the performance of the
services.
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 292
 In reply, this Office is of the opinion and so holds:

1. The service fees payable by Mercury Group to Tropical Hut under the MOA are ordinary
business profits and not royalties.

Article 13 of the Philippines-United States tax treaty defines the term "royalties", as follows:

"Article 13

ROYALTIES

"3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or films or tapes used for radio or television broadcasting any patent,
trade mark, design or model, plan, secret formula or process, or other like right or property, or for
information concerning industrial, commercial or scientific experience. The term "royalties" also
includes gains derived from the sale, exchange or other disposition of any such right or property
which are contingent on the productivity, use, or disposition thereof."

The tax treaty defines "royalties" to include "payment of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the commentaries of
the ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD) Committee
on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12 (royalties), (© 1998,
p. 151), such information alludes to the concept of "know-how". The definition of know-how, which has
been adopted by the said Committee, is "all the undivulged technical information, whether capable of
being patented or not, that is necessary for the industrial reproduction of a product or process, directly and
under the same conditions; inasmuch as it is derived from experience, know-how represents what a
manufacturer cannot know from mere examination of the product and mere knowledge of the progress of
technique." In a know-how contract, one of the parties agrees to impart to the other, so that he can use
them for his own account, his special knowledge and experience which remain unrevealed to the public.
(BIR Ruling No. DA-ITAD No. 49-02 dated April 15, 2002)

Further, in the case of Philippine Refining Company vs. CIR, CTA Case No. 2872 dated January 15,
1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from royalties, to
wit:

"To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensation for personal services, if the payee has proprietary interest
then the payment is royalty."

Applying the above discussions to the instant case, there is nothing in the subject MOA that would
require transfer into the Philippines of technology, equipment or other property where Tropical Hut has
proprietary interest or would otherwise permit Tropical Hut to impart to Mercury Group their special
knowledge and experience which remain unrevealed to the public. Likewise, inasmuch as Tropical Hut
shall render these services using their customary skills, then the compensation to be received therefor shall
not constitute as consideration for the use of, or the right to use, any copyright, patent, trademark, design
or model, plan, secret formula or process, or for the transfer of technology. Accordingly, the service fees
to be paid by the Mercury Group to Tropical Hut are not within the purview of the definition of "royalties"
under Article 13 of Philippines-United States tax treaty but rather, shall constitute as ordinary business
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 293
 profits derived from sources outside the Philippines. (BIR Ruling No. DA-ITAD-39-03 dated March 4,
2003)

2. The service fees being derived from sources outside the Philippines shall be exempt from
Philippine income tax.

Inasmuch as it has been represented that the subject services are to be performed by Tropical Hut
exclusively in the United States, then the Philippines-United States tax treaty does not apply as the herein
transaction does not result in a case of double taxation for which a tax treaty relief is sought. (BIR Ruling
No. DA-ITAD-63-03 dated April 15, 2003) In this regard, Section 28(B)(1), in relation to Section
42(A)(3), both of the National Internal Revenue Code provide, viz:

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

"xxx xxx xxx"

"(B) Tax on Nonresident Foreign Corporation. —

"(1) In General. — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the
gross income received during each taxable rear from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, host effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate shall
be thirty-two percent (32%).

"SEC. 42. Income from Sources Within the Philippines. —

"(A) Gross Income From Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx"

"(3) Services. — Compensation for labor or personal services performed in the Philippines:

"xxx xxx xxx"

Under the afore-cited provisions, a nonresident foreign corporation is taxable only on income
derived from sources within the Philippines. Considering that the aforementioned services under the MOA
are to be performed by Tropical Hut exclusively in the United States, the subject service fees are deemed
income derived from sources outside the Philippines. Accordingly, the service fees by the Mercury Group
to Tropical Hut are considered income derived from sources outside the Philippines and are, therefore, not
subject to Philippine income tax and consequently to withholding tax, pursuant to Section 28(B)(1) of the
Tax Code.

3. Since the subject services will be performed outside the Philippines, the said service fees are
not subject to Philippine income tax and the 10% value-added tax.

In defining the phase "sale or exchange of services" subject to 10% VAT, Section 108 of the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 294
 National Internal Revenue Code (NIRC) provides:

"The phrase "sale or exchange of services" means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration,. . . . . . " (emphasis supplied)

Clearly, the VAT imposed under Section 108 of the Tax Code applies only to services performed in
the Philippines and not to services rendered outside the Philippines. Accordingly, since the services are
exclusively to be performed by Tropical Hut in the United States, the subject service fees to be paid by the
Mercury Group to Tropical Hut are not subject to VAT. (BIR Ruling No. DA-ITAD 39-03 dated March 4,
2003)

This ruling is issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed or 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
Bureau of Internal Revenue

May 31, 2004

ITAD RULING NO. 056-04

Articles V (Permanent Establishment) and VII (Business

Profits), Philippines-Canada tax treaty
BIR Ruling Nos. DA-ITAD 28-04 and 32-04

Bearing Point
Unit 1007, 10th Floor, The Orient Square
Emerald Avenue, Ortigas Center

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 295
 Pasig City

Attention: Ms. Nide Marie S. Bombay

Project Director
Policy, Training and Technical Assistance Facility

Gentlemen :

This refers to your letter dated February 17, 2004 requesting for an opinion on the taxation of
service fees paid by Bearing Point (formerly, KPMG Consulting LP (Canada)) to Mediagrif Interactive
Technologies, Inc.

It is represented that Bearing Point is a foreign private corporation organized and existing under the
laws of Canada with principal office in that country and a representative office in the Philippines at Unit
1007, 10th Floor, The Orient Square Emerald Avenue, Ortigas Center, Pasig City, Philippines; that on
November 6, 1998, the Government of the Republic of the Philippines (through the National Economic
and Development Authority) and the Government of Canada (through the Canadian International
Development Agency (CIDA)) entered into a Memorandum of Understanding Concerning the Policy,
Training and Technical Assistance Facility (PTTAF) Phase II (the Facility), the objective of which is to
assist selected key government departments and agencies of the Philippines to develop their self-sustaining
capacities to formulate, plan, implement, monitor and evaluate socio-economic and administrative policies
and reform programs; that CIDA contracted Bearing Point to implement and oversee the Facility and
authorized the latter to negotiate, implement and sign agreements on its (CIDA) behalf with the various
government departments and agencies of the Philippines for the development and implementation of
programs under the Facility; that on May 2, 2001, the Department of Budget and Management (DBM) (a
government department with principal address at Mabini Hall, Gate 7, Malacañang Compound, J.P. Laurel
Street, San Miguel, Manila, Philippines) and Bearing Point entered into a Memorandum of Agreement
relative to the Organizational Streamlining and Electronic Procurement System Development (Phase II)
Project (the Project); that the objective of the Project is, among others, to assist, the DBM Procurement
Service in assessing/reviewing its present organizational structure, systems, and processes (e.g., Electronic
Procurement System (EPS), establishment of a Procurement Service supermarket), vision of its officials
(e.g., increased income), and needs of its clients (e.g., efficient and effective delivery of goods and
services); that CIDA's contribution to the Project will be 350,000 Canadian dollars (to cover for project
design and conceptualization, consultants' fees and expenses, capability building/training, and
management monitoring and evaluation), and P1,000,000.00 (to cover for EPS marketing activities and
materials); that DBM's contribution will be 420,000 Canadian dollars (or its equivalent in Philippine
pesos) (to cover for the one-year extension of the EPS operation/services), and P2,640,000.00 and
P2,200,000.00 (to cover for the one-year maintenance and operation of the EPS Customer Service Area
and for the EPS Personnel concerned, respectively); that as regards the software, EPS, Bearing Point
contracted Mediagrif Interactive Technologies, Inc. (Mediagrif) to develop the same in Canada through
the Internet, and Bearing Point will pay Mediagrif service fees in consideration for said services; and that
Mediagrif is a foreign private corporation organized and existing under the laws of Canada with principal
office in that country, and is not registered either as a corporation or as a partnership and has not been
licensed to engage in business in the Philippines as confirmed by both the Certification of
Non-Registration issued by the Securities and Exchange Commission on May 17, 2004 and the letter dated
May 17, 2004 of the DBM-Procurement Service to the Bureau of Internal Revenue-Legal and Inspection
Group.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 296
 In reply, please be informed that Section 23(F) of the National Internal Revenue Code of 1997 (Tax
Code) provides:

"Section 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:

xxx xxx xxx

(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines."

Applying Section 23(F) to the instant case, the service fees paid by Bearing Point to Mediagrif are
subject to Philippine income tax if they are derived from sources within the Philippines; otherwise, such
fees are exempt. In the case of furnishing of services, income derived from this activity is deemed derived
from sources within the Philippines if it is undertaken in the Philippines, in accordance with Section
42(A)(3) 1 of the Tax Code. Since Mediagrif, being a foreign corporation, will develop the software EPS
entirely in Canada through the Internet so that income arising therefrom is not deemed derived from
sources within the Philippines, service fees paid to Mediagrif by Bearing Point for this purpose are
exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 32-04 dated April 2, 2004)

In addition, paragraph 1, VII (Business Profits) of the Philippines-Canada tax treaty states:

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to:

a) that permanent establishment; or

xxx xxx xxx"

Based on the above paragraph 1, business profits arising in the Philippines and derived by an
enterprise of Canada shall be subject to Philippine income tax if they are attributable to a permanent
establishment which the enterprise has in the Philippines; otherwise such profits are exempt. The term
"permanent establishment," as defined in paragraphs 1 and 2, Article V (Permanent Establishment) of the
Philippines-Canada tax treaty, means a fixed place of business through which the business of an enterprise
is wholly or partly carried on, and includes, for example, a place of management, a branch, and an office.
cAEDTa

Assuming that Mediagrif developed the EPS in the Philippines and not in Canada, the service fees
paid to Mediagrif by Bearing Point for this purpose will still not be subject to Philippine income tax since
Mediagrif does not have a fixed place of business in the Philippines, as confirmed by both the relevant
Certification from the Securities and Exchange Commission and the relevant letter from the
DBM-Procurement Service, so as to constitute its permanent establishment in the country. This conclusion
is even buttressed by the fact that, unlike the majority of other Philippine tax treaties, the
Philippines-Canada tax treaty (particularly the Permanent Establishment article thereof), apparently,
however, does not have a provision on the furnishing of services as constituting a permanent establishment
for the foreign enterprise undertaking it in a situs country for a sufficient duration like 183 days. (BIR
Ruling No. ITAD 28-04 dated March 29, 2004)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 297
 Finally, the subject service fees are not subject to the 10 percent value-added tax (VAT) under
Section 108(A) of the Tax Code, which mentions:

"Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.

The phrase `sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration . . ."

The above definition states that in order for receipts or payments for the sale or exchange of
services to be subject to VAT, the services must be undertaken in the Philippines, similar to the
requirement of subjecting such receipts or payments to income tax where the services concerned are
performed in the Philippines. Accordingly, since Mediagrif will develop the EPS entirely in Canada,
service fees paid to it by Bearing Point shall be exempt from VAT.

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. HICSaD

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JOSE MARIO C. BUÑAG

Deputy Commissioner
Legal and Inspection Group
Bureau of Internal Revenue
Footnotes
1. Section 42. Income from Sources Within the Philippines. —
(A) Gross Income from Sources Within the Philippines. — The following items of gross income shall be
treated as gross income from sources within the Philippines:
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in the Philippines;
xxx xxx xxx

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 298
 May 27, 2004

ITAD RULING NO. 055-04

Article 13, Philippines-United States tax treaty Article 12,

Philippines-China tax treaty BIR Ruling No.
DA-ITAD-101-03

Joaquin Cunanan & Co.

29th Floor Philamlife Tower
8767 Paseo de Roxas
1226 Makati City

Attention: Ms. Mary Assumption S. Bautista-Villareal

Principal, Tax Service

Gentlemen :

This refers to your letter dated December 30, 2003 requesting confirmation of your opinion that the
royalties paid by your client, Bristol-Myers Squibb (Philippines), Inc. (BMS Phil) to Bristol-Myers Squibb
Company (BMSC) are subject to the preferential tax rate of 10 percent (10%) pursuant to the
"most-favored-nation" clause of the Philippines-United States tax treaty in relation to the
Philippines-China tax treaty.

It is represented that BMSC is a nonresident foreign corporation duly organized and existing under
the laws of the United States of America (USA) with principal address at 345 Park Avenue, New York,
New York 10154; 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 December 30, 2003; that BMS Phil is a domestic corporation duly organized and
existing under Philippine laws; that on 1998, BMSC and BMS Phil entered into an Administrative and
Technical Services Agreement (ATSA of 1998) which had a validity period of five (5) years effective
January 1, 1998; that under the ATSA of 1998, BMSC agreed to provide BMS Phil with advisory and
technical services enumerated therein such as but not limited to marketing, sales, promotional and
distribution planning and techniques; that in consideration for the above services, BMS Phil agreed to pay
an annual administrative and technical services fee in the amount equal to three percent (3%) of the net
sales for the year of all products sold by BMS Phil; that upon expiration of the ATSA of 1998, BMSC and
BMS executed on January 1, 2003 a second Administrative and Technical Services Agreement (ATSA of
2003) with the same terms and conditions as that of ATSA of 1998; and that the ATSA of 2003 and its
Addendum complies with the provisions of the Intellectual Property Code on Voluntary Licensing under
Certificate of Compliance No. 5-2003-00137 issued by the Intellectual Property Office (IPO) on April 1,
2004, valid for 5 years from January 1, 2003 to December 31, 2007. HTcDEa

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 299
 In reply, please be informed that Article 13 of the Philippines-United States tax treaty provides as
follows:

"Article 13

"ROYALTIES

"(1) Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States.

"(2) However, the tax imposed by that other Contracting State shall not exceed —

(a) ...

(b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties,

(ii) 15 percent of the gross amount of the royalties, where the royalties are
paid by a corporation registered with the Philippine Board of Investments and
engaged in preferred areas of activities, and

(iii) the lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third State. (Emphasis
supplied)

"(3) The term `royalties' as used in this article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or films or tapes used for radio or television broadcasting, any
patent, trade mark, design or model, plan, secret formula or process, or other like right or property, or
for information concerning industrial, commercial or scientific experience. The term `royalties' also
includes gains derived from the sale, exchange or other disposition of any such right or property
which are contingent on the productivity, use, or disposition thereof.

"xxx xxx xxx"

Under the "most-favored-nation" clause found in Article 13(2)(b)(iii) of the Philippines-United

States tax treaty, the tax imposed on royalties derived by a resident of the United States from sources
within the Philippines shall be the lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third State. In this light, Article 12 of the
Philippines-China tax treaty, which became effective on January 1, 2002, provides:

"Article 12

"ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the
tax so charged shall not exceed:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 300
 "a) 15 per cent of the gross amount of royalties arising from the use of, or
the right to use, any copyright of literary, artistic or scientific work including
cinematograph films or tapes for television or broadcasting, or

"b) 10 per cent of the gross amount of royalties arising from the use of, or
the right to use, any patent, trade mark, design or model, plan, secret formula or
process, or from the use of, or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial, commercial or scientific
experience. (Emphasis supplied)

For as long as the transfer of technology, under Philippine law, is subject to approval, the
limitation of the tax rate mentioned under (b) shall, in the case of royalties arising in the Republic of
the Philippines, only apply if the contract giving rise to such royalties has been approved by the
Philippine competent authorities. HICATc

"3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematography films, or films or tapes for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial, or scientific equipment, or for information concerning industrial, commercial
or scientific experience."

"xxx xxx xxx"

In the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. and Court of
Appeals, G.R. No. 127105 promulgated on June 25, 1999, the Supreme Court interpreted the
"most-favored-nation" clause particularly the phrase "paid under similar circumstances" as referring to the
manner of payment of taxes and not to the subject matter of the tax which is royalties. Hence, the
"most-favored-nation" clause of the Philippines-United States tax treaty must be interpreted not only in
relation to Article 12 of the Philippines-China tax treaty but also in connection with the provisions on the
elimination of double taxation of both the Philippines-United States and Philippines-China tax treaties. A
perusal of the Philippines-United States and Philippines-China tax treaties, particularly their provisions on
the avoidance of double taxation, shows a similarity on the manner of payment of taxes, that is, the
allowable foreign tax credit in both treaties is the amount actually paid in the Philippines.

Such being the case, this Office is of the opinion and so holds that royalty payments by BMS Phil
to BMSC beginning January 1, 2002, under the ATSA of 1998 and ATSA of 2003, are subject to the
preferential tax rate not exceeding 10 percent of the gross amount of royalties pursuant to the
"most-favored-nation" clause of the Philippines-United States tax treaty in relation to Philippines-China
tax treaty. (BIR Ruling No. DA-ITAD-101-03 dated July 24, 2003)

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

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 301
 By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

May 26, 2004

ITAD RULING NO. 054-04

Article 10 Philippines-Netherlands tax treaty

BIR Ruling No. DA-ITAD-89-03

Bisazza Philippines Inc.

Warehouse No. 2-A
Solid State Complex
CEPZ Compound Rosario, Cavite

Attention: Reynaldo P. Honor

General Manager

Gentlemen :

This refers to your letter dated April 14, 2004 requesting for a preferential tax rate of ten percent
(10%) on the dividend payments of Bisazza Philippines, Inc. (Bisazza Phils) to Bisazza Holding BV
(Bisazza Holding) pursuant to the Philippines-Netherlands tax treaty. HCSEIT

It is represented that Bisazza Holding is a nonresident foreign corporation organized and existing
under the laws of Netherlands with principal office at Herengracht 469, 1017 BS Amsterdam, Netherlands;
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 March 17, 2004 issued by the Securities and Exchange
Commission; that Bisazza Phils is a corporation organized and existing under the laws of the Philippines;
that Bisazza Holding is a registered owner of 694,995 shares out of the outstanding issued shares of
695,000 or equivalent to 99.99% of the authorized capital stock of Bisazza Phils; that on March 24, 2004,
the Board of Directors of Bisazza Phils declared cash dividends in the amount of Thirty Million Pesos
(P30,000,000.00) to all the stockholders on the basis of the outstanding stock held as of December 31,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 302
 2003.

In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides:

"Article 10

"DIVIDENDS

"1. Dividends paid by a company which is a resident of one of the States to a resident of the
other State may be taxed in that other State.

"2. However, such dividends may also be taxed in the State of which the company paying
the dividends is a resident and according to the laws of that 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 recipient is a

company the capital of which is wholly or partly divided into shares and which holds
directly at least 10 per cent of the capital of the company paying the dividends;

b) 15 per cent of the gross amount of the dividends in all other cases.

"3. ...

"4. ...

"5. The term "dividends" as used in this Article means income from shares, "jouissance"
shares or "jouissance" rights, mining shares, founders' shares or other rights participating in profits, as
well as income from debt-claims participating in profits and income from other corporate rights which
is subjected to the same taxation treatment as income from shares by the taxation law of the State of
which the company making the distribution is a resident.

"xxx xxx xxx"

Based on the aforequoted provisions, the dividends paid by a Philippine company to a resident of
Netherlands may be taxed at a rate not exceeding 10% of the gross amount of the dividends if the recipient
is the beneficial owner of such dividends and is a company which holds directly at least ten percent (10%)
of the capital of the Philippine corporation.

Accordingly, inasmuch as Bisazza Holding holds 99.99% of the authorized capital stock of Bisazza
Phils, this Office is of the opinion and so holds that the dividends remitted by Bisazza Phils to Bisazza
Holding are subject to the preferential rate of ten percent (10%), pursuant to Article 10(2)(a) of the
Philippines-Netherlands tax treaty. (BIR Ruling No. DA-ITAD-89-03 dated July 2, 2003) ICaDHT

This ruling is issued based on 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

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 303
 By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue

May 21, 2004

ITAD RULING NO. 053-04

Articles 2 (General Provisions), 3 (Fiscal Residence), 5

(Permanent Establishment), 8 (Business Profits) and 16
(Dependent Personal Services) Philippines-United States of
America tax treaty BIR Ruling Nos. DA-ITAD 169-02 and
44-04

Pilipinas Shell Petroleum Corporation

Shell House
156 Valero Street, Salcedo Village
1227 Makati City

Attention: Mr. Redentor R. Gabinete

Taxation Manager

Gentlemen :

This refers to your letter dated May 4, 2004 requesting confirmation on the following:

1. That the Shell affiliates and joint venture companies — Motiva Company, Motiva
Enterprises LLC, Equilon Enterprises LLC, Shell Information Technology
International, Inc., and Shell Oil Company, (collectively, the "Shell Companies") — are
all residents of the United States of America (US) for purposes of the Philippines-US
tax treaty;

2. That the activities carried out by the Shell Companies (through employees thereof) for
the office in the Philippines ("Philippine Office") of the Shell Group will not constitute
a permanent establishment; and

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 304
 3. That remuneration of the subject employees will be exempt from Philippine income tax
if, primarily, the employees' lengths of stay in the Philippines are less than 90 days in
the taxable year concerned.

It is represented that the Shell Group is currently considering the establishment of the Philippine
Office; that the Philippine Office will provide to the Shell Companies business outsourcing activities in the
fields of human resources, and accounting and finance (accounts payable, accounts receivable, general
ledger accounting, stock accounting, fixed assets, and US tax accounting) (collectively, the "outsourced
services"); that the Philippine Office will be a branch of a corporation incorporated and registered in the
Netherlands, which in turn is wholly-owned by a Shell holding company also in the Netherlands; that the
Philippine Office will initially employ around 200 Filipinos, but may later on increase them to 600; that,
on the other hand, the Shell Companies are all foreign companies engaged primarily in the oil products
sector, and that they are all formed (in the case of Motiva Enterprises LLC and Equilon Enterprises LLC)
or incorporated (in the case of Motiva Company, Shell Information Technology International, Inc. and
Shell Oil Company) and existing under the laws of the US and are all taxpayers of that country, as
confirmed by the relevant Certifications issued by the Secretary of the State of Delaware on April 6, 2004;
that the Shell Companies are not registered as corporations or as partnerships and are not licensed to
engage in trade or business in the Philippines, as confirmed by the relevant Certificates of
Non-Registration issued by the Securities and Exchange Commission on April 21, 2004.

That during the pre-registration and start-up phase of the Philippine Office, the Shell Companies
will be sending their employees to the Philippines to be involved in the following activities: setting-up of
the Philippine Office, coordinating and assisting with the registration of the Philippine Office with the
various government agencies concerned like the Securities and Exchange Commission and the Philippine
Economic Zone Authority, recruitment and hiring of local employees, initial training of the local
employees who will perform the outsourced services, setting-up and installation of the information
technology infrastructure, and other preparatory activities meant to ensure the smooth transfer from the
Shell Companies to the Philippine Office of the procedures relative to the outsourced services; and that,
owing to the preparatory and auxiliary nature of the activities, the Shell Companies will not be charging
the Philippine Office any service fees for carrying out the activities.

1. The Shell Companies are all residents of the US for purposes of the Philippines-US tax treaty.

The term "resident of a Contracting State" is generally defined in tax treaties as a person who,
under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of
management or any other criterion of a similar nature. In the case of a person other than an individual like
a company or a corporation, it is considered a resident of a Contracting State by reason of its place of
incorporation and/or place of effective management being in that State. Under paragraph 1(b), Article 3
(Fiscal Residence) of the Philippines-US tax treaty, the term "resident of the US" means: (i) "a US
corporation, and (ii) any other person (except a corporation or any entity treated as a corporation for US
tax purposes) resident in the US for purposes of US tax . . .," and under paragraph 1(e)(i), Article 2
(General Provisions) of the same treaty, the term "US corporation" means a corporation (or any
unincorporated entity treated as a corporation for US tax purposes) which is created or organized in or
under the laws of the US or any state thereof or the District of Columbia."

Applying the above definitions, the Shell Companies, all being US legal entities formed (in the case
of Motiva Enterprises LLC and Equilon Enterprises LLC, and therefore, unincorporated entities which
must be treated as corporations for US tax purposes to be embraced within the meaning of "US

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 305
 corporation") or incorporated (in the case of Motiva Company, Shell Information Technology
International, Inc. and Shell Oil Company) in and under the laws of the US (in particular, the State of
Delaware), and all being taxpayers of that country, are all residents of the US for purposes of the
Philippines-US tax treaty. (BIR Ruling No. DA-ITAD 44-04)

2. The activities carried out by the Shell Companies (through employees thereof) for the Philippine
Office will constitute a permanent establishment if undertaken for more than 183 days.

Paragraph 2(j), Article 5 (Permanent Establishment) of the Philippines-US tax treaty treats as a
"permanent establishment," "the furnishing of services, including consultancy services, by a resident of
one of the Contracting States through employees or other personnel, provided activities of that nature
continue (for the same or a connected project) within the other Contracting State for a period or periods
aggregating more than 183 days," regardless of the nature of the services being preparatory or auxiliary.
Where a permanent establishment exists, paragraph 1, Article 8 (Business Profits) of the tax treaty
provides that "the other State may tax business profits attributable to the permanent establishment."

Applying these provisions, the activities carried out by the Shell Companies (through employees
thereof) for the Philippine Office will constitute a permanent establishment if undertaken for more than
183 days. Where a permanent establishment exists, business profits attributable to the activities will be
subject to Philippine income tax.

However, since, as represented, the Shell Companies will not charge the Philippine Office any
service fees for the activities they will carry out for that office, no income will accrue to the companies in
return that will be subject to income tax, even if the activities themselves already constitute a permanent
establishment for the companies. On the other hand, if there is an instance that the Philippine Office (or its
head office or that head office's other offices worldwide) will pay the Shell Companies any service fees for
the activities, such fees will be subject to income tax if attributable to a permanent establishment. (BIR
Ruling No. DA-ITAD 169-02 dated September 26, 2002)

3. The remuneration of the subject employees will be exempt from Philippine income tax if, primarily,
the employees' lengths of stay in the Philippines are less than 90 days in the taxable year
concerned.

Paragraphs 1 and 2, Article 16 (Dependent Personal Services) of the Philippines-US tax treaty
govern the taxation of remuneration (salaries and other benefits) derived by the subject employees of the
Shell Companies who will carry out the activities for the Philippine Office, to wit:

"1. Except as provided in Article 20 (Governmental Functions), wages, salaries, and similar
remuneration derived by an individual who is a resident of one of the Contracting States from labor or
personal services performed as an employee, including income from services performed by an officer
of a corporation, may be taxed by that Contracting State. Except as provided by paragraphs 2 and 3
and in Articles 20 (Governmental Functions), 21 (Teachers), and 22 (Students and Trainees), such
remuneration derived from sources within the other Contracting State may also be taxed by that other
Contracting State.

2. Remuneration described in paragraph 1 derived by an individual who is a resident of one

of the Contracting States shall be exempt from tax by the other Contracting State if —

a) He is present in that other Contracting State for a period or periods

aggregating less than 90 days in the taxable year;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 306
 b) He is an employee of a resident of, or of a permanent establishment
maintained in, the first-mentioned Contracting State; and

c) The remuneration is not borne as such by a permanent establishment

which the employer has in that other Contracting State.

xxx xxx xxx"

Applying the above provisions, the remuneration of the subject employees will be exempt from
Philippine income tax if, primarily, the lengths of their stay in the country are less than 90 days in the
taxable year concerned. (BIR Ruling No. DA-ITAD 169-02 dated September 26, 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. TaDAHE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

May 17, 2004

ITAD RULING NO. 052-04

Art. 11, Philippines-Korea Tax Treaty

BIR Ruling No. DA-ITAD-112-02

Samsung Electro-Mechanics Philippines Corp.

Blk. 5, Calamba Premiere International Park
Brgy. Batino, Prinza, Calamba Laguna

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 307
 Attention: Mr. Dae Sik Choi
General Manager

Gentlemen :

This refers to your application for relief from double taxation dated July 29, 2003, for a ruling on
the correct tax treatment on the interest income earned on loans granted by Samsung Electro-Mechanics
Co., Ltd. (Samsung Korea) to Samsung Electro-Mechanics Philippines Corporation (Samsung-Phil),
pursuant to the Philippines-Korea tax treaty.

It is represented that Samsung-Korea is a corporation organized and existing under the laws of
Korea with principal address at 314 Maetan 3-Dong, Paldal Gu, Suwon-Si, Kyunggi-Do, Korea; that it is
not registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification issued by the Securities and Exchange Commission dated August 18, 2003; that Samsung-Phil
is a corporation duly organized and existing under the laws of the Philippines with principal address at
Blk. 5, CPIP, Batino Prinza, Calamba, Laguna; that on February 22, 2000, Samsung Korea and
Samsung-Phil entered into a Loan Agreement whereby the former agreed to lend an aggregate amount not
to exceed Thirty Five Million US Dollars (US$ 35,000,000) to finance the operating funds of
Samsung-Phil; and that the said loan has an interest rate of 10.5% per annum, subject to the provision of
the said Loan Agreement.

In reply, please be informed that Article 11 of the Philippines-Korea tax treaty provides as follows:

"Article 11

"INTEREST

"1. Interest arising and paid to a resident of the other Contracting State may be taxed in the
other State.

"2. However, such interest may also be taxed in the Contracting State in which it arises,
and according to the laws of that State, but if the recipient is the beneficial owner of the interest the
tax so charged shall not exceed:

"a) 10 per cent of the gross amount of the interest if the interest is paid in
respect of public issues of bonds, debentures or similar obligation; and

"b) 15 per cent of the gross amount of the interest in all other cases.

"3. ...

"4. ...

"5. The term 'interest' as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures, as well as income
assimilated to income from money lent by the taxation laws of the State in which the income arises,
including interest on deferred payment sales.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 308
 "xxx xxx xxx"

Based on the aforequoted provisions, interest arising in the Philippines and paid to a resident of
Korea may be subject to Philippine tax at a rate not to exceed 15 per cent (15%) of the gross amount of the
interest, provided the recipient is the beneficial owner thereof and that said interest was not paid in respect
of public issues of bonds, debentures or similar obligation. Accordingly, the interest paid by Samsung-Phil
to Samsung-Korea, which is the beneficial owner thereof, shall be subject to fifteen (15%) per cent of the
gross amount of the interest pursuant Article 11 of the Philippines-Korea tax treaty. (BIR Ruling No. ITAD
112-02 dated May 31, 2002)

Moreover, the Loan Agreement shall be subject to documentary stamp tax imposed under Section
180 of the 1997 Tax Code, as amended.

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. cACEaI

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

May 11, 2004

ITAD RULING NO. 051-04

Article 11 RP-Germany tax treaty

Article 1291 of the Civil Code
Section 180 of the 1997 Tax Code
BIR Ruling No. 20-02, 216-89

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 309
 ITAD Ruling No. 151-03

Smart Communications, Inc.

Smart Tower 6799 Ayala Avenue,
Makati City 1226

Attention: Ms. Rina R. Manuel

Tax Manager

Gentlemen :

This refers to your letter dated June 17, 2003 requesting for confirmation of your opinion that
interest payments to be made by Smart Communications, Inc. (Smart) to Kreditanstalt für Wiederaufbau
(KfW) upon effectivity of the Transfer Agreement shall not be subject to any withholding income tax
under the RP-Germany tax treaty.

It is represented that Smart is a domestic corporation duly organized and existing under Philippine
laws with principal office address at Smart Tower 6799 Ayala Avenue, Makati City; that KfW is a
non-resident foreign corporation duly organized and existing under and by virtue of the laws of the Federal
Republic of Germany with principal office at Palmengartenstrabe 5-9, 60325 Frankfurt am Main,
Germany; that KfW is not registered either as a corporation or as a partnership and has not been licensed
to engaged in business in the Philippines per certification issued by the Securities and Exchange
Commission dated November 4, 2003; that Sampo Credit Plc (Sampo) formerly Leonia Corporate Bank
Plc, is also a non-resident foreign corporation duly organized and existing under and by virtue of the laws
of the Republic of Finland with office address at Unioninkatu 22, FIN-00075, SAMPO, Finland; that
Nordea Bank Finland Plc (Nordea) formerly known as Merita Bank Plc is also a non-resident foreign
corporation duly organized and existing under and by virtue of the laws of the Republic of Finland with
registered office at Aleksanterinkatu 36B, 00100 Helsinki, Finland; that on March 7, 2000, a Loan
Agreement was entered into by and between Leonia and Smart whereby the former granted the latter a
term facility in the amount of US$26,983,520 to finance, among others, the design, procurement,
installation, commissioning and operation of eighty-five percent (85%) of the Phase 2 Payments and
Relevant Phase 3 Payments and eighty-five percent (85%) of the Finnvera Guarantee Premium as the
terms are defined in the Loan Agreement where Smart was named as "Borrower'', Leonia and Merita as
"Arrangers"; KfW as "Co-arranger" and Leonia as "Lender"; that on the same date, a Participation
Agreement was executed between Leonia as "Lender" and certain banks/financial institutions as
"'Participants"; that under the Participation Agreement, the Participants agreed to make advances to Leonia
to assist it in funding the advances to Smart; that the following are the Participants and their agreed
commitment to Leonia:

Banks Agreed Commitment Percentage

Leonia Corporate Bank Plc. US$8,994,506.67 33 1/3

Merita Bank Plc. Singapore US$8,994,506.67 33 1/3

Kreditanstalt fur Wiederaufbau US$8,994,506.67 33 1/3

that under the Participation Agreement, for any repayment of the principal or a payment of interest or fees

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 310
 received by Leonia from Smart, Leonia would have to immediately pay to each Participant an amount
proportional to its Agreed Participation to the aggregate amount of the loan; that on May 22, 2003, a
Transfer Agreement was entered into by and between Sampo and KfW stating, among others, that the
Lender (Sampo) shall transfer to the transferee (KfW) all its rights, benefits and/or obligations under or
arising out of the Loan Agreement as a whole and that the Participation Agreement be terminated with the
effect that the Transferee shall be the sole lender under the loan facility of US$26,983,520, with no
objection on the part of Smart as evidenced by the Borrower's Consent dated June 4, 2003; that a Loan
Transfer Certificate was prepared by Sampo which KfW would countersign upon acceptance and
procurement of the transfer of Sampo's whole participation under the Loan Agreement and that Nordea in
turn would accept the Loan Transfer Certificate pursuant to the terms of the Loan Agreement so as to take
effect in accordance with the terms of the Transfer Agreement dated May 22, 2003 made between Sampo,
Nordea and KfW; that the Loan Transfer Certificate was acknowledged and received by Nordea on May
22, 2003.

In reply, please be informed that Article 11 of the RP-Germany tax treaty provides as follows:

"Article 11

"INTEREST

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the law of that State, but the tax so charged shall not exceed:

a) 10 percent if such interest is paid:

(i) in connection with the sale on credit of any industrial, commercial or

scientific equipment, or

(ii) on any loan of whatever kind granted by a bank, or

(iii) in respect of public issues of bonds, debentures or similar obligations,

b) 15 percent of the gross amount of such interest in all other cases.

"3. Notwithstanding the provisions of paragraph 2,

a) interest arising in the Federal Republic of Germany and paid to the

Philippine Government and the Central Bank of the Philippines shall be exempt from
German tax;

b) interest arising in the Republic of the Philippines and paid to the

German Government, the Deutsche Bundesbank, the Kreditanstalt fuer Wiederaufbau
or the Deutsche Gesellschaft fuer wirtschaftliche Zusammenarbeit
(Entwicklungsgesellschaft) shall be exempt from Philippine tax.

The competent authorities of the Contracting States shall determine by mutual agreement
any other governmental institution to which this paragraph shall apply.

"4. Notwithstanding the provisions of paragraph 2 of this Article, interest arising in a

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 311
 Contracting State shall be exempt from tax in that State if it is derived in respect of a loan made,
guaranteed or insured by a governmental instrumentality of the other Contracting State as by
Hermes Dekkung in the case of the Federal Republic of Germany and by the Central Bank in the
case of the Republic of the Philippines, or any other instrumentality as is specified and agreed in
letters exchanged between the competent authorities of the Contracting States.

"5. The term "interest" as used in this Article means income from Government securities,
bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to
participate in profits, and debt-claims of every kind as well as all other income assimilated to
income from money lent by the taxation law of the State from which the income is derived.

"xxx xxx xxx"

Pursuant to Article 1291 of the Civil Code, obligations may be modified by, among others,
subrogating a third person to the rights of the creditor. Novation is a juridical act with a dual function: a) it
extinguishes an obligation, and b) creates a new one. Manresa says that novation is the extinguishment of
an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or
modifies the first either by changing the object or principal conditions, or by substituting the person of the
debtor or subrogating a third person to the rights of the creditor (4 Tolentino, Civil Code 352; Joven de
Cortes v. Venturanza, 79 SCRA 709, 722; Peterson v. Azada, 8 Phil. 432).

The four essential requisites of novation are: (1) previous valid obligation, (2) the agreement of all
parties to the new contract, (3) the extinguishment of the old contract, and (4) the validity of the new one.
(Tiu Siuco v. Habana, 45 Phils. 707, 712)

In the instant case, all the essential requirements of novation are present. First, there is an existing
valid obligation entered into by and between Smart and Sampo (formerly Leonia). Second, under the
Transfer Agreement dated May 22, 2003, KfW would take over the indebtedness of Sampo, thereby
subrogating KfW as lender with respect to such obligation. Furthermore, and in order to comply with the
provisions of the Transfer Agreement, Smart as the borrower, consented to the transfer of the rights,
benefits and obligations of Sampo to KfW in accordance with the terms of the Transfer Agreement. This
process of novation resulted to the extinguishment of the previous Loan Agreement dated May 22, 2003
and completely created a new obligation between Smart and KfW, which falls within the purview of
Article 1291 of the Civil Code. (BIR Ruling No. 20-02 dated May 13, 2002).

Based on Article 11 paragraph 3(b) of the RP-Germany tax treaty, interest arising in the Republic of
the Philippines and paid to the German Government, the Deutsche Bundesbank, the Kreditanstalt fuer
Wiederaufbau (KfW) or the Deutsche Gesellschaft fuer Wirtschaftliche Zusammenarbeit
(Entwicklungsgesellschaft), shall be exempt from Philippine tax.

Such being the case, interest payments made by Smart to KfW, arising from the new obligation
between them is exempt from Philippine income tax pursuant to Article 11 of the RP-Germany tax treaty.
(BIR Ruling No. 216-89 dated October 18, 1989) ITCHSa

Moreover, the Transfer Agreement executed by and between Smart and KfW shall be subject to the
documentary stamp tax imposed under Section 180 of the Tax Code of 1997, as amended. (BIR Ruling No.
ITAD 151-03 dated October 8, 2003)

This ruling is issued based on 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

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 312
 parties are concerned.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue

May 7, 2004

ITAD RULING NO. 050-04

Article 10 Philippines-Japan tax treaty

BIR Ruling No. ITAD 23-04

Autrans Philippines Corporation

c/o Mitsubishi Motors Philippines Corp. Plant-3
Ortigas Avenue Extension,
Cainta, Rizal

Attention: Ms. Rosita V. Favis

Finance & Admin. Manager

Gentlemen :

This refers to your application for relief from double taxation dated November 04, 2003, requesting
for a refund in the amount of Four Hundred Thousand Pesos (P400,000.00), representing the over-remitted
tax on dividends for the month of November 2002, pursuant to the Philippines-Japan tax treaty.

It is represented that Nissho Iwai Corporation (NIC) is a nonresident foreign corporation duly
organized and existing under and by virtue of the laws of Japan with office address at 3-1, Daiba 2-Chome,
Minato-ku Tokyo 135-8655, Japan; that NIC is registered as a corporation licensed to do business in the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 313
 Philippines through Nissho Iwai Corporation Philippine Branch (NIC-Manila), as verified by the
Securities and Exchange Commission (SFC) dated April 4, 1967; that Autrans Philippines Corporation
(APC) is a domestic corporation organized and existing under Philippine laws with principal office at c/o
Mitsubishi Motors Philippines Corporation Plant-3, Ortigas Avenue, Extension Cainta, Rizal; that NIC
owns 80% of the stockholding of APC and held by NIC since incorporation and that no transactions of
sales, purchases, and transfers have been recorded except for the one share each held by the Directors; that
on October 23, 2002, the Board of Directors declared cash dividends in the amount of Ten Million Pesos
(P10,000,000.00) out of the total income which the corporation earned; and that the said dividends were
remitted to NIC on November 7, 2002 and February 14, 2003.

In reply, please be informed that Article 10 of the Philippine-Japan tax treaty provides as follows:

"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

"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.

"5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the
dividends, being a resident of a Contracting State, carries on business in the other Contracting State
of which the company paying the dividends is a resident, through a permanent establishment
situated therein, or performs in that other Contracting State independent personal services from a
fixed base situated therein, and the holding in respect of which the dividends are paid is effectively
connected with such permanent establishment or fixed base. In such case the provisions of Article 7
or Article 14, as the case may be, shall apply.

"xxx xxx xxx"

Based on the aforequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding 10% of the gross amount of dividends if the latter
holds directly at least 25% either of the voting shares or of the total shares of the former for a period of six
(6) months immediately preceding the date of payment of the dividends, or tax at the rate of 25% of the
gross amount of dividends, in all other cases. However, the 10% and 25% preferential rates shall not apply
if the beneficial owner of the dividends carries on business in the Philippines through a permanent
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 314
 establishment and the holding in respect of which the dividends are paid is effectively connected with such
permanent establishment or fixed base. (BIR Ruling No. DA-ITAD No. 23-04 dated March 9, 2004)

In the instant case, while NIC maintains a Philippine branch, it is represented that said branch is not
privy and does not have any participation whatsoever in the holding of NIC's shares of stocks in APC so
that any income derived by NIC independently of its Philippine Branch shall be considered income of NIC
alone, applying the rule enunciated in the case of Marubeni vs. CIR (GR. No. 76573 dated September 14,
1989), pertinently quoted hereunder:

"The general rule that a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the principal-agent relationship theory.
It is understood that the branch becomes its agent here. So that when the foreign corporation
transacts business in the Philippines independently of its branch, the principal agent relationship is
set aside. The transaction becomes one of the foreign corporation, not of the branch. Consequently,
the taxpayer is the foreign corporation, not the branch or the resident foreign corporation.
Corollarily, if the business transaction is conducted through the branch office, the latter becomes the
taxpayer, and not the foreign corporation. (emphasis ours)

Such being the case, considering that NIC holds 80% of the shares of stock of APC during the
period of six months immediately preceding the date of payment of the dividends, and that the holding of
the subject shares are not effectively connected with NIC-Manila as the latter is not privy to the
transactions between NIC and APC, this Office is of the opinion and so holds that the dividends received
by NIC is subject to the preferential tax rate of 10% of the gross amount of dividends pursuant to Article
10(2)(a) of the Philippines-Japan tax treaty.

This ruling is issued based on the foregoing facts as represented and is rendered only for the
purpose of determining whether NIC is entitled to the benefits of the Philippines-Japan tax treaty. The
determination on whether your request for tax refund should be given due course is upon the Office which
will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including a copy
of this ruling) shall be indorsed to the proper Office for processing and investigation. TaISDA

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 315
 May 7, 2004

ITAD RULING NO. 049-04

Article 10, Philippines-Singapore

BIR Ruling No. ITAD-98-02

Sycip Gorres Velayo & Co.

6760 Ayala Avenue,
1226 Makati City

Attention: W.U. Villanueva

Principal, Tax Services

Gentlemen :

This refers to your letter dated January 28, 2004, requesting on behalf of your client, EPSON
PHILIPPINES CORPORATION (EPSON PHILS), confirmation of your opinion that the gross amount of
cash dividends to be paid by EPSON PHILS to EPSON SINGAPORE PTE. LTD. (EPSON SING) are
subject to withholding tax at the preferential tax rate of fifteen (15%) percent pursuant to Article 10(2)(a)
of the Philippines-Singapore tax treaty.

It is represented that Epson Sing is a nonresident foreign corporation duly organized and existing
under and by virtue of the laws of Singapore with principal address at No. 1 Temasek Avenue, #36-00
Millenia Tower, Singapore 039192; that it is not registered either as a corporation or as a partnership
licensed to do business in the Philippines as evidenced by the Certificate of Non-Registration issued by the
Securities and Exchange Commission dated December 22, 2003; that Epson Phils is a domestic
corporation organized and existing under the laws of the Philippines with office address at 36th Floor,
Rufino Pacific Tower, 6784 Ayala Ave., Makati City; that from February 2, 2002 until the present, Epson
Sing is the duly registered stockholder of record and owns 100 per cent (100%) of the outstanding voting
capital stock of Epson Phils, equivalent to 28,553,542 shares, amounting to Twenty Eight Million Five
Hundred Fifty Three Thousand Five Hundred Forty Two Pesos (Php28,553,542.00) at Php1.00 per share;
that prior to February 2, 2002, 100 per cent (100%) of Epson Phils was owned by Seiko Epson
Corporation (Epson Seiko), a non-resident foreign corporation organized and existing under the laws of
Japan; that on March 1, 2004, the Board of Directors of Epson Phils. declared a Php1.50 cash dividends in
favor of its stockholders of record as of March 1, 2004 payable on or before May 28, 2004.

In reply, please be informed that Article 10 of the Philippines-Singapore tax treaty provides, viz:

"Article 10

DIVIDENDS

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 316
 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 State.

2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed:

a) 15 per cent of the gross amount of the dividends if the recipient is a

company (including partnership) and during the part of the paying company'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 15 per cent of the outstanding shares
of the voting stock of the paying company was owned by the recipient company; and
(Emphasis supplied)

b) in all other cases, 25 per cent of the gross amounts of the dividends.

"xxx xxx xxx"

Based on the foregoing provisions, the 15 percent preferential tax rate on dividends apply whenever
the beneficial owner/recipient of the dividends owns at least 15 percent of the outstanding voting shares of
the paying company and such shareholdings should have existed during the part of the taxable year
immediately preceding the date of payment and during the whole of its prior taxable year.

Since Epson Sing is the recipient and the beneficial owner of the dividends and directly owns 100%
of the outstanding shares of the voting stock of the paying company, Epson Phils from February 2, 2002
up to the present as evidenced by the Secretary's Certificate dated January 22, 2004, the said cash
dividends are subject to the 15% final withholding tax rate pursuant to Article 10(2)(a) of the
Philippines-Singapore tax treaty. (BIR Ruling No. 98-02 dated May 22, 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. HCDaAS

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 317
 May 7, 2004

ITAD RULING NO. 048-04

Principle of Sovereign Immunity

BIR Ruling No. ITAD-16-03
BIR Ruling No. 080-97

Embassy of the Federal Republic of Germany

6/F PS Bank Center
777 Paseo de Roxas, Makati City

Attention: Dietmar Wenger

Head of Administration
German Embassy Manila

Gentlemen :

This refers to your letter dated March 11, 2004 seeking clarification on whether or not the Embassy
of the Federal Republic of Germany (Embassy) may be required to withhold five percent (5%) tax on its
monthly rental payments pursuant to a lease contract entered into by the Embassy.

It is represented that the Embassy is planning to relocate its offices in RCBC Plaza along Ayala
Avenue, Makati City within the year; that the lease contract with the lessor stipulates that the lessee
(Embassy) should withhold and remit to this Bureau a 5% tax from its monthly rental payments; that to
your knowledge, diplomatic missions are exempt from direct taxes as provided under Article 34 of the
Vienna Convention on Diplomatic Relations; and that according to the Foreign Office in Berlin, the
Philippine Embassy in Germany is not required to remit taxes due from the lease of its office space.

In reply; please be informed that the subject 5% tax on monthly rental payments stipulated in the
lease contract pertains to the creditable income tax of the lessor, and not an income tax imposed on the
lessee Embassy. To shed light on the matter, Section 2.57.2 of Revenue Regulations No. 2-98, as amended
by Revenue Regulations No. 14-02, provides as follows:

"SEC. 2. Income payments subject to creditable withholding tax and rates prescribed thereon.
Section 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as
follows:

"Sec. 2.57.2. Except as herein otherwise provided, there shall be withheld a creditable income tax at
the rates herein specified for each class of payee from the following items of income payments to
persons residing in the Philippines:

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 318
 "(C) Rentals

"(1) Real properties. — On gross rental for the continued use or possession of real property used in
business which the payor or obligor has not taken or is not taking title, or in which he has no equity
— Five percent (5%);"

"xxx xxx xxx"

Based on the afore-cited provisions, the lessee of real properties is constituted as a withholding
agent with the obligation to withhold and remit to this Bureau a creditable income tax of 5% on the
monthly rental fees to be paid to the lessor. In other words, the lessee, before making the monthly rental
payments to the lessor, shall deduct, withhold and remit to this Bureau the 5% creditable withholding tax
of the lessor. Accordingly, the 5% tax on the monthly rental payments stipulated in the lease contract is
not a tax obligation/imposition on the Embassy but rather a tax obligation of the lessor for income derived
from their lease of property which is to be withheld by the lessee.

It is noteworthy that in the case of CIR vs. CA 1, the Supreme Court held that "codal provisions on
withholding tax are mandatory and must be complied with by the withholding agent." Hence, unless there
is a law or agreement duly entered into which specifically provides that an entity is exempt from
withholding tax obligation, such entity has a legal duty to make the necessary deductions on its income
payments subject to withholding tax. (BIR Ruling No. ITAD-16-03 dated January 24, 2003)

Be that as it may, the lessee Embassy cannot be constituted as a withholding agent for the reason
that the Embassy is not subject to the jurisdiction of the Philippines under the generally accepted
principles of international law of sovereign immunity. Relative thereto, Article II, Section 2 of the
Philippine Constitution provides, viz:

"The Philippines renounces war as an instrument if national policy, adopts the generally
accepted principles of international law as a part of the law of the land and, adheres to the policy of
peace, equality, justice, freedom, cooperation and amity with all nations." (emphasis supplied)

The above provision has expressly placed international law in the same category as the other
components of Philippine law, i.e., the New Civil Code of the Philippines and the Tax Code of 1997.
Under the principle of sovereign immunity in international law, a state enjoys and is granted immunity
from the exercise of jurisdiction by another state for any activity or property in connection with the
governmental acts (acta jure imperii) of the former 2. Corollarily, a diplomatic agent is immune from the
civil, criminal and administrative jurisdiction of the receiving state except under certain cases 3. The
immunity contemplated herein includes but is not limited to the obligation to withhold Philippine taxes on
all income payments subject to withholding tax or being constituted as withholding agent for the purpose
of withholding the corresponding taxes, creditable or final, on all its income payments subject thereto, as
mandated by the Tax Code of 1997 and its implementing Revenue Regulations.

Moreover, by fiction of international law, the embassy is deemed an extension of the territorial
jurisdiction of a sending state in a host state for the purpose of conferring the exclusive sovereignty within
the embassy premises to the sending state. As the power of taxation may be exercised only within the
territorial jurisdiction of the taxing authority 4, it necessarily follows that power to obligate the
withholding of the tax is also limited by the same principle of territoriality. (BIR Ruling No. 080-97 dated
July 11, 1997)

Such being the case, the Embassy cannot be constituted as a withholding agent as defined under the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 319
 Philippine tax laws and regulations pursuant to the generally accepted principles of international law.
Consequently, the Embassy is not required to withhold and remit to this Bureau the 5% withholding tax as
lessee of real property under Section 2.57.2 of Revenue Regulations No. 2-98, as amended by Revenue
Regulations No. 14-02.

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. CIHTac

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JOSE MARIO C. BUÑAG

Deputy Commissioner
Legal and Inspection Group
Bureau of Internal Revenue
Footnotes
1. CIR vs. CA, 102 SCRA 134 (199) citing CIR vs. Malayan Insurance, 129 Phil. 165, 170 (1967).
2. Jovito R. Salonga, "Public International Law," 1998, p. 127
3. Article 31, Vienna Convention on Diplomatic Relations
4. Jose C. Vitug and Ernesto D. Acosta, "Tax Law and Jurisprudence", 2000 p. 10.

May 7, 2004

ITAD RULING NO. 047-04

Article 11, Philippines-Japan tax treaty BIR Ruling No.

DA-ITAD-112-02

Philinak Industries, Inc.

Lima Technology Center
Malvar, Batangas

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 320
 Attention: Shigefumi Mizutani
General Manager

Gentlemen :

This refers to your application for a tax treaty relief dated August 15, 2003, addressed to Regional
District Office 59, Lipa City, requesting for a 15% final withholding tax on interest payments made by
Philinak Industries, Inc. (Philinak) to Gomunoinaki Co., Ltd. (Gomunoinaki) pursuant to the
Philippines-Japan tax treaty.

It is represented that Gomunoinaki is a corporation organized and existing under the laws of Japan
with principal address at 2-8-1 Kamimaezu, Naka-ku, Nagoya, Japan 4608333; that it is not registered
either as a corporation or as a partnership licensed to do business in the Philippines per certification issued
by the Securities and Exchange Commission dated December 11, 2003; that Philinak is, a corporation
organized and existing under the laws of the Philippines with principal address at Lima Technology center
Malvar, Batangas; that on April 21, 2003, Gomunoinaki and Philinak entered into a Loan Agreement
whereby the former agreed to lend the latter the total sum of $US 1,200,000; that the loan shall bear
interest of the principal amount thereof calculated at 1.9%, today's LIBOR + 0.5%, per annum on a
365-day basis; and that the interest on the then outstanding principal shall be payable on April 20, 2004
which is after a one year period following Philinak's drawing date.

In reply, please be informed that Article 11 of the Philippines-Japan tax treaty provides as follows:

"Article

"Interest

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.

"2. However, such interest may also be taxed in the Contracting State in which it arises,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed:

"(a) 10 per cent of the gross amount if the interest is paid in respect of
Government securities, or bonds or debentures;

"(b) 15 per cent of the gross amount of the interest in all other cases.

xxx xxx xxx

"5. The term 'interest' as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from Government securities and income from bonds or
debentures, including premiums and prizes attaching to such securities, bonds or debentures."

Based on the aforequoted provisions, interest arising in the Philippines and paid to a resident of
Japan may be subject to Philippine tax at a rate not to exceed 15 per cent (15%) of the gross amount of the
interest provided the recipient is the beneficial owner of the interest and that said income was not
generated from Government securities, bonds or debentures. Therefore, the interest paid by Philinak to
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 321
 Gomunoinaki, who is the beneficial owner of such interest, shall be subject to tax at the preferential rate of
fifteen per cent (15%) based on the gross amount of the interest pursuant to Article 11 of the
Philippines-Japan tax treaty. However, the Loan Agreement shall be subject to documentary stamp tax
imposed under Section 180 of the 1997 Tax Code, as amended. (BIR Ruling No. DA-ITAD-112-02 dated
May 31, 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. HIaSDc

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

May 3, 2004

ITAD RULING NO. 046-04

Article 11 (4), RP-Japan Tax Treaty

Sec. 32 (B) (7) (a), NIRC of 1997

Office of the City Accountant

City of Cebu

Attention: Ms. Edna J. Jaca

City Accountant

Gentlemen :

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 322
 This refers to your letter dated October 7, 2003, addressed to Mr. Jaime B. Santiago, Regional
Director, Revenue Region No. 13, Cebu City, requesting our legal advice regarding the taxability of the
interest being paid on the loan obtained by the local government of Cebu City with Japan Bank for
International Cooperation (JBIC). ISTDAH

In reply, please be informed that Article 11 of the Philippines-Japan tax treaty provides as follows,
viz:

"Article 11

"xxx xxx xxx

"(4) Notwithstanding the provisions of paragraphs (2) and (3), interest arising in a
Contracting State and derived by the Government of the other Contracting State including political
subdivisions and local authorities thereof, the Central Bank of that other Contracting State or any
financial institution wholly owned by that Government, or by any resident of the other Contracting
State with respect to debt-claims guaranteed or indirectly financed by the Government of that other
Contracting State including political subdivisions and local authorities thereof, the Central Bank of
that other Contracting State or any financial institution wholly owned by that Government shall be
exempt from tax in the first-mentioned Contracting State. "

"For the purposes, of this paragraph, the team `financial institution wholly owned by the
Government.' means:

"(a) In the case of Japan, the Export-Import Bank of Japan, the Overseas Economic
Cooperation Fund and the Japan International Cooperation Agency; (emphasis supplied)

"(b) In the case of the Philippines, the Development Bank of the Philippines; and

"(c) Any such financial institution the capital of which is wholly owned by the Government
of either Contracting State, other than those referred to in sub-paragraphs (a) and (b) above, as may
be agreed from time to time between the Governments of the two Contracting States."

"xxx xxx xxx"

Moreover, Section 32(B)(7)(a) of the National Internal Revenue Code of 1997 provides, viz:

"(B) Exclusion from Gross Income. — The following items shall not be included in gross
income and shall be exempt from the taxation under this Title:

"xxx xxx xxx"

"(7) Miscellaneous Items. —

(a) Income Derived by Foreign Government — Income derived from

investments in the Philippines in loans, stocks, bonds or other domestic securities, or
from interest on deposits in banks in the Philippines by (i) foreign governments, (ii)
financing institutions owned, controlled, or enjoying refinancing from foreign
government, and (iii) international or regional financial institutions established by
foreign governments. (emphasis supplied)

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 323
 In view of the foregoing provisions and considering that JBIC is the result of the merger of
Export-Import Bank of Japan and Overseas Economic Cooperation Fund (BIR Ruling No. ITAD-21-99),
this Office hereby holds that the interest income that will be derived by JBIC, being a financial institution
wholly owned by the Japanese Government, is exempt from Philippine income tax (supra). ICaDHT

Such being the case, the interest income to be paid by the local government of Cebu City shall not
be subject to the final withholding tax of twenty percent (20%), pursuant to Section 2.57.1(I) of Revenue
Regulations No. 2-98, in relation to Section 28(B)(5)(a) of the National Internal Revenue Code of 1997.

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
Bureau of Internal Revenue

May 3, 2004

ITAD RULING NO. 045-04

Article 10, RP-Singapore

Sec. 108, NIRC
BIR Ruling No. DA-ITAD No. 53-03

Tam-Yap & Associates

Unit 411, Ferros Bel-Air Tower
30 Polaris corner Durban Streets
Bel-Air, Makati City

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 324
 Attention: Ms. Teresa R. Tam-Yap

Gentlemen :

This refers to your letters dated July 11, 2003 and February 19, 2004 requesting confirmation of
your opinion that the dividend payments of your client, SKF Philippines, Inc. (SKF Phil) to SKF South
East Asia & Pacific Pte. Ltd. (SKF Singapore), are subject to a preferential tax rate pursuant to Article 10
of the RP-Singapore tax treaty.

It is represented that SKF Singapore is a nonresident foreign corporation duly organized and
existing under and by virtue of the laws of Singapore with principal office address at No. 1 Changi South
Lane, Singapore; that SKF Singapore has been authorized to establish a representative office in the
Philippines pursuant to Certificate of Authority No. 1834 dated September 25, 1987 issued by the Board of
Investments which has been subsequently cancelled in 1990 for failure to pursue the authorized business
activity; that to date, SKF Singapore has no business presence in the Philippines; that SKF Singapore is
not registered either as 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 (SEC) dated June 10,
2003; that SKF Phil, on the other hand, is a domestic corporation organized and existing under Philippine
laws with principal office at U-302 Alegria Bldg. 2229 Chino Roces Ave., Makati City; that SKF
Singapore is a stockholder of record of SKF Phil and holds Thirty-Eight (38) shares equivalent to Three
Hundred Eighty Thousand Pesos (Php380,000), constituting 0.88% of the total shares of SKF Phil; and
that on April 30, 2003, the Board of Directors of SKF Phil declared cash dividends in the amount of Ten
Million Pesos (Php 10,000,000.00) to all of its stockholders of record as of May 15, 2003, payable on or
before June 30, 2003.

In reply, please be informed that Article 10 of the RP-Singapore 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 State.

2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed: DIcSHE

a) 15 per cent of the gross amount of the dividends if the recipient is a

company (including partnership) and during the part of the paying company'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 15 per cent of the outstanding shares of the voting
stock of the paying company was owned by the recipient company; and

b) in all other cases, 25 percent of the gross amount of the dividends.

The competent authorities of the Contracting States shall by mutual

agreement settle the mode of application of this limitation.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 325
 3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in
respect of the profits out of which the dividends are paid.

4. The term "dividends" as used in this Article means income from shares, "jouissance"
shares or "jouissance" rights, mining shares, founder's shares or other rights, not being debt-claims,
participating in profits, as well as income assimilated to income from shares by the taxation law of
the State of which the company making the distribution is a resident.

"xxx xxx xxx"

Based on the above-cited provisions, the 15 percent preferential tax rate on dividend applies
whenever the beneficial owner/recipient of the dividend owns at least 15 percent of the outstanding voting
shares of the paying company and such shareholdings should have existed during the part of the taxable
year immediately preceding the date of payment of the dividend and during the whole of its prior taxable
year, and 25% tax rate in all other cases. Such being the case, considering that SKF Singapore holds only
0.88% of the shares of stock of SKF Phil, this Office is of the opinion and so holds that the dividend
payments by SKF Phil to SKF Singapore shall be subject to the preferential tax rate of 25% pursuant to
Article 10(2)(b) of the RP-Singapore tax treaty. (BIR Ruling No. DA-ITAD 53-03 dated April 9, 2003)

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
Bureau of Internal Revenue

May 3, 2004

ITAD RULING NO. 044-04

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 326
 Article 11 (Interest), Philippines-Singapore tax treaty
Section 28 (A) (4), National Internal Revenue Code of 1997
BIR Ruling No. DA-ITAD 22-04

Philippine National Oil Company

PNOC Building VI, Energy Center
Merritt Road, Fort Bonifacio
Taguig, Metro Manila

Attention: Ms. Bernadette B. Jugan

Manager, Legal Department

Gentlemen :

This refers to your letters both dated January 16, 2004 requesting confirmation that interests paid
by the Philippine National Oil Company (PNOC) to The Bank of Nova Scotia Asia Limited (Bank of Nova
Scotia) and the Taiwan Cooperative Bank, Singapore Branch (Taiwan Bank [Singapore]) are subject to 15
percent income tax pursuant to Article 11 (Interest) of the Philippines-Singapore tax treaty.

It is represented that the Bank of Nova Scotia is a foreign bank incorporated and existing under the
laws of Singapore with principal office at No. 10 Collyer Quay, Nos. 15-01104 Ocean Building,
Singapore; that Taiwan Bank (Singapore), with registered address at No. 80 Raffles Place, Nos. 28-20
UOB Plaza 2, Singapore, is a branch in Singapore of the Taiwan Cooperative Bank (Taiwan Bank), a
foreign bank incorporated and existing under the laws of Taiwan; that based on the relevant certificates
issued by the Securities and Exchange Commission on September 4, 2003, the Bank of Nova Scotia and
Taiwan Bank are registered foreign corporations to engage in business in the Philippines with
Classification Nos. F-789 and AF95-115, respectively; that Taiwan Bank has a branch in the Philippines,
the Taiwan Cooperative Bank, Manila Offshore Banking Branch (Taiwan Bank [Manila]), with registered
address at 26th Floor, Citibank Tower, 8741 Paseo de Roxas Street, Makati City, Philippines; that, on the
other hand, PNOC is a government owned and controlled corporation of the Republic of the Philippines
established by virtue of Presidential Decree No. 334, with principal office at PNOC Building VI, Energy
Center, Merritt Road, Fort Bonifacio Taguig, Metro Manila, Philippines; that on July 31, 2003, PNOC, the
Bank of Nova Scotia and Taiwan Bank (Manila), along with other banks acting as agent, arrangers, and
creditors; entered into a U.S.$175 Million Facility Agreement, where the Bank of Nova Scotia, Taiwan
Bank (Manila), and the other creditor banks, granted PNOC a U.S.$175 million loan facility to refinance
its outstanding U.S.$200 million loan facility that was previously granted to it on March 21, 2001 under a
separate facility agreement; that under the subject U.S.$175 Million Facility Agreement, the Bank of Nova
Scotia's and Taiwan Bank (Manila)'s commitments to PNOC were U.S.$10,000,000 and U.S.$7,000,000,
respectively; that on August 28, 2003, the Bank of Nova Scotia and Taiwan Bank (Manila) remitted
U.S.$10,000,000 and U.S.$5,000,000 of their commitments to PNOC's account at Citicorp International
limited in Hong Kong; that as consideration, PNOC shall pay the Bank of Nova Scotia, Taiwan Bank
(Manila), and the other creditor banks, interests at the last day of each interest period which may be either
every three months, every six months, or every any other interest period as PNOC and each of the creditor
banks may separately agree upon; and that the interest rate on the subject loan facility throughout each
interest period shall be equivalent to the sum of the London Interbank Offer Rate (LIBOR) 1 plus a 3.50
percent margin per annum, unless, owing to certain market disruptions, an alternative interest rate is taken

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 327
 into account.

In reply, as regards interest paid by PNOC to the Bank of Nova Scotia, please be informed that
paragraphs 1 and 2, Article 11 (Interest) of the Philippines-Singapore tax treaty provide:

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State.

2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the law of that State, but if the recipient is the beneficial owner of the interest the tax so
charged shall not exceed 15 per cent of the gross amount of the interest. The competent authorities of
the Contracting States shall by mutual agreement settle the mode of application of this limitation.

xxx xxx xxx"

Based on the abovequoted paragraph 2, interest arising in the Philippines and paid to a resident of
Singapore who is the beneficial owner of the interest may be taxed in the Philippines at a rate not
exceeding 15 percent of the gross amount thereof. Accordingly, interest paid by PNOC to the Bank of
Nova Scotia is subject to such income tax rate of 15 percent of the gross amount thereof by reason that the
Bank of Nova Scotia is a resident of Singapore who is the beneficial owner of such interest. (BIR Ruling
No. ITAD 22-04 dated March 9, 2004). As to residence, the Bank of Nova Scotia is a company whose
place of incorporation and/or place of effective management is in Singapore, and as to beneficial
ownership, the Bank of Nova Scotia is a creditor bank that is a party to the subject Facility Agreement.

On the other hand, as regards interest paid by PNOC to Taiwan Bank (Singapore), such interest is
not subject to the same preferential income tax rate under Article 11 of the Philippines-Singapore tax
treaty. In relation to the tax treaty requirements of residence and beneficial ownership, Taiwan Bank
(Singapore) is both not a resident of Singapore and the beneficial owner of such interest. As to residence,
Taiwan Bank (Singapore) is merely a branch or a permanent establishment of a company whose place of
incorporation and/or place of effective management is in Taiwan and not in Singapore. As to beneficial
ownership, Taiwan Bank (Singapore) is not a creditor bank that is a party to the subject Facility
Agreement; likewise, none of the other documents presented to this Office like the relevant Certification
of Inward Remittance dated August 28, 2003 by Citicorp International Limited of Hong Kong will signify
Taiwan Bank (Singapore) as having any substantial participation in the negotiation and the implementation
of the subject Facility Agreement for it to be considered the beneficial owner. Even assuming the
beneficial owner in this case, Taiwan Bank (Singapore) nonetheless cannot avail of the requested
preferential tax treatment because it is, in the first place, not a resident of Singapore.

Finally, as regards interest paid by PNOC to Taiwan Bank (Manila), please be informed that
Section 28(A)(4) of the National Internal Revenue Code of 1997 provides:

"(4) Offshore Banking Units. — The provisions of any law to the contrary notwithstanding,
income derived by offshore banking units authorized by the Bangko Sentral ng Pilipinas (BSP), from
foreign currency transactions with local commercial banks, including branches of foreign banks that
may be authorized by the Bangko Sentral ng Pilipinas (BSP) to transact business with offshore
banking units, including any interest income derived from foreign currency loans granted to residents,
shall be subject to a final income tax at the rate of ten percent of such income."

As represented, Taiwan Bank (Manila), a creditor bank that is a party to the subject Facility
Agreement and the beneficial owner of the interest arising therefrom, is an offshore banking branch of

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 328
 Taiwan Bank. The loan it granted to PNOC, a resident of the Philippines, is in foreign currency
denominations (in this case, in U.S. dollars). Accordingly, interest paid by PNOC to Taiwan Bank
(Manila) is subject to final income tax at the rate of 10 percent (10%) of such income.

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. CHDAEc

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue
Footnotes
1. The London Interbank Offer Rate (LIBOR) is the floating interest rate offered by banks on deposits from
other banks in the Eurocurrency markets. One-month LIBOR is the rate offered on one-month deposits,
three-month LIBOR is the rate offered on three-month deposits, and so on. LIBOR rates are determined by
trading between banks and change frequently so that the supply of funds in the interbank market equals the
demand for funds in that market. Just as prime rate is often the reference of rate of interest for floating-rate
loans in the domestic financial market, LIBOR is a reference rate of interest for loans in international
financial markets. To understand how it is used, consider a three-year loan with a rate of interest specified
as six-month LIBOR rate plus a 0.5 % margin per annum. The life of the loan is divided into six periods
each six months in length. For each period the rate of interest is set at 0.5% per annum above the six-month
LIBOR rate at the beginning of the period. Interest is paid at the end of the period.
Source: Fundamentals of Futures and Options Market, 4th Edition, John C. Hall.

May 3, 2004

ITAD RULING NO. 043-04

Section 23 (F), 28 (B) (1), 42 (C) (3) & 108 (A) of the Tax
Code of 1997 BIR Ruling Nos. DA-ITAD 38-02, 136-03 &
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 329
 185-03

Bernaldo Mirador Law Offices

Unit 1807 Cityland Condominium 10-Tower 1
6815 Ayala Avenue corner H.V. Dela Costa Street,
Makati City 1200

Attention: Atty. Rosario S. Bernaldo

Managing Partner

Gentlemen :

This refers to your letter dated September 10, 2003, on behalf of Center for Training and
Development, Inc. (CTDI), requesting for confirmation of your opinion that the service fees paid by CTDI
to The Point of Contact Communications (Services) Ltd., (TPOC) in consideration for the services
performed outside the Philippines are considered as income sourced outside of the Philippines, and
therefore, not subject to Philippine income tax, expanded withholding tax, and value-added tax (VAT),
and that CTDI shall be allowed to claim such service fees as deduction for income tax purposes.

It is represented that CTDI is a domestic corporation duly organized and existing under the laws of
the Philippines with principal address at Unit 1809 Cityland Condominium 10-Tower 1, 6815 Ayala
Avenue corner Dela Costa Street, Makati City; that it is registered with the Securities and Exchange
Commission (SEC) under Reg. No. AS094-006299; that it is engaged in providing, rendering, conducting,
and furnishing training and development and management education, corporate communications and
research, research and development studies, business and management advisory services, and such other
related activities to various clients, whether corporations, partnerships, organizations, institutions, public
and private, domestic or foreign, and/or individuals; that TPOC is a foreign corporation duly organized
and existing under the laws of Cyprus, with principal address at 51 Eleftheriou Venizelou, Kyriakou court,
Suite 202-204, 8021 Paphos, Cyprus; that it is an international company engaged in the business of
manpower recruitment for various clients worldwide; that the recruitment process takes place outside the
Philippines; that it has no permanent establishment in the Philippines; that it is not registered as a
corporation or as a partnership licensed to do business in the Philippines per SEC Certification dated
September 9, 2003; and that in August 2003, CTDI and TPOC entered into a Memorandum of Agreement
wherein TPOC shall provide the following services abroad.

a) Soliciting skilled personnel outside the Philippines with expertise in telecommunications

specifically in the field of information and communications technology

b) Conducting interviews and pre-screening to shortlist the candidates with adequate

know-how, competence, skill and expertise in telecommunications

c) Negotiating the terms and conditions of the employment of the expatriate, and

d) Sending the ones pre-selected to the Philippines for CTDI's projects with clients.

In reply, please be informed of the following provisions of the Tax Code of 1997:

"SEC. 23. General Principles of Income Taxation in the Philippines. — Except when

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 330
 otherwise provided in this Code:

xxx xxx xxx

"(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.

xxx xxx xxx

"SEC. 28. Rates of Income Tax on Foreign Corporations. —

xxx xxx xxx

"(B) Tax on Nonresident Foreign Corporation.—

"(1) In General. — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of
the gross income received during each taxable year from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall be thirty-three percent (33%); and, effective January 1, 2000 and thereafter, the rate
shall be thirty-two percent (32%).

xxx xxx xxx

"SEC. 42. Income from Sources Within the Philippines. —

xxx xxx xxx

"(C) Gross Income From Sources Without the Philippines. — The following items of gross
income shall be treated as income from sources without the Philippines:

xxx xxx xxx

"(3) Compensation for labor or personal services performed without the Philippines;

xxx xxx xxx"

Under the aforecited provisions, a nonresident foreign corporation is taxable only on income
derived from sources within the Philippines so that if a nonresident foreign corporation furnishes and
performs services in the Philippines, the service fees therefrom are taxable in the Philippines. Considering
that the services of TPOC to CTDI under Memorandum of Agreement are rendered outside the
Philippines, the payments by CTDI to TPOC are considered income derived from sources outside the
Philippines. (BIR Ruling No. DA-ITAD 185-03 dated November 28, 2003)

In view thereof, this Office is of the opinion as it hereby holds that payments of CTDI to TPOC
pursuant to the Memorandum of Agreement are considered income derived from sources outside the
Philippines pursuant to Section 23(F) in relation to Section 42(C)(3) of the Tax Code of 1997 and are,
therefore, not subject to Philippine income tax under Section 28(B)(1) of the said Code.

Moreover, Section 108(A) of the Tax Code of 1997 states:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 331
 "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

"(A) Rate and Base of Tax. — There shall be levied, assessed, and collected,
a value-added tax equivalent to ten percent (10%) of gross receipts derived from the
sale or exchange of services, including the use or lease of properties.

"The phrase `sale or exchange of services' means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration, . . . . (Emphasis supplied)"

Inasmuch as the services are performed outside of the Philippines, the service fees are not subject to
the 10% value added tax (BIR Ruling No. DA-ITAD 136-03 dated August 29, 2003) DaCEIc

As regards your opinion that the service fees paid by CTDI to TPOC qualify as deductible expense
under Section 34(A)(1) of the Tax Code of 1997, please be informed that we decline to rule on the matter
considering the factual nature of the issue raised. (BIR Ruling No. DA-ITAD 38-02 dated March 14, 2002)

This ruling is issued based on the facts as represented. However, if upon investigation is 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
Bureau of Internal Revenue

May 3, 2004

ITAD RULING NO. 042-04

NIRC - Sec 78 (A) (4) as implemented by Revenue

Regulations 2-98 - Sec. 2.78 [Sec. 2.78.1B] BIR Ruling No.
DA-ITAD-16-03

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 332
 Foster Parents Plan, Inc.
2nd Floor CJV Building
108 Aguirre St., Legaspi Village
Makati City, Philippines

Attention: Ms. Jiji S. Bugna

Operations Support Manager and
Acting Country Director

Gentlemen :

This refers to your letter dated January 15, 2004, indorsed to this Office by the Department of
Finance (DOF), applying for exemption from withholding tax obligations on compensation, pursuant to
Section 2-78(B) of Revenue Regulations No. 2-98.

It is represented that Foster Parents Plan, Inc. (FPPI) is a non-profit, non-denominational child
welfare agency organized under the laws of the State of New York, USA; that FPPI is registered with the
Advisory Committee on Voluntary Foreign Aid of the International Cooperative Administration, a
voluntary relief agency qualified to participate in the relief program in the Philippines under the terms and
conditions embodied in the US Embassy's Diplomatic Notes Nos. 1071 and 3001; that it is an international
organization as indicated in the Department of Foreign Affairs Office of Protocol's internal notice dated
July 1994; that it was granted license to operate in the Philippines by the Department of Commerce and
Industry under Securities and Exchange Commission (SEC) Registration No. 358 on June 22, 1961; that
FPPI, purely humanitarian in character, conducts program in over 40 countries, including the Philippines,
for the care, maintenance, education, training and well-being of children orphaned and distressed or
otherwise made destitute; that the sources of its funds are monthly cash grants from foster parents and
donations from various international agencies or corporations; and, that all expenses are defrayed only in
support of FPPI's approved programs and projects for children and their families and communities and the
development and maintenance of its day-to-day operation; that under Republic Act (RA) No. 4169 which
took effect on August 8, 1964, FPPI is exempt from the payment of internal revenue taxes.

Based on the above representations, you now request for a ruling to the effect that FPPI, being an
international organization with tax-exemption privileges, be exempt from the obligation to withhold tax on
compensation.

In reply, please be informed that Section 78(A)(4) of the NIRC provides, viz:

SEC. 78. Definitions. — . . .

(A) Wages. — The term `wages' means all remuneration (other than fees paid to a public
official) for services performed by an employee for his employer, including the cash value of all
remuneration paid in any medium other than cash, except that such term shall not include
remuneration paid:

xxx xxx xxx

(4) For services by a citizen or resident of the Philippines for a foreign government or an
international organization. (Emphasis supplied)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 333
 xxx xxx xxx

Relative thereto, Revenue Regulations No. 2-98, in implementing the above-quoted provision,
provides, viz:

Sec. 2.78. WITHHOLDING TAX ON COMPENSATION. — . . .

Sec. 2.78.1. Withholding of Income Tax on Compensation Income. —

xxx xxx xxx

(B) Exemptions from withholding tax on compensation. — The following income

payments are exempted from the requirement of withholding tax on compensation:

xxx xxx xxx

(5) Compensation for services by a citizen or a resident of the Philippines for a foreign
government or an international organization. — Remuneration paid for services performed as an
employee of a foreign government or an international organization is exempted. The exemption
includes not only remuneration paid for services performed by ambassadors, ministers and other
diplomatic officers and employees but also remuneration paid for services performed as consular or
other officer or employee of a foreign government or as a non-diplomatic representative of such
government. (Emphasis supplied)

Based on the above-quoted provisions, the remuneration paid by a foreign government or an

international organization to its employees who are residents or citizens of the Philippines is exempt from
the requirement of withholding tax on compensation.

In view thereof, this Office is of the opinion and so holds that FPPI, being an international
organization, is exempt from the obligation to withhold income tax on its compensation payments to its
employees who are residents or citizens of the Philippines. AaDSTH

However, FPPI's exemption does not cover the obligation to withhold Philippine taxes on all its
income payments subject to withholding tax. It is therefore constituted as withholding agent for the
purpose of withholding tax on the corresponding taxes, creditable or final of all its income payments
subject thereto, pursuant to Section 57(A) of the NIRC and Section 2.57.3 of RR No. 2-98. (BIR Ruling
No. DA-ITAD-16-03 dated January 24, 2003)

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:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 334
 (SGD.) MILAGROS V. REGALADO
Assistant Commissioner
Legal Service
Bureau of Internal Revenue

May 3, 2004

ITAD RULING NO. 041-04

NIRC - Sections 30 (E), 106 (A) (2) (c), 108 (B) (3) 109 (q),
R.A. 4169
BIR Ruling [DA-045-01] dated March 22, 2001;
BIR Ruling No. DA-ITAD-91-03 dated July 3, 2003

Foster Parents Plan, Inc.

2nd Floor CJV Building
108 Aguirre St., Legaspi Village
Makati City, Philippines

Attention: Ms. Jiji S. Bugna

Operations Support Manager and
Acting Country Director

Gentlemen :

This refers to your letter dated July 9, 2003, forwarded to this Office by Atty. Cesar A. Pangilinan,
Chief, Legal Division of Revenue Region No. 8, Makati City on September 18, 2003, applying for
exemption from payment of all internal revenue taxes.

It is represented that Foster Parents Plan, Inc. (FPPI) is a non-profit, non-denominational child
welfare agency organized under the laws of the State of New York, USA; that FPPI is registered with the
Advisory Committee on Voluntary Foreign Aid of the International Cooperative Administration, a
voluntary relief agency qualified to participate in the relief program in the Philippines under the terms and
conditions embodied in the US Embassy's Diplomatic Notes Nos. 1071 and 3001; that it was granted
license to operate in the Philippines by the Department of Commerce and Industry under Securities and
Exchange Commission (SEC) Registration No. 358 on June 22, 1961; that FPPI, purely humanitarian in
character, conducts program in over 40 countries, including the Philippines, for the care, maintenance,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 335
 education, training and well-being of children orphaned and distressed or otherwise made destitute; that
the sources of its funds are monthly cash grants from foster parents and donations from various
international agencies or corporations; that all expenses are defrayed only in support of FPPI's approved
programs and projects for children and their families and communities and the development and
maintenance of its day-to-day operation; and, that under Republic Act No. 4169 which took effect on
August 8, 1964, FPPI is exempt from the payment of internal revenue taxes.

Based on the above representations, you now request for a ruling to the effect that FPPI, being an
international organization with tax-exemption privileges, be exempt from the payment of all internal
revenue taxes.

In reply, please be informed that Section 30(E) of the National Internal Revenue Code of 1997
(NIRC) provides, viz:

SEC. 30. Exemptions from Tax on Corporations. — The following organizations shall
not be taxed under this Title in respect to income received by them as such:

xxx xxx xxx

(E) Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its
net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any
specific person;

Moreover, Section 106(A)(2)(c) and Section 108(B)(3) of the NIRC respectively provides, viz:

SEC. 106. Value-added tax on Sale of Goods or Properties. —

(A) . . .

(2) [Zero-rated Sales.] — The following sales by VAT-registered persons shall be subject
to zero percent (0%) rate:

xxx xxx xxx

(c) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.
(Emphasis supplied)

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed
in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:

xxx xxx xxx

(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the supply of
such services to zero percent (0%) rate; (Emphasis supplied)

Furthermore, Section 109 of the NIRC provides, viz:

SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 336
 tax:

xxx xxx xxx

(q) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66,
529 and 1590; (Emphasis supplied)

xxx xxx xxx

Relative thereto, Republic Act No. 4169 provides, viz:

AN ACT TO AMEND REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED

AND THIRTY-EIGHT, ENTITLED "AN ACT TO EXEMPT THE FORD FOUNDATION AND
ITS GRANTS FROM THE PAYMENT OF GIFT, FRANCHISE, SPECIFIC, PERCENTAGE,
REAL PROPERTY, AND ALL OTHER TAXES, DUTIES AND FEES AND TO EXEMPT
FOREIGN PERSONNEL ENGAGED IN THE FORD FOUNDATION PROGRAM FROM THE
PAYMENT OF INCOME TAX," BY EXTENDING TO THE ROCKEFELLER FOUNDATION,
AGRICULTURAL DEVELOPMENT COUNCIL, INC., FOSTER PARENTS PLAN, INC., AND
THEIR FOREIGN PERSONNEL ENGAGED IN THEIR RESPECTIVE PROGRAMS SIMILAR
EXEMPTIONS.

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

"SECTION 1. The provisions of existing laws or ordinances to the contrary notwithstanding,

the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc., and
the Foster Parents Plan, Inc., shall be exempt from the payment of gift, franchise, specific,
percentage, real property and all other taxes, duties and fees provided under existing laws or
ordinances. This exemption shall extend to goods imported under the Ford Foundation, the
Rockefeller Foundation, the Agricultural Development Council, Inc., or the Foster Parents Plan,
Inc., grants for relief, medical, scientific, educational and training purposes to government
organizations and private institutions recognized by the government and to goods brought in or
imported for the personal use of foreign personnel whose services are paid by the Ford Foundation,
the Rockefeller Foundation, the Agricultural Development Council, Inc., or the Foster Parents Plan,
Inc., or from funds granted by these foundations: Provided, however, That this exemption is without
prejudice to the collection of customs duties and taxes on goods or articles brought or imported into
the Philippines for the use of such foreign personnel should such goods or articles brought or
imported into the Philippines for the use of such foreign personnel should such goods or articles
subsequently be sold, transferred or exchanged in the Philippines to persons or entities not entitled
to exemption from said customs duties and taxes pursuant to existing laws and regulations
governing the matter." (Emphasis supplied)

xxx xxx xxx"

Based on the above provisions, a nonstock corporation organized exclusively for charitable
purposes is exempt from tax provided that no part of its net income or asset shall belong to or inure to the
benefit of any member, organizer, officer or any specific person.

Also, Sections 106(A)(2)(c), 108(B)(3) and 109(q) of the NIRC subjects to zero percent VAT sales
by VAT-registered persons, and/or, exempts from VAT, sales of goods and services to persons and entities
whose tax treatment under special laws or international agreements to which the Philippines is a signatory
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 337
 effectively subjects to zero percent or necessarily exempts such sales of goods and services to them.

It is worthy to note that the above-quoted Republic Act, which, to date, is still effective as certified
by the Office of the House of Representatives, Legislative Operations Department in its letter dated
November 10, 2003, clearly provides exemption from the payment of gift, franchise, specific, percentage,
real property and all other taxes to FPPI.

In view thereof, this Office is of the opinion and so holds that FPPI, being a child welfare agency of
a purely humanitarian character which conducts program in the Philippines for the care, maintenance,
education, training and well-being of children orphaned and distressed or otherwise made destitute,
non-profit and non-denominational, is exempt from the payment of internal revenue taxes namely:
percentage (including tax on franchises) VAT and ad valorem tax imposed on its purchases of goods and
services, donor's tax (formerly gift tax), and all other taxes for which Foster Parents Plan, Inc. would
otherwise be directly or indirectly liable, pursuant to Sections 30(E), 106(A)(2)(c), 108(B)(3) and 109(q)
of the NIRC and R.A. No. 4169. (BIR Ruling [DA-045-01] dated March 22, 2001; BIR Ruling No.
DA-ITAD-91-03 dated July 3, 2003)

However, such exemption applies only to the payment of income tax on income received by FPPI as
such. Insofar as the income derived by FPPI from any of its properties, real or personal, or any activity
conducted by it for profit regardless of the disposition thereof shall be subject to the corresponding
internal revenue taxes imposed under the NIRC. (BIR Ruling [DA-045-01]; BIR Ruling [DA-383-98]
dated August 24, 1998)

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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 338
 May 3, 2004

ITAD RULING NO. 040-04

Art. 12, RP-Switzerland

BIR Ruling No. ITAD DA 73-03

Baniqued & Baniqued Law Office

Suite 803, 8/F Jollibee Centre
San Miguel Avenue, Ortigas Center
Pasig City

Attention: Laura Victoria A.S. Yuson-Layug

Ma. Carlota Christina G. Laiño-Santiago

Gentlemen :

This refers to your letter dated March 10, 2004 on behalf of your client, Beverage Partners
Worldwide S.A. (BPW S.A.), requesting confirmation of the following:

(1) that the royalties accrued and paid by Beverage Partners Worldwide (Philippines), Inc. [BPW
(Philippines)] to BPW S.A. are subject to fifteen percent (15%) withholding tax pursuant to
Philippines-Switzerland tax treaty; and

(2) that the royalties actually remitted by BPW (Philippines) to BPW S.A. are subject to 10%
value-added tax.

It is represented that BPW S.A. is a joint venture company, owned in equal fifty percent (50%)
shares by Nestle S.A. and The Coca-Cola Company, incorporated under the laws of Switzerland with
office address at In der Luberzen 42 8902 Urdorf, Switzerland; that it is not registered either as a
corporation or as a partnership licensed to do business in the Philippines per certification dated March 4,
2004 issued by the Securities and Exchange Commission (SEC); that BPW (Philippines) is a domestic
corporation duly organized and existing under the laws of the Philippines with office address at 4/F King's
Court II Bldg., 2129 Chino Roces Ave., Makati City; that effective April 1, 2002, BPW S.A. and BPW
(Philippines) entered into a Sub-License Agreement (Agreement) whereby BPW (Philippines) agreed to
pay BPW S.A. royalties on all brands of the Beverages which are sold by or through BPW (Philippines) in
consideration of the rights, license and sublicenses granted by BPW S.A. as well as the technical
assistance granted or to be granted by BPW S.A. or its designee; that both parties agreed that the royalties
are in consideration for all trademarks, technology and tradenames sublicensed by BPW S.A., including
additional future improvements; that under the Agreement, the royalties to be paid are as follows:

(1) In the case of Tea Beverages, Functional Beverages and Coffee Beverages other than
NESCAFE Coffee Beverages, the royalty rate shall be equivalent to five (5.0) per cent
of the Bottler's net sales value of the (finished) Beverages, "net sales value";

(2) In those circumstances where the Sub-Licensee BPW (Philippines) itself sells the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 339
 finished Tea Beverages, Functional Beverages and Coffee Beverages other than
NESCAFE Coffee Beverages, BPW (Philippines) shall pay to Licensor BPW S.A. as a
royalty five (5.0) per cent of BPW (Philippines) own net sales value of the Beverages to
third parties;

(3) In the case of NESCAFE Coffee Beverages, the royalty rate shall be the standard rate
being applied in respect of NESCAFE branded products in the Territory (the "Standard
Rate") and shall be applied in the same manner as foreseen under (1) and (2) above.

that BPW S.A. shall be entitled by written notice to BPW (Philippines) to revise at the end of any calendar
year the rates of royalty applicable to the Agreement.

In reply, please be informed that Article 12 of the Philippines-Switzerland tax treaty provides:

"Article 12

Royalties

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, the royalties may also be taxed in the Contracting State in which they arise and
according to the laws of the State, but the tax so charged shall not exceed 15 per cent of the gross
amount of the royalties.

"3. The term `royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematographic films and films and tapes for television or radio broadcasting, any patent,
trademark, design or model, plan, secret formula or process, or for information concerning industrial,
commercial or scientific experience.

"xxx xxx xxx."

Based on the aforequoted provisions, the tax imposed on royalties derived by a resident of
Switzerland from sources within the Philippines may be taxed in the Philippines at a rate not exceeding
15% of the gross amount of the royalties.

In view thereof, this Office hereby confirms your opinion that the royalties accrued and paid by
BPW (Philippines) to BPW S.A. are subject to 15% final withholding tax pursuant to Article 12(2) of the
Philippines-Switzerland tax treaty. (BIR Ruling No. DA-ITAD 73-03 dated May 27, 2003)

Moreover, royalty payments by BPW (Philippines) to BPW S.A. are subject to the 10%
value-added tax (VAT) pursuant to Section 108(a) of the Tax Code of 1997. Accordingly, BPW
(Philippines), being the resident withholding agent and payor in control of the payment, shall be
responsible for the withholding of the 10% final VAT before making any payment to BPW S.A. In
remitting the VAT withheld, BPW (Philippines) shall use BIR Form No. 1600 (Monthly Remittance
Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form 1600 and
proof of payment thereof shall serve as documentary substantiation for the claim of input tax by BPW
(Philippines) upon filing its own VAT Return, if it is a VAT-registered taxpayer. In case BPW
(Philippines) is a non-VAT registered taxpayer, the passed-on VAT withheld shall form part of the cost of
the service purchased which may be treated as "expense" or "asset", whichever is applicable. In addition,
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 340
 BPW (Philippines) is required to issue the Certificate of Final Tax Withheld at Source (BIR Form 2306) in
quadruplicate upon request of BPW S.A., the first three copies thereof to be given to BPW S.A. and the
fourth copy to be retained by BPW (Philippines) as its file copy. [Section 4 & 6, Revenue Regulations
(RR) No. 4-2002; Section 3 of RR 8-2002; Section 7 of RR 14-2002]

This ruling is issued on the basis of the facts 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. TEcCHD

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

April 28, 2004

ITAD RULING NO. 039-04

Philippines-Australia, Article 12;

Sec. 28 (B) (4) NIRC
BIR Ruling NO. ITAD-198-00

Sycip, Salazar, Hernandez & Gatmaitan

Syciplaw-All Asia Capital Center
105 Paseo de Roxas
1226 Makati City

Attention: Mr. Simeon Ken R. Ferrer

Mr. Benedicto P. Panigbatan

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 341
 Gentlemen :

This refers to your application for relief from double taxation dated January 10, 2002, on behalf of
Twintech Holdings Pty., Ltd (Twintech), requesting a ruling that the remittances of rental payments by
Trenchless Technologies Corporation (Trenchless) to Twintech for the use of a drilling machine are
exempt from withholding tax pursuant to Article 5 & Article 7 paragraph (1) of the Philippines-Australia
tax treaty.

It is represented that Twintech is a nonresident foreign corporation duly organized and existing
under the laws of Australia with mailing address at P.O. Box 273 Edgecliff; NSW 2027, Australia; that it
is not registered either as a corporation or as a partnership in the Philippines per certification issued by the
Securities and Exchange Commission dated October 23, 2001; that Trenchless is a domestic corporation
engaged in laying fiber optic cables organized and existing under the laws of the Republic of the
Philippines with principal office at No. 21 Linao St., Sta. Mesa Heights, 114 Quezon City, Philippines;
that Trenchless entered into a Contract of Lease dated August 22, 2001 with Twintech for the lease of
Fockerspergerer FSP 17 plough and winch unit ("leased property"); that upon the execution of the lease
contract, Twintech agreed that Trenchless shall immediately execute a sublease arrangement with Mr.
Sotero V. Torralba III, doing business under the name and style "SVT Enterprises" (SVT); that SVT shall
undertake to be consistent with, and shall execute the sublease arrangement according to the intents,
purposes, terms and conditions of the contract, as well as adopt the same formula for computing the rental
payments as provided for in the contract; and that in consideration for the lease, Trenchless shall pay
Twintech a monthly rental based on the following formula:

Gross Rental received from Sub-Lessee pursuant to

Section 3(a) and Section 3(b) of the Sub-Lease. xxx

Less: Commission due to the Lessee calculated in

accordance with the Table 1 below xxx

Table 1
Commission due to the Lessee

Turnover per month Rate of Commission

Up to Ps 2,650,000 3%
Ps 2,650,000 to Ps 5,300,000 4%
Ps 5,300,001 to Ps 7,950,000 5%
Ps 7,950,001 to Ps 10,600,000 6%
Ps 10,600,001 - 7%

Less: Philippine Pesos 265,000 representing

monthly logistic fee payable to the Lessee xxx

Less: Any amount paid by the Lessee at the

request of and on the behalf of the
Lessor pursuant to Section 6(d),
Section 6(e) and Section 12 xxx
––––––

Amount of monthly rental payable to Twintech xxx

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 342
 ======

In reply, please be informed that Article 12 of the Philippines-Australia tax treaty provides, viz:

"Article 12

"ROYALTIES

"1. Royalties arising in one of the Contracting States, being royalties to which a resident of
the other Contracting State is beneficially entitled, may be taxed in that other State.

"2. Such royalties may also be taxed in the Contracting State in which they arise, and
according to the law of that State. However, the tax so charged shall not exceed —

a) 15 per cent of the gross amount of the royalties where the royalties are
paid by an enterprise registered with the Philippine Board of Investments and
engaged in preferred areas of activities; and

b) in all other cases, 25 per cent of the gross amount of the royalties.

"3. The term 'royalties' in this Article means payments or credits, whether periodical or
not, and however described or computed, to the extent to which they are made as consideration for
—

a) the use of, or the right to use, any copyright, patent, design or model,
plan, secret formula or process, trademark, or other like property or right;

b) the use of, or the right to use, any industrial, commercial or scientific
equipment; (emphasis supplied)

c) the supply of scientific, technical, industrial or commercial knowledge

or information;

d) the supply of any assistance that is ancillary and subsidiary to, and is
furnished as a means of enabling the application or enjoyment of, any such property
or right as is mentioned in paragraph (a), any such equipment as is mentioned in
paragraph (b) or any such knowledge or information as is mentioned in paragraph
(c);

e) the use of, or the right to use —

(i) motion picture films;

(ii) films or video tapes for use in connection with television; or

(iii) tapes for use in connection with radio broadcasting; or

(f) total or partial forbearance in respect of the use of a property or right

referred to in this paragraph.

xxx xxx xxx."

Based on the aforequoted provisions, the abovementioned rental payments are covered by the term
"royalties" and as such are subject to the preferential rate not exceeding twenty-five percent (25%) of the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 343
 gross amount of royalties. However, Section 28(B) of the Tax Code of 1997 provides, viz:

"Sec. 28. Rates of Income Tax on Foreign Corporation. —

"xxx xxx xxx

"(B) Tax on Nonresident Foreign Corporation. —

"xxx xxx xxx

"(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other equipment. —

Rentals, charters and other fees derived by a nonresident lessor of aircraft, machineries and other
equipment shall be subject to a tax of seven and one half percent (7½%) of gross rentals or fees.

"xxx xxx xxx"

In view thereof, this Office hereby rules that the rental income derived by Twintech from its lease
transaction with Trenchless is subject to tax at the rate of seven and one-half percent (7½%) based on
gross rentals, the same not having exceeded the twenty five (25%) rate imposed on the gross amount of
royalties under the Philippines-Australia tax treaty, contrary to your opinion that the said rental payments
may be exempted from income tax pursuant to Articles 5 and 7 of the same tax treaty. (BIR Ruling No.
DA-ITAD 198-00 dated December 7, 2000)

Moreover, the rental payments by Trenchless for the lease of the drilling machine provided by
Twintech are subject to the 10% value-added tax pursuant to Sec. 108 of the Tax Code of 1997.
Accordingly, Trenchless, being the resident withholding agent and payor in control of the payment, shall
be responsible for the withholding of the 10% final VAT before making any payment to Twintech. In
remitting the VAT withheld, Trenchless shall use BIR Form No. 1600 (Monthly Remittance Return of
Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form 1600 and proof of
payment thereof shall serve as sufficient basis for the claim of input tax to be applied against the output
tax that may be due from Trenchless, if it is a VAT-registered taxpayer. In case Trenchless is a non-VAT
registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service purchased or
treated as "expense" or "asset", whichever is applicable. In addition, Trenchless is required to issue the
Certificate of Creditable Tax Withheld at Source (BIR Form 2306) in quadruplicate upon request of
Twintech, the first three copies thereof to be given to Twintech and the fourth copy to be retained by
Trenchless as its file copy. [Section 4 & 6, Revenue Regulations No. (RR) 4-2002; Section 3 of RR 8-2002;
Section 7 of RR 14-2002]

This ruling is issued on the basis of the facts as represented. 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. aCIHcD

Very truly yours,

Commissioner of Internal Revenue

By:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 344
 (SGD.) MILAGROS V. REGALADO
Assistant Commissioner
Legal Service
Bureau of Internal Revenue

April 28, 2004

ITAD RULING NO. 038-04

Article 12, RP-Denmark tax treaty

BIR Ruling No. 8-00
BIR Ruling No. 14-04

Atty. Nestor P. Nuez & Associates

8/F, CIF Towers, J. Luna Ave.,
cor R. Humabon Ave.
North Reclamation Area, Cebu City

Attention: Atty. Nestor P. Nuez

Gentlemen :

This refers to your application for relief from double taxation dated March 12, 2004, on behalf of
your client CP Kelco Philippines Inc. (CP Kelco-Phil) requesting confirmation that the royalty payments
made by CP Kelco-Phil to CP Kelco ApS (CP Kelco-Denmark) is subject only to a 15% final withholding
tax, pursuant to the Philippines-Denmark tax treaty.

It is represented that CP Kelco-Denmark is a non-resident foreign corporation organized and

existing under the laws of the Kingdom of Denmark with principal office at Ved Banen 16, DK-4623,
Lille Skensved, Denmark; that it is not engaged in trade or business in the Philippines as per certification
issued by the Securities and Exchange Commission dated December 17, 2003; that CP Kelco-Phil is a
corporation duly organized and existing under the laws of the Philippines with principal office at Barangay
Abugon, Sibonga, Cebu; that on December 26, 2003, both CP Kelco-Phil and CP Kelco-Denmark entered
and executed a License and Technical Assistance Agreement, whereby CP Kelco-Phil agreed to pay
royalties to CP Kelco-Denmark for the former's use of the licensed technology and technical assistance in
the manufacture of carrageenan products; that in consideration of the license granted and assistance to be
rendered by CP Kelco-Denmark, CP Kelco-Phil shall pay a royalty fee of five percent (5%) of the "invoice

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 345
 price" of all products produced and sold by it, provided that the Philippine taxes on all payments relating
to their Agreement shall be borne by CP Kelco-Denmark; that the said License and Technical Agreement
will take effect on January 1, 2004, and shall continue to be enforced for a period of five (5) years; and
thereafter the Agreement shall be automatically renewed for two (2) additional five (5) year periods and
may be terminated at any time upon the mutual agreement of both parties.

In reply, please be informed that Article 12 of the Philippines-Denmark tax treaty provides as
follows:

"Article 12

"ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, the royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the
tax so charged shall not exceed 15 per cent of the gross amount of the royalties.

The competent authorities of the Contracting States may by mutual agreement settle the mode of
application of this limitation.

"3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematographic films and films and tapes for television or radio broadcasting, any patent,
trademark, design or model, plan, secret formula or process, or for information concerning
industrial, commercial or scientific experience, and for the use of, or the right to use, industrial,
commercial or scientific equipment in connection therewith.

"xxx xxx xxx"

Considering that the recipient, CP Kelco-Denmark is the beneficial owner of royalties arising in the
Philippines, the royalty fees paid by CP Kelco-Phil to CP Kelco-Denmark, consisting of 5% of the invoice
price under the License and Technical Assistance Agreement, are subject to Philippine tax at the rate of
15% of the gross amount of the royalties.

Finally, Section 108(A)(1) of the Tax Code states that "the lease or the use of the right or privilege
to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right" falls within the definition of sale or exchange of services subject to
10 percent value-added tax (VAT). Accordingly, the license fees paid by CP Kelco-Phil shall be subject to
10 percent VAT. (BIR Ruling No. ITAD 14-04 dated February 20, 2004)

Under Section 4 and 6 of Revenue Regulations No. 4-2000, Section 3 of Revenue Regulations No.
8-02, and Section 7 of Revenue Regulations No. 14-2002, the CP Kelco-Phil being the resident
withholding agent and payor in control of the payment, shall be responsible for the withholding of the 10
percent VAT on such license fees before paying them to CP Kelco-Denmark. In remitting the VAT
withheld, the CP Kelco-Phil shall use BIR Form 1600 (Monthly Remittance Return of Value-Added Tax
and Other Percentage Taxes Withheld). If the CP Kelco-Phil is a VAT-registered taxpayer, the duly filed
BIR Form 1600 and proof of payment thereof shall serve as documentary substantiation for the claim of
input VAT by the CP Kelco-Phil upon filing its own VAT. If not a VAT-registered taxpayer, the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 346
 passed-on VAT withheld shall form part of the cost of the service purchased which may be treated as an
"expense" or "asset" on the part of the CP Kelco-Phil, whichever is applicable. In addition, the CP
Kelco-Phil is required to issue the Certificate of Final Tax Withheld at Source (BIR Form 2306) in
quadruplicate upon request of CP Kelco-Denmark, the first three copies to be kept by the CP
Kelco-Denmark and the fourth copy by CP Kelco-Phil for its files.

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. ESacHC

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

April 20, 2004

ITAD RULING NO. 037-04

Sec 106, 108 & 149 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. ITAD-72-00

Embassy of Korea
10th Floor, The Pacific Star Bldg.
Makati Avenue
Makati City

Attention: Mr. Hwang Hyeon-Gyu

Deputy Executive Director of Korea Trade Center (KOTRA)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 347
 Gentlemen :

This has reference to your Note Verbale No. KPH 2004-078 dated March 3, 2004 referred to this
Office by the Department of Finance and the Department of Foreign Affairs (DFA), requesting for
exemption from payment of ad valorem tax and value-added tax (VAT) on one (1) motor vehicle
specifically described hereunder, for the personal use of Mr. Hwang Hyeon-Gyu, Deputy Executive
Director of Korea Trade Center (KOTRA):

Make: Toyota Altis 1.8E A/T

Model Year: 2004
Color: Flaxen Metallic
Chassis Number: ZZE1229002310
Engine Number: 1ZZ4282953

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
the Republic of Korea or its personnel on their local purchases of goods and/or services, it appearing from
the list submitted by the Department of Foreign Affairs that your Government allows similar exemption to
the Philippine Embassy and its personnel on their purchases of goods and services in your country.

Hence, the local purchase of one (1) Toyota Corolla Altis 1.8E A/T for the personal use of Mr.
Hwang Hyeon-Gyu, Deputy Executive Director, Korea Trade Center-Manila (KOTRA) is exempt from
VAT and ad valorem taxes. (BIR Ruling No. DA-ITAD-72-02 dated May 18, 2000) DcITHE

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 348
 April 20, 2004

ITAD RULING NO. 036-04

Sec 106 & 108 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling ITAD-9-02

Embassy of Mexico
21/F, Petron Mega Plaza Bldg.
358 Sen. Gil Puyat Avenue,
Makati City

Attention: Mr. Enrique Hubbard

Ambassador Extraordinary and Plenipotentiary

Gentlemen :

This has reference to your letter dated September 30, 2002 referred to this Office by the
Department of Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT)
and ad valorem tax on a local purchase of one (1) unit of Mitsubishi Lancer GLS 1.6 M/T, for the personal
use of Jorge Ernesto Salcido Zugasti, Third Secretary/Commercial and Cultural Attache of the Embassy of
Mexico specifically described as follows:

Make: Mitsubishi Lancer GLS 1.6 M/T

Model year: 2002
Chassis Number: PAECK2ASN2A000557
Engine Number: 4G92A-D1025

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"Article 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
the goods and services;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 349
 "xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) and ad valorem taxes on its local purchases of goods and services. In other words,
purchases by that Embassy of goods and/or services shall be subject to the value added tax prescribed
under Sections 106 and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue
Code of 1997.

However, applying the principle of reciprocity, this Office may grant VAT and ad valorem tax
exemption to the Embassy of Mexico or its personnel on their local purchases of goods and/or services, it
appearing from the list submitted by the Department of Foreign Affairs as of September 4, 2001 that your
Government allows similar exemption to the Philippine Embassy and its personnel on their purchases of
goods and services in your country.

Hence, the sale of one (1) Mitsubishi Lancer GLS 1.6 M/T, for the personal use of Mr. Jorge
Ernesto Salcedo Zugasti, Third Secretary/Commercial and Cultural Attache of the Embassy of Mexico is
exempt from VAT and ad valorem. (BIR Ruling No. ITAD-9-02 dated January 25, 2002) HEaCcD

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

April 20, 2004

ITAD RULING NO. 035-04

Article 11, Philippines-Japan tax treaty

BIR Ruling No. 181-91

Prudential Guarantee and Assurance Inc.

Coyuito House
119 Palanca St., Legaspi Village
Makati City

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 350
 Attention: Ms. Evangeline B. Mercado
Assistant Vice President

Gentlemen :

This refers to your application for relief from double taxation dated March 17, 2003, requesting for
refund of the amount of tax overwithheld and overremitted by Prudential Guarantee and Assurance Inc.
(Prudential) on the interest income of The Toa Reinsurance Co., Ltd. (Toa), pursuant to Article 11 of the
Philippines-Japan tax treaty.

It is represented that Toa is a corporation organized and existing under the laws of Japan with
principal address at 6-5 Kanda-Surugadai, 3-Chome Chiyoda-ku, Tokyo Japan; that it is not registered
either as a corporation or as a partnership in the Philippines per certification issued by the Securities and
Exchange Commission dated September 29, 2003; that Prudential is a corporation organized and existing
under the laws of the Philippines with principal address at 119 Carlos Palanca Jr. St., Legaspi Village,
Makati City; that Toa entered into a "Fire Surplus Treaty" with Prudential, wherein the latter retains 40%
of the reinsurance premiums (known as the "reserve amount") due to Toa; that the amount of reinsurance
premiums withheld by Prudential in turn earns interest at the rates agreed upon by the parties in
accordance with the terms of the said Fire Surplus Treaty; that the income tax rate which was applied by
Prudential on such interest income is thirty-two percent (32%); and that it is the position of Prudential that
only fifteen percent (15%) of the gross amount thereof should be applied to said interest income as
specified in the Philippines-Japan tax treaty.

In reply, please be informed that Article 11 of the Philippines-Japan tax treaty provides as follows,
viz:

"Article 11

"(1) Interest arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.

"(2) However, such interest may also be taxed in the Contracting State in which it arises,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the so charged shall not exceed:

"(a) 10 per cent of the gross amount of the interest if the interest is paid in
respect of Government securities, or bonds or debentures;

"(b) 15 per cent of the gross amount of the interest in all other cases.

"xxx xxx xxx"

"5. The term 'interest' as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from Government securities and income from bonds or
debentures, including premiums and prizes attaching to such securities, bonds or debentures."

"xxx xxx xxx"

Based on the aforequoted provisions, interest arising in the Philippines and paid to a resident of
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 351
 Japan may be subject to Philippine tax at a rate not to exceed 15 per cent (15%) of the gross amount of the
interest provided the recipient is the beneficial owner of the interest and that the said income was not
generated from Government securities, bonds or debentures. (BIR Ruling No. 181-91)

In view thereof, it is the opinion of this Office as it hereby holds that the tax rate to be applied to
the gross amount of interest earned by Toa on the reserve amount withheld by Prudential from the
reinsurance premiums collected by the latter in the Philippines is 15% (supra).

This ruling is issued based on the foregoing facts as represented and is rendered only for the
purpose of determining whether Toa is entitled to the benefits of the Philippines-Japan tax treaty. The
determination on whether your request for tax refund should be given due course is upon the Office which
will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including a copy
of this ruling) shall be indorsed to the proper Office for processing and investigation. CSAaDE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

April 19, 2004

ITAD RULING NO. 034-04

Sec 106, 108 & 149 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. ITAD-45-01

Embassy of the Islamic Republic of Pakistan

6/F Alexander House,
132 Amorsolo St
Makati City
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 352
 Gentlemen :

This has reference to your Note Verbale No. Acctt-1/2/03 dated March 19, 2004 referred to this
Office by the Department of Finance and the Department of Foreign Affairs (DFA), requesting for
exemption from payment of VAT and ad valorem taxes on one (1) motor vehicle specifically described
hereunder, for the official use of the Embassy of the Islamic Republic of Pakistan:

Make: Honda CRV 2.0 4X4 M/T

Model Year: 2004
Color: Ashton Silver
Chassis Number: PADRD57403V100150
Motor Number: PRLD14-3100125

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
the Islamic Republic of Pakistan or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs that your Government allows
similar exemption to Philippine Embassy personnel on their purchase of goods and services in your
country.

Hence, the local purchase of one (1) Honda CRV 2.0 4X4 M/T for the official use the embassy of
the Islamic Republic of Pakistan is exempt from VAT and ad valorem taxes. (BIR Ruling No.
DA-ITAD-45-01 dated April 25, 2001) cAaTED

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 353
 April 2, 2004

ITAD RULING NO. 033-04

Section 28 (B) [5] (b) — NIRC of 1997

BIR RULING No. 008-00

Luis Cañete & Company

3/F Oftana Building
Jasmine cor Don Mariano Cui Streets
Cebu City

Gentlemen :

This refers to your letter dated June 18, 2003 on behalf of your client Mauri Fermentation
Philippines Pty. Limited (MFP), applying for a preferential tax rate of fifteen percent (15%) pursuant to
Article 10 of the Philippines-Australia tax treaty on the dividends paid by Philmico-Mauri Foods
Corporation (PMF) to MFP.

It is represented that MFP is a corporation organized and existing under the laws of Australia with
principal address at 56 Pitt. Street, Sydney, Australia; 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 May 29, 2003; that PMF is a corporation with principal office
at Aboitiz complex, Archbishop Reyes Avenue, Banilad, Cebu City; that as of October 10, 2002, MFP is
the registered owner of 37,449,997 common shares representing 49.99% of the 75,000.000 outstanding
issued shares of PMF; that on April 11, 2003, the Board of Directors of PMF declared a cash dividend out
of the corporation's retained earnings as of December 31, 2002 in the amount of Thirty Million Pesos (Php
30,000,000.00) to the stockholders of record as of April 11, 2003, payable on or before May 6, 2003.

It is further represented that pursuant to Australia's Income Tax Assessment Act of 1936, where an
Australian company owns more than 10% interest in an overseas entity, the dividend paid to the Australian
company will be exempt from Australian tax on the basis that the income has been taxed already in the
overseas jurisdiction.

In reply, please be informed that Articles 10 and 24 of the Philippines-Australia tax treaty provide:

"ARTICLE 10

"DIVIDENDS

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 354
 (1) Dividends paid by a company which is a resident of one of the Contracting States for
the purposes of its tax, being dividends to which a resident of the other Contracting State is
beneficially entitled, may be taxed in that other State.

(2) Such dividends may be taxed the Contracting State of which the company paying the
dividends is a resident for the purposes of its tax, and according to the law of that State, but the tax
so charged shall —

(a) in the case of dividends derived by a company, not exceed 15 per cent
of the gross amount of the dividends where relief, either by way of rebate or credit as
described in paragraph (2) of Article 24 or relief by way of credit as described in the
second sentence of paragraph (4) of Article 24, is given to the beneficial owner of
the dividends; and (Emphasis ours)

(b) in any other case, not exceed 25 per cent of the gross amount of the
dividends.

Nothing in this paragraph shall affect the taxation of a company in respect of profits
out of which dividends are paid.

(3) The term 'dividends' in this Article means income from shares and other income
assimilated to income from shares by the taxation law of the Contracting State of which the
company making the distribution is a resident.

xxx xxx xxx"

"ARTICLE 24

"METHODS OF ELIMINATION OF DOUBLE TAXATION

(1) Subject to the provisions of the law of Australia from time to time in force which relate
to the allowance of a credit against Australia from time to time in force which relate to the
allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall
not affect the general principle hereof), Philippine tax paid, whether directly or by deduction, in
respect of income derived by a person who is a resident of Australia from sources in the Philippines
(excluding, in the case of dividends, tax paid in respect of the profits out of which the dividends are
paid except to the extent that the provisions of paragraph 2 may permit that tax to be included) shall
be allowed as a credit against Australian tax payable in respect of that income.

xxx xxx xxx

(2) A company which is a resident of Australia is, in accordance with the provisions of the
taxation law of Australia in force at the date of signature of this Agreement, entitled to a rebate in
its assessment at the average rate of tax payable by the company in respect of dividends that are
included in its taxable income and are received from a company that is a resident of the
Philippines. However, should the law so in force be amended so that the rebate in relation to the
dividend ceases to be allowable under the law, credit shall be allowed to the first-mentioned
company under paragraph (1) for the Philippines tax paid on the profits out of which the dividends
are paid, but only if that company beneficially owns at least 10 per cent of the paid-up share capital
of the second-mentioned company. (Emphasis ours)

xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 355
 Based on the aforequoted provisions, dividends paid by a Philippine company to a company which
is a resident of Australia may be taxed at a rate not exceeding 15 per cent of the gross amount of the
dividends where relief is given to the said Australian company by way of rebate or credit in respect of the
dividends that are included in its taxable income or should the rebate in relation to the dividends ceases to
be allowable where the Australian company beneficially owns at least 10 per cent (10%) of the paid-up
share capital of the Philippine company.

In view of the representation that under Section 23AJ of the Tax Act of Australia, foreign dividends
received in Australia are no longer included as taxable income but are treated as exempt, in which case
then, no Philippine-sourced dividend income will be subject to tax in Australia against which a tax rebate
may be claimed. It appears, therefore, that the provisions on rebate of tax on dividends as provided for in
the Philippines-Australia tax treaty as a pre-requisite in availing the 15% preferential rate is not met.
Hence, the provisions of the said treaty on dividends shall not apply in the instant case.

However, Section 28(B)[5](b) of the National Internal Revenue Code of 1997 (NIRC of 1997),
provides, viz:

SEC. 28. Rates of Income Tax on Foreign Corporations. —

xxx xxx xxx

(B) Tax on Nonresident Foreign Corporation. —

xxx xxx xxx

(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. —

xxx xxx xxx

(b) Intercorporate Dividends. — A final withholding tax at the rate of fifteen percent
(15%) is hereby imposed on the amount of cash and/or property dividends received from a domestic
corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subject to
the condition that the country in which the nonresident foreign corporation is domiciled, shall
allow a credit against the tax due from the nonresident foreign corporation taxes deemed to have
been paid in the Philippines equivalent to twenty percent (20%) for 1997, nineteen percent (19%)
for 1998, eighteen percent (18%) for 1999, and seventeen percent (17%) thereafter, which
represents the difference between the regular income tax of thirty-five percent (35%) in 1997,
thirty-four percent (34%) in 1998, thirty-three percent (33%) in 1999, and thirty-two percent (32%)
thereafter on corporations and the fifteen percent (15%) tax on dividends as provided in this
subparagraph;

It is clear from the above provisions that the dividends received by MFP from PMF shall be taxed at
15% subject to the condition that Australia shall allow a credit against the tax due from MFP's corporate
taxes deemed to have been paid in the Philippines equivalent to 17% which represents the difference
between the regular tax (32%) on corporations and the tax (15%) on dividends. In the instant case, the fact
that Australia will not impose any tax on the dividends received by MFP from PMF should be considered
as a full satisfaction of the given condition. For to deny the privilege to withhold only 15% tax provided
for under the NIRC of 1997 would run counter to the very spirit and intent of the law and definitely will
adversely affect foreign corporations' interest here in the Philippines and discourage them from investing
capital in our country. 1

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 356
 Such being the case, this Office is of the opinion and so holds that the dividends remitted by PMF
to MFP are subject to the preferential rate of 15% pursuant to Section 28(B)[5](b) of the NIRC of 1997.
(BIR Ruling No. 008-00 dated January 5, 2000)

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. DIAcTE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

April 2, 2004

ITAD RULING NO. 032-04

Articles 5 and 7, Philippines-Japan tax treaty

Sections 23 (F) and 108 (A), National Internal Revenue
Code of 1997
BIR Ruling No. DA-ITAD 152-03

Sycip Gorres Velayo & Co.

6th Floor, Ayala Life — FGU Center
Mindanao Avenue corner Biliran Road
Cebu Business Park, Cebu City
6000 Cebu

Attention: Atty. Lauris L. dela Peña

Tax Services
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 357
 Gentlemen :

This refers to your letter dated January 7, 2004 requesting confirmation that commissions for
'design-in' activities paid by Taiyo Yuden (Philippines), Inc. (Taiyo Yuden-Philippines) to Taiyo Yuden
Company, Ltd. (Taiyo Yuden-Japan) are exempt from Philippine income tax pursuant to Section 28(B)(1)
of the National Internal Revenue Code of 1997 (Tax Code) and Articles 5 and 7 of the Philippines-Japan
tax treaty.

It is represented that Taiyo Yuden-Japan is a company organized and existing under the laws of
Japan, with principal office at 6-16-20 Ueno, Taito-ku, Tokyo, Japan; that Taiyo Yuden-Japan is engaged
primarily in the manufacture and sale of electronic and electric machinery and apparatus and materials
related thereto; that Taiyo Yuden-Japan has a representative office in the Philippines, the Taiyo Yuden
Company, Ltd. (Manila Representative Office), at Unit 901, Antel 2000 Corporate Centre, 121 Valero
Street, Salcedo Village, Makati City; that, on the other hand, Taiyo Yuden-Philippines is a company
organized and existing under the laws of the Philippines, with principal office at Mactan Export
Processing Zone, Lapu-lapu City, Cebu; that, on December 16, 2003, Taiyo Yuden-Japan and Taiyo
Yuden-Philippines, entered into a Design-in Service Agreement, where Taiyo Yuden-Japan shall carry out
the following activities in Japan for Taiyo Yuden-Philippines:

1. Collection and analysis of information on manufacturers in Japan targeted for the

Design-in Activity (Target Users) and on market trends;

2. Introduction of Taiyo Yuden-Philippines' products to Target-Users in Japan for

adoption by the Target-Users of the former's electric devices;

3. Activity for Taiyo Yuden-Philippines' products to acquire certifications under certain

standards;

4. Assistance to Taiyo Yuden-Philippines in case of trouble on the quality of its products;

5. Negotiation on the price and on the share allocation of Taiyo Yuden-Philippines'

products, etc.; and

6. Any other activity that may be requested by Taiyo Yuden-Philippines. aSCHIT

That Taiyo Yuden-Japan shall periodically report to Taiyo Yuden-Philippines the details and
progress of such activities; and that, as consideration, Taiyo Yuden-Philippines shall pay Taiyo
Yuden-Japan, in U.S. dollars and within sixty (60) days from the date of receipt of the invoice,
commissions computed using this formula: Commission = Sales Proceeds to Target Users x Taiyo
Yuden-Japan's Contribution Rate x Commission Rate.

In reply, please be informed that Section 23(F) of the Tax Code provides:

"Section 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:

xxx xxx xxx

(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 358
 taxable only on income derived from sources within the Philippines."

Applying Section 23(F) to the instant case, commissions for 'design-in' activities paid by Taiyo
Yuden-Philippines to Taiyo Yuden-Japan are subject to Philippine income tax if such commissions are
derived from sources within the Philippines; otherwise, such commissions are exempt. In the case of
furnishing of services, income arising from this activity is deemed derived from sources within the
Philippines if it is carried out in the Philippines, in accordance with Section 42(A)(3) 1 of the Tax Code.
Since Taiyo Yuden-Japan, being a foreign corporation, will carry out the subject activities entirely in
Japan so that income arising therefrom is not deemed derived from sources within the Philippines,
commissions paid to Taiyo Yuden-Japan by Taiyo Yuden-Philippines for such activities are exempt from
Philippine income tax.

Also, paragraph l, Article 7 of the Philippines-Japan tax treaty mentions:

"Article 7

1. The profits of an enterprise of a Contracting State shall be taxable only in that

Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits
of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment.

xxx xxx xxx"

Applying paragraph 1 to the instant case, the subject commissions are subject to Philippine income
tax if they are attributable to a permanent establishment which Taiyo Yuden-Japan has in the Philippines;
otherwise, they are exempt. In the case of furnishing of services, this activity is deemed to give rise to a
permanent establishment if, generally speaking, it is carried out in the Philippines for a period or periods
aggregating more than six months within any taxable year, in accordance with paragraph 6 2 , Article 5 of
the tax treaty. Since the subject activities will be carried out by Taiyo Yuden-Japan entirely in Japan so
that there is no instance that they may give rise to a permanent establishment in the Philippines,
commissions paid to Taiyo Yuden-Japan by Taiyo Yuden-Philippines for such activities are exempt from
Philippine income tax. (BIR Ruling No. DA-ITAD 152-03 dated October 9, 2003)

Finally, in the same manner, the subject commissions are not subject to the 10 percent value-added
tax (VAT) under Section 108(A) of the Tax Code, which mentions:

"Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.

The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration . . . "

It is clear from the above definition of "sale or exchange of services" that in order for the subject
commissions to be subject to VAT, the 'design-in' activities giving rise to such commissions must be
carried out in the Philippines. On the contrary, however, such activities are carried out by Taiyo
Yuden-Japan entirely in Japan.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 359
 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. HcDSaT

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner, Legal Service
Bureau of Internal Revenue
Footnotes
1. Section 42. Income from Sources Within the Philippines. — (A) Gross Income from Sources Within the
Philippines. — The following items of gross income shall be treated as gross income from sources within
the Philippines:
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in the Philippines:
xxx xxx xxx
2. 6. An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other
Contracting State if it furnishes in that other Contracting State consultancy services, or supervisory services
in connection with a contract for a building, construction or installation project through employees or other
personnel — other than an agent of an independent status to whom paragraph 7 applies —, provided that
such activities continue (for the same project or two or more connected projects) for a period or periods
aggregating more than six months within any taxable year . . .

April 2, 2004

ITAD RULING NO. 031-04

Article 10, RP-Japan

BIR Ruling No. DA-ITAD-164-02

SHI Designing & Manufacturing, Inc. (SDMI)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 360
 32nd Floor Raffles Corporate Center
Emerald Avenue, Ortigas Center
Pasig City, Philippines 1605

Attention: Mr. Masao Yokoo

President & CEO

Gentlemen :

This refers to your letter dated September 16, 2003 applying for tax treaty relief on the cash
dividends declared by SDMI in favor of SUMITOMO HEAVY INDUSTRIES, LTD. (SHI), pursuant to
the RP-Japan tax treaty.

It is represented that SHI is a corporation organized and existing under the laws of Japan with
office address at 9-11, Kitashinagawa, 5-Chome, Shinagawa-ku, Tokyo 141, Japan; that it is not registered
either as a corporation or as a partnership and has not been licensed to engage in business in the
Philippines per certification issued by the Securities and Exchange Commission dated July 12, 2000; that
SDMI, on the other hand, is a corporation duly organized and existing under the laws of the Philippines,
registered with the Board of Investment (BOI) on a preferred pioneer status per BOI Certificate of
Registration dated February 2, 1990; that as of May 31, 2003, SHI holds One Hundred Twenty Seven
Thousand Four Hundred Eighty Five (127,485) shares with a par value of One hundred Pesos (P100.00)
per share or a total of Twelve Million Seven Hundred Forty Eight Thousand Five Hundred Pesos
(P12,748,500.00) which constitute 99.988% of the total outstanding and voting shares of SDMI; that on
June 6, 2003, the Board of Directors of SDMI resolved and confirmed the declaration of cash dividends
equivalent to 10% of the total outstanding capital stock out of the accumulated retained earnings of SDMI,
to all its stockholders of record, as of June 6, 2003 to be paid immediately.

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; (Emphasis supplied)

"(b) 25 per cent of the gross amount of the dividends in all other cases.

The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.

(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 361
 Philippines on the dividends paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the dividends,
shall not exceed 10 per cent of the gross amount of the dividends.

"(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"

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 per cent of the voting shares or of the total shares of
the first-mentioned company for a period of six months immediately preceding the date of payment of the
dividends, and/or if the Philippine company is a BOI-registered enterprise engaged in preferred pioneer
areas of investment.

In view thereof, considering that Sumitomo Heavy Industries, Ltd. directly holds 99.998 % of the
outstanding and voting shares of SHI Designing and Manufacturing, Inc. for a period of six months before
the latter declared dividends, and considering further that the latter company is BOI-registered and
engaged in preferred pioneer areas of investment, the dividends to be paid by SHI Designing and
Manufacturing, Inc. to Sumitomo Heavy Industries, Ltd. are subject to 10 percent preferential tax rate,
pursuant to the RP-Japan tax treaty. (BIR Ruling No. DA-ITAD-164-02 dated August 06, 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. THcaDA

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 362
 March 30, 2004

ITAD RULING NO. 030-04

Article 12, RP-Japan Tax Treaty;

Section 108 & 109 of the Tax Code of 1997
CTA Case No. 6176
BIR Ruling No. 046-95
BIR Ruling No. ITAD 117-03

Nanox Philippines, Inc.

1E-5 Clark Premiere International Park
M.A. Roxas Highway
Clark Special Economic Zone
Clark Field, Pampanga

Attention: Mr. Katsuhiro Takahashi

Director/VP — Administration

Gentlemen :

This refers to your letter dated January 30, 2004, requesting to amend DA-ITAD Ruling No. 04-04
dated January 30, 2004 specifically the coverage of the VAT exemption on royalty payments made by
Nanox Philippines to Nanox Japan pursuant to a prior registration with the Clark Special Economic Zone
(CSEZ) as per Certificate of Registration and Tax Exemption (CORTE) No. 99-43 approved and issued on
July 26, 1999 by Clark Development Corporation (CDC).

It is represented that Nanox Japan is a non-resident foreign corporation duly organized and existing
under the laws of 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 as per certification dated December 22, 2003 issued by the
Securities and Exchange Commission (SEC); that Nanox Philippines is a domestic corporation duly
organized and existing under the laws of the Philippines and a Board of Investments (BOI)-registered
enterprise as per Certificate of Registration No. EP 99-079 dated July 19, 1999; that Nanox Philippines is
a CSEZ-registered enterprise as evidenced by CORTE No. 99-43 dated July 26, 1999, and as such, is
entitled to tax and duty free importation of capital goods, equipment, raw materials, and supplies and
household and personal items subject only to compliance with BIR regulations and such other laws on
export requirements, exemption from all local and national taxes including but not limited to exemption
from Corporate Withholding Taxes and Value-Added Taxes (VAT) as provided for in all Certificates
issued by the CDC, to wit: CORTE No: 2000-04 dated February 4, 2000, CORTE No. 2000-96 dated
October 25, 2000 and CORTE No 2002-004 dated December 3, 2002; that on April 1, 2000, Nanox
Philippines, in its desire to engage in the business of manufacturing and selling of liquid crystal display
products of Nanox Japan and to acquire the right to use the know-how and other technical information
relating thereto, entered into a Technical License and Management Service Agreement with Nanox Japan
whereby the latter shall grant Nanox Philippines a non-exclusive and non-assignable license, with no right
to grant sublicense, to manufacture and sell the aforementioned products of Nanox Japan within the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 363
 Philippines by using such know-how, and, management services relative thereto; that said Agreement shall
continue in full force for ten (10) years and shall be automatically renewed for another ten (10) year period
thereafter; that in consideration for the grant of such license and services, Nanox Philippines shall pay to
Nanox Japan a running royalty of two per cent (2%) of the net sales of the Licensed Products during the
same royalty period; that the term "net sales" refers to the invoiced amount of the Licensed Products sold
by Nanox Philippines; and that said Agreement is covered by Certificate of Compliance No. 5-2001-00029
issued by the Intellectual Property Office (IPO).

In reply, please be informed that under Section 108 of the National Internal Revenue Code of 1997,
the sale of services shall be subject to value-added tax (VAT). However, Section 109(q) of the Tax Code
of 1997 exempts from VAT transactions which are exempt under special laws. Republic Act (R.A.) No.
7227, otherwise known as the "BASES CONVERSION and DEVELOPMENT ACT (BCDA) OF 1992"
particularly Section 12(c) thereof provides, as follows:

"Section 12. Subic Special Economic Zone. —

xxx xxx xxx

(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding, no
taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying
taxes, three percent (3%) of the gross income earned by all business and enterprises within the Subic
Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the
local government units affected by the declaration of the zone in proportion to their population area,
and other factors. In addition, there is hereby established a development fund of one percent (1%) of
the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to
be utilized for the Municipality of Subic, and other municipalities contiguous to the base areas.
"(Emphasis supplied)

While the foregoing law applied only to Subic Special Economic Zone (SSEZ)-registered
enterprises, Executive Order (E.O.) No. 80 dated April 1993, however, has extended the coverage of the
said tax incentives to Clark Special Economic Zone (CSEZ)-registered enterprises. By virtue of the said
E.O., the Clark Development Corporation (CDC) was established as the implementing arm of the BCDA
to manage the CSEZ. [BIR Ruling No. 046-95 dated March 3, 1995; and C.T.A. Case No. 6176 dated
December 16, 2002] Section 5 of the said E.O. clearly provides that all the incentives (including tax
incentives) enjoyed by the SSEZ-registered enterprises shall also apply to CSEZ-registered enterprises, to
wit:

"Section 5. Investments Climates in the CSEZ. —

xxx xxx xxx

Among others, the CSEZ shall have all the applicable incentives in the Subic Special
Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991 and
new investments law which may hereinafter be enacted." (Emphasis supplied)

Moreover, Section 43 of the Rules and Regulations Implementing the Provisions Relative to the
Subic Special Economic and Free Port Zone and the Subic Bay Metropolitan Authority under R.A. No.
7227, and under Section 6(f) of Revenue Regulations No. 1-95, which applies to CSEZ-registered
enterprises by virtue of the said E.O. No. 80, provides that SBF-registered enterprises shall pay a final tax

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 364
 of five percent (5%) of gross income earned in lieu of paying taxes, thus:

"Section 43. Tax exemption. — SBF Enterprises shall be exempt from all national and local
taxes, including but not limited to the following:

xxx xxx xxx

In lieu of paying taxes, all SBF Enterprises shall pay a final tax of five (5%) percent of gross
income earned in accordance to breakdown specified and defined under Section 57 hereunder."

In view of all the above and pursuant to the additional representation that Nanox Philippines is a
CSEZ-registered enterprise since July 26, 1999, this Office is of the opinion and so holds that the subject
royalty payments by Nanox Philippines to Nanox Japan are not subject to VAT. This ruling is deemed
incorporated in DA-ITAD Ruling No. 04-04 to the extent that the herein VAT exemption applies to the
royalty payments of Nanox Philippines under the subject Technical License and Management Service
Agreement.

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. TAacIE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

March 29, 2004

ITAD RULING NO. 029-04

RP-Germany, Articles 2 and 11

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 365
 BIR Ruling No. ITAD-43-00

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Atty. C.P. Noel

Head, Tax Services

Gentlemen :

This refers to your letter dated March 5, 2004, on behalf of your client, Steag State Power, Inc.
(SPI, formerly known as State Power Development Corporation), requesting confirmation of your opinion
that the interest income to be paid by SPI to resident commercial banks of Germany, more specifically,
Bayerische Hypo-und Vereinsbank, AG (HVB), Dresdner Bank AG (Dresdner) and Kreditanstalt fur
Wiederaufbau (KfW), under the GKA Facility (Bundesgarantie für Direktinvestitionen im Ausland)
described hereunder, are exempt from Philippine income tax pursuant to Article 11(4) of the
Philippines-Germany tax treaty.

It is represented that SPI is a domestic corporation duly organized and existing under the laws of
the Philippines with principal office address at State Center II, Ortigas Avenue, Mandaluyong City; that on
June 27, 1998, as amended on March 2, 2001 and February 4, 2003, SPI and the National Power
Corporation (NPC) entered into and executed a Power Purchase Agreement (PPA) whereby SPI agreed to
build, operate and transfer to NPC a 200 MW coal-fired power plant to be located at the PHIVIDEC
Industrial Estate, Misamis Oriental, Mindanao; that under the terms of the PPA, SPI will construct the
power plant and operate the same during an agreed cooperation period of twenty-five (25) years; that the
cost of the project is currently estimated at US$305,000,000.00, to be funded by 70% debt and 30%
equity; that one of the loan facilities is a 100 Million Dollar Facility (the "GKA Facility") arranged by
HVB, Dresdner and KfW; that HVB, Dresdner and KfW are non-resident foreign banks duly organized and
existing under the laws of Germany; that they are not registered either as corporations or as partnerships
and have not been licensed to do business in the Philippines per certifications issued by the Securities and
Exchange Commission dated March 1, 2004 in the case of HVB and Dresdner, and March 10, 2004 in the
case of KfW; that the GKA Facility is a direct guarantee of the Federal Republic of Germany (GKA
Guarantee) and has been registered by PwC Deutsche Revision AG and assigned the GKA numbers 6753
and 6851, as certified by the Federal Ministry of Finance of Germany (Bundesministerium der Finanzen)
in its letter dated February 12, 2004; and that the GKA Guarantee will cover political risks and extended
breach of contract up to US$100,000,000.00 plus interest and will consist of an Extended Political Risk
Insurance (PRI) to be provided by the German government through Bundesschuldenverwaltung or the
Public Debt Management Agency of the Federal Republic of Germany.

In reply, please be informed that Article 11 of the Philippines-Germany tax treaty provides as
follows:

"Article 11

INTEREST

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 366
 may be taxed in that other State.

2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the law of that State, but the tax so charged shall not exceed:

a) 10 per cent if such interest is paid:

(i) in connection with the sale on credit of any industrial,

commercial or scientific equipment, or

(ii) on any loan of whatever kind granted by a bank, or

(iii) in respect of public issues of bonds, debentures or similar

obligations,

b) 15 per cent of the gross amount of such interest in all other cases.

"xxx xxx xxx"

4. Notwithstanding the provisions of paragraph 2 of this Article, interest arising in a

Contracting State shall be exempt from tax in that State if it is derived in respect of a loan made,
guaranteed or insured by a governmental instrumentality of the other Contracting State as by
"Hermes Deckung" in the case of the Federal Republic of Germany and by the Central Bank in the
case of the Republic of the Philippines, or any other instrumentality as is specified and agreed in
letters exchanged between the competent authorities of the Contracting States". (emphasis supplied)

"xxx xxx xxx"

In this connection, Article 3(l)(h) of the same treaty provides, viz:

"Article 3

GENERAL DEFINITIONS

1. In this Agreement, unless the context otherwise requires:

"xxx xxx xxx"

h) the term "competent authority" means in the case of the Federal

Republic of Germany the Federal Minister of Finance, and in the case of the
Republic of the Philippines the Minister of Finance or his authorized representative.

"xxx xxx xxx"

Based on the aforequoted. provisions, the interest paid to a resident of Germany will be taxed at a
preferential rate not exceeding 10 percent if the interest is paid in connection with the sale on credit of any
industrial, commercial or scientific equipment, or in respect of a loan of whatever kind granted by a bank,
or public issues of bonds, debentures or similar obligations, and in all other cases, 15 percent of the gross
amount of interest. However, if the interest income is derived in respect of a loan made, guaranteed or
insured by "Hermes Deckung" or any other government instrumentality of the Federal Republic of
Germany as specified and agreed in letters exchanged between the competent authorities of the
Contracting States, the interest income shall be exempt from Philippine income tax. For this purpose, the
competent authority for the Federal Republic of Germany is its Federal Ministry of Finance. (BIR Ruling
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 367
 No. ITAD-043-00 dated February 10, 2000)

Considering that the Federal Ministry of Finance, in its letter dated February 12, 2004, has certified
that the subject GKA Facility is a direct guarantee of the Federal Republic of Germany for the purpose of
invoking the exemption from withholding tax on interest income accorded under Article 11(4) of the same
treaty to benefit the resident German lenders of the GKA Facility, this Office is of the opinion and so
holds that the interest payments by SPI to HVB, Dresdner and KfW under the GKA Facility are exempt
from Philippine income tax pursuant to Article 11(4) of the Philippines-Germany tax treaty.

This ruling is issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed or discovered that the facts are different, then this ruling shall be without
force and effect insofar as the parties herein are concerned. SCETHa

Very truly yours,

(SGD.) GUILLERMO L. PARAYNO, JR.

Commissioner of Internal Revenue
Bureau of Internal Revenue

March 29, 2004

ITAD RULING NO. 028-04

Articles V (Permanent Establishment), VII (Business

Profits) and XXII (Royalties), Philippines-Canada tax treaty
BIR Ruling Nos. DA-ITAD 176-02 and
DA-ITAD 14-04

The Prumerica Life Insurance Company, Inc.

34th Floor, Tower I, the Enterprise Center
6766 Ayala Avenue corner Paseo de Roxas
Makati City

Attention: Mr. Lope Jose U. Garde, Jr.

Senior Vice President and Chief Actuary
Officer-in-Charge for Finance
Ms. Maria Victor G. San Luis

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 368
 Finance Manager

Gentlemen :

This refers to your letter dated February 5, 2004 requesting confirmation that royalty payments
made by The Prumerica Life Insurance Company, Inc. (Prumerica) to Insurance Software Solutions
Corporation (Insurance Software) are subject to the preferential income tax rate under the existing
Philippines-Canada tax treaty.

It is represented that Insurance Software is a foreign company engaged in the licensing and
developing of certain computer programs and the provision of certain services for businesses in the
insurance industry; that Insurance Software is organized and existing under the laws of Canada with
principal office at 5925 Airport Road, Mississauga, Ontario, Canada; that Insurance Software is not
registered either as a corporation or as a partnership and has not been licensed to engage in business in the
Philippines as confirmed by a Certification of Non-Registration issued by the Securities and Exchange
Commission on January 8, 2004; that Prumerica, on the other hand, is a domestic company engaged in the
provision of insurance and financial products and services in the business and consumer markets; that
Prumerica is organized and existing under the laws of the Philippines with principal office at 34th Floor,
Tower I, the Enterprise Center, 6766 Ayala Avenue corner Paseo de Roxas, Makati City, Philippines; that
Prumerica is an Affiliate 1 of The Prudential Insurance Company of America (Prudential), a foreign
company also engaged in the provision of insurance and financial products and services in the business
and consumer markets; that Prudential is organized and existing; under the laws of the United States of
America with principal office at 80 Livingstone Avenue, Roseland, New Jersey, United States of America.

The Master License and Services Agreement between Prudential and Insurance Software

That on August 31, 1997, Prudential and Insurance Software entered into a Master License and
Services Agreement (Master Agreement), where Insurance Software has granted Prudential and its
Affiliates a license to use, copy, and modify Insurance Software's Systems 2 for the use in Prudential's and
the Affiliates' insurance business; that aside from the license, Insurance Software, shall also provide
Prudential and its Affiliates services relevant to the application of the Systems; that in order for an
Affiliate to be entitled to the license and the services under the Master Agreement, that Affiliate, on its
own behalf, must enter into a supplementary agreement (Attachment) with Insurance Software.

The Attachment between Prumerica and Insurance Software

That on September 21, 1998, Prumerica, an Affiliate, entered into an Attachment with Insurance
Software, where Insurance Software has granted Prumerica a license to use, copy, and modify Insurance
Software's Systems for the use in Prumerica's insurance business; that these Systems (software) comprise
of the Base Programs (INGENIUM Release 5.5.2), and (if Prumerica so prefers) the Additional Programs
(Apex Release 1.2) and the Modifications made on these two Programs; that aside from the license,
Insurance Software shall also provide Prumerica the following services relevant to the application of the
Programs: (1) Development Services; (2) Interface Services; (3) Data Conversion Services; (4)
Maintenance Services; (5) Training Services; and (6) Consulting and Other Additional Services; and that
the cost of the license and the services are as follows:

1. Base Programs
a) INGENIUM Version 5.5 License Fee $400,000

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 369
 b) INGENIUM Consulting Services Payment Schedule
Programmer Analyst $95/hour
Senior Programmer Analyst $115/hour
Business Analyst $115/hour
Senior Business Analyst $140/hour
Senior Application Specialist $140/hour
Director, Insurance Consulting $150/hour
Project Manager or Corporate Consultant $170/hour
Senior Management $200/hour
c) INGENIUM Maintenance Fee $60,000 per year
2. Additional Programs

APEX License Fee can be determined upon delivery of the software.

Licensee fees as royalties

In reply, please be informed that the license fees paid by Prumerica to Insurance Software for the
use of the Base Programs, the Additional Programs, and the Modifications made thereon, being payments
for software, are royalties for the use or the right to use of a copyright, as mentioned in paragraph 3,
Article XII (Royalties) of the Philippines-Canada tax treaty and in the recent Revenue Memorandum
Circular No. 77-2003 dated November 18, 2003, to wit:

Philippines-Canada tax treaty:

"3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright, patent, trademark, design or model,
plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or
scientific equipment, or for information concerning industrial, commercial or scientific experience,
and includes payments of any kind in respect of motion picture films and works on films or
videotapes for use in connection with television."(emphasis supplied)

Revenue Memorandum Circular No. 77-2003:

"Software is generally assimilated as a literary, artistic or scientific work protected by the

copyright laws of various countries including the Philippines, thus, payments in consideration for the
use of, or the right to use, a copyright or a copyrighted article relating to software are generally
royalties." (emphasis supplied) DAETcC

Being royalties, the subject license fees are subject to the preferential income tax rate under
paragraph 2(b), Article XII (Royalties) of the Philippines-Canada tax treaty, to wit:

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

2. Such royalties may also be taxed in the Contracting State in which they arise, and
according to the law of that State. However, the tax so charged shall, provided that the royalties are
taxable in the other Contracting State, not exceed

a) in Canada, 10 per cent of the gross amount of the royalties, and

b) in the Philippines, the lesser of

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 370
 (i) 25 per cent of the gross amount of the royalties, and

(ii) the lowest rate of Philippine tax that may be imposed on

royalties of the same kind paid in similar circumstances to a resident of a
third State."

Based on the abovequoted paragraph 2(b), royalties arising in the Philippines and derived by a
resident of Canada shall be subject to an income tax rate of 25 percent of the gross amount of the royalties,
or to the lowest rate of Philippine income tax that may be imposed on royalties of the same kind paid
under similar circumstances to a resident of a third State (also known as the most favored nation tax
treatment on royalties).

Regarding the most favored nation tax treatment on royalties, the Supreme Court, in Commissioner
of Internal Revenue vs. S.C. Johnson and Son Inc. and Court of Appeals (G. R. No. 127105 dated June 25,
1999), has cited two conditions in order for royalties arising in the Philippines and derived by a resident of
another country (in this case, Canada) to be subject to the most favored nation tax treatment (in this case, a
rate lower than 25 percent) as that granted by the Philippines to a resident of a third country under an
existing tax treaty. First, the Court noted that the royalties arising and subject to tax in the Philippines and
derived by a resident of Canada must be of the same nature as those derived by a resident of the third
country. Second, the Court stressed that the mechanism for relieving double taxation of income employed
by Canada with respect to royalties arising in the Philippines and derived by a resident of Canada must be
the same with that employed by the third country with respect to royalties arising in the Philippines and
derived by a resident of the third country.

In looking for existing Philippine tax treaties that provide a most-favored nation tax treatment on
royalties, it is noteworthy to take into account and use as basis the treaties with Denmark, Finland,
Malaysia and the United Kingdom. Under the Royalties article of these treaties, royalties for the use or the
right to use of a copyright, to which payments for software are assimilated as, arising in the Philippines
and derived by a resident of each of the countries mentioned are subject to an income tax rate not
exceeding 15 percent of the gross amount of the royalties. On the other hand, under the Relief from
Double Taxation article of these treaties, the mechanism for relieving double taxation of income arising in
the Philippines and derived by a resident of each of the countries is the ordinary credit method, similar
with that of Canada. Under this method, only income taxes actually paid by a resident taxpayer with
respect to income derived from foreign sources are allowed as credit against the taxpayer's taxable income
subject to certain limitations.

Such being the case, this Office is of the opinion and so holds that the license fees paid by
Prumerica to Insurance Software for the use of the Base Programs, the Additional Programs, and the
Modifications made thereon, being royalties, shall be subject to a preferential income tax rate of 15
percent of the gross amount thereof. (BIR Ruling No. ITAD 14-04 dated February 20, 2004)

Payments for services as business profits

On the other hand, please be informed that the service fees relevant to the application of the
Programs paid by Prumerica to Insurance Software are business profits subject to taxation under
paragraph 1, Article VII (Business Profits) of the Philippines-Canada tax treaty:

''1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 371
 establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to:

a) that permanent establishment; or

xxx xxx xxx"

Based on the abovequoted paragraph 1, business profits, arising in the Philippines and derived by
an enterprise of Canada shall be subject to Philippine income tax if they are attributable to a permanent
establishment which the enterprise has in the Philippines; otherwise such profits are exempt. The term
"permanent establishment," as defined in paragraphs 1 and 2, Article V (Permanent Establishment) of the
Philippines-Canada tax treaty, means a fixed place of business through which the business of an enterprise
is wholly or partly carried on, which includes, for example, a place of management, a branch, and an
office.

Accordingly, since Insurance Software does not have a fixed place of business in the Philippines, as
confirmed by the relevant Certificate of Non-Registration issued by the Securities and Exchange
Commission, so as to constitute its permanent establishment in the Philippines, the service fees paid by
Prumerica to Insurance Software relevant to the application of the Programs, being business profits, shall
be exempt from Philippine income tax. This is further affirmed by the fact that, unlike the majority of
other Philippine tax treaties, the Philippines-Canada tax treaty (especially the Permanent Establishment
article thereof), apparently however, does not have a provision on the furnishing of services as constituting
a permanent establishment for the enterprise doing it in a source-country for a considerable period like 183
days. (BIR Ruling No. ITAD 176-02 dated October 9, 2002)

It should be noted in this regard that the subject service fees exempt from income tax include only
that part of the fees that represents as income of the Insurance Software itself. On the other hand, the part
that represents as remuneration of the personnel themselves who will perform the services is not covered
by the exemption, where taxation of such remuneration is governed separately under Article XV
(Dependent Personal Services) of the tax treaty, to wit:

"1. Subject to the provisions of Articles XVI, XVIII and XIX, salaries, wages and other
similar remuneration derived by a resident of a Contracting State in respect of an employment shall be
taxable only in that State unless the employment is exercised in the other Contracting State. If the
employment is so exercised, such remuneration as is derived therefrom may be taxed in that other
State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a

Contracting State in respect of an employment exercised in the other Contracting State shall be
taxable only in the first-mentioned State if the recipient is present in the other Contracting State for a
period or periods not exceeding in the aggregate 183 days in the calendar year concerned, and either

a) the remuneration earned in the other Contracting State in the calendar

year concerned does not exceed two thousand five hundred Canadian dollars
($2,500) or its equivalent in Philippine pesos or such other amount as may be
specified and agreed in letters exchanged between the competent authorities of the
Contracting States; or

b) the remuneration is paid by, or on behalf of an employer who is not a

resident of the other State, and such remuneration is not borne by a permanent
establishment or a fixed base which the employer has in the other State."
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 372
 Based on the abovequoted paragraph 1, the remuneration of the concerned personnel are generally
subject to Philippine income tax. However, such remuneration shall be exempt from income tax if,
primarily, the concerned personnel is present in the Philippines for a period not exceeding in the aggregate
183 days in the relevant calendar year and, either, (1) the entire remuneration during that year does not
exceed 2,500 Canadian dollars (or its equivalent in Philippine pesos), or (2) the remuneration is paid by,
or on behalf of, an employer who is not a resident of the Philippines, and is not borne by a permanent
establishment which Insurance Software has in the Philippines.

Value-added tax

Finally, Section 108(A)(1) of the Tax Code states that "the lease or the use of the right or privilege
to use of any copyright" and "the supply of any assistance that is ancillary and subsidiary and is furnished
as a means of enabling the application or enjoyment of such copyright" both fall within the definition of
sale or exchange of services subject to 10 percent value-added tax (VAT). Accordingly, the subject license
fees and service fees paid by Prumerica to Insurance Software are subject to 10 percent VAT. (BIR Ruling
Nos. ITAD 176-02 dated October 9, 2002 and ITAD 14-04 dated February 20, 2004)

As regards the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations 4-2000, Section 3 of Revenue Regulations 8-02, and Section 7 of Revenue Regulations
14-2002, altogether state that Prumerica, the resident person making the payments, shall be responsible for
the withholding of the 10 percent VAT on such payments before remitting them to Insurance Software. In
remitting to the Bureau of Internal Revenue the VAT withheld on such payments, Prumerica shall use BIR
Form 1600 (Monthly Remittance Return of VAT and Other Percentage Taxes Withheld). If a
VAT-registered taxpayer, Prumerica may use as documentary substantiation for its claim of input VAT
the duly filed BIR Form 1600 and the proof of payment accompanying it. If not a VAT-registered
taxpayer, Prumerica may include as part of the cost of the license granted and the services furnished to it
by Insurance Software, the VAT consequently shifted or passed on to it by Insurance Software and may
treat such VAT either as expense or asset, whichever is applicable. In addition, upon Insurance Software's
request, Prumerica is required to issue in quadruplicate the relevant Certificate of Final Tax Withheld at
Source (BIR Form 2306), the first, second and third copies to be kept by Prumerica and the fourth copy by
Insurance Software.

The Settlement Agreement between Prumerica and Insurance Software

Finally, it is represented that on November 30, 2001, Prumerica and Insurance Software entered
into a Settlement Agreement, where both parties acknowledged and agreed that there had been a dispute in
the effectiveness, timeliness and associated cost of the services and modifications provided by Insurance
Software to Prumerica; that both parties intended and agreed that all such disputes be resolved as follows;
first, that all services and modifications provided by Insurance Software commencing on the date of
effectivity of the Attachment on September 21, 1998 and concluding on the resolution date of the
Settlement Agreement on November 30, 2001 shall be considered successfully acceptable to Prumerica,
and that neither party may soon raise as a dispute any claims as to the acceptability of such services and
modifications; second, that Insurance Software shall release Prumerica from any and all outstanding
indebtedness (including fees, invoices, associated costs and expenses related thereto) it may have to
Insurance Software with respect to the services, modifications, and any other services and deliverables
provided by or performed by, or failed to be provided by or performed by, Insurance Software prior to the
resolution date of the Settlement Agreement; and third, that as full settlement and release of all claims for
outstanding indebtedness, Prumerica shall pay Insurance Software a settlement fee of $259,905.60,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 373
 broken down as follows: (1) for license fee for INGENIUM — $75,000.00; (2) for disputed functional
specification work — $81,773.60; (3) for disputed installation work — $13,775.00; (4) for disputed
technical assistance work — $42,390.00; (5) for disputed base fix retrofit work — $46,967.00.

As regards the tax treatment of the settlement fee, please be informed that the part of that fee that
represents as license fees shall be taxed in the same manner as royalties and that part that represents as
service fees shall be taxed in the same manner as business profits.

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. cDaEAS

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Footnotes
1. Affiliate(s) shall mean any entity in which Prudential has, directly or indirectly, a sufficient voting interest
so as to ensure that significant actions by such entity cannot be taken without Prudential's affirmative
consent.
2. System(s) shall mean each system comprised of the applicable Base Programs, Modifications and any other
computer programs, in executable code, object code and source code form, and any Documentation thereto,
licensed or developed under a particular Attachment.
Base Programs shall mean the computer programs, in executable code, object code and source code form,
and any Modifications and Documentation thereto, as described in the Attachments, licensed to Prudential
and to a particular Affiliate, as applicable.
Modification shall mean any update, modification, enhancement, customization, addition, correction, new
version or new release (all in source code and object code form) to the applicable Base Programs, and any
Documentation thereto, including without limitation, the applicable Country-Generic Modifications,
Prudential-Specific Modifications and other Modifications set forth in the Attachments, and any
Documentation thereto.
Documentation shall mean source code, file layouts, report layouts, screen layouts, program narratives, user
instructions, user manuals, technical manuals, operator instruction manuals, any applicable reference
manuals, training manuals and any other written material describing the operations, functions or
performance of a particular System, or any part thereof.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 374
 March 25, 2004

ITAD RULING NO. 027-04

Articles 5 & 8, RP-US tax treaty

Articles 5 & 7, RP-Japan tax treaty
Articles 5 & 7, RP-UK tax treaty
Articles 5 & 7, RP-China tax treaty
Articles 5 & 7, RP-Netherlands tax treaty
Republic Act No. 7916
Sections 27(A) & (E), 107, and 108, Tax Code of 1997
Section 4.100-2 (a) (5), Revenue Regulations No. 7-95
BIR Ruling No. ITAD-170-02
BIR Ruling No. ITAD-182-00
VAT Ruling. No. 001-00
VAT Ruling No. 011-98

Punongbayan & Araullo

20th Floor, Tower 1, The Enterprise Center
6766 Ayala Avenue
1200 Makati City

Attention: Maria Victoria C. Españo

Tax Partner

Gentlemen :

This refers to your application for relief from double taxation dated January 26, 2004, on behalf of
your client, Intel Technology Phils. Inc. (ITPI), requesting confirmation of your opinion that:

1) any business profits to be derived by Intel Corporation (IC) and the Intel-Selling Entities
enumerated below, all non-resident foreign corporations, from the proposed sales structure hereunder
described, are not taxable due to the absence of a permanent establishment (PE) in accordance with the
provisions of the pertinent Philippine tax treaties;

2) the sale of goods by IC to the Intel Selling Entities and the sale by the latter to customers
located in special economic zones registered with the Philippine Economic Zone Authority (PEZA) and
Subic Bay Metropolitan Authority (SBMA) are exempt from VAT;

3) the sale of goods by the Intel Selling Entities to customers/buyers outside the economic zones

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 375
 shall be considered importation subject to VAT on the part of the importer-customer;

4) the income derived by ITPI from picking, packing and shipping services to be provided to
Intel-Selling Entities will be subject to the normal corporate income tax at 32% tax rate; and

5) the income received by ITPI are zero-rated for VAT purposes.

It is represented that IC is a non-resident foreign corporation duly organized and existing under the
laws of the United States of America (USA); that IC is licensed to establish a regional or area headquarters
(RHQ) in the Philippines per Certificate of Registration and License dated January 23, 1978 issued by the
Securities and Exchange Commission (SEC); that the activities of the RHQ are limited to acting as
supervision, communication and coordination center for its affiliates, subsidiaries or branches in the
Asia-Pacific Region; that IC decided not to operate the RHQ, as such, it has not performed any business
activity; that IC consigns goods to ITPI for assembly and test processing; that ITPI is domestic corporation
organized and existing under Philippine laws registered with the PEZA; that the Intel-Selling Entities are
non-resident foreign corporations not registered either as corporations or as partnerships and have not been
licensed to do business in the Philippines per certifications issued by the Securities and Exchange
Commission (SEC) all dated January 22, 2004; that under the service agreement between IC and ITPI, IC
retains ownership over the raw materials consigned to ITPI; that ITPI does not have the power to
contractually bind IC in any manner; that all decisions and strategies relating to the sale of the finished
goods remain with IC; that for the assembly and testing services, IC shall pay ITPI an agreed service fee
set at arm's length basis; that after the consigned goods have been assembled and tested by ITPI, based on
worldwide business plans, IC is planning to sell the assembled and tested goods to its different affiliates
(herein collectively referred to as "Intel-Selling Entities"), which the latter, in turn, subsequently sell the
goods to their respective third-party customers around the world, including the Philippines; that the
Intel-Selling Entities, with their respective country of residence, are as follows:

Company Name Country of Residence

Intel Americas, Inc. United States of America
Intel Services APAC, Inc. United States of America
Intel Technologies, Inc. United States of America
Intel Mediterranean Trading United States of America
Intel Kabushiki Kaisha Japan
Intel Trading (Shanghai) Ltd. China
Intel Trading (Shenzen) Ltd. China
Intel Corp. (UK) Ltd. United Kingdom
Intel International B.V. Netherlands
It is further represented that for goods intended to be sold to customers in the Philippines, the
Intel-Selling Entities will implement a Direct Delivery arrangement whereby they will give orders for the
goods that they purchased from IC, after the goods have been assembled and tested by ITPI, to be
delivered directly to the local customers; that for this purpose, each of the Intel-Selling Entities will
contract ITPI to handle the picking, packing and shipping services of the goods for which ITPI will be
compensated by the Intel-Selling Entities at arm's length rate; that ITPI does not have the authority to
conclude contracts with customers in the name or on behalf of the Intel-Selling Entities; and that the
assembled and tested goods sold by IC to the Intel-Selling Entities will stay with ITPI only for a brief
period of time long enough for them to be packed and shipped to the customers.

In reply, this Office is of the opinion and so holds:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 376
 Whether the business profits to be derived by IC and the Intel-Selling Entities from the proposed
sales structure described above, are not taxable in the Philippines due to the absence of a PE in
accordance with the provisions of the pertinent Philippine tax treaties

The income tax consequences of the above proposed sales structure to IC and Intel-Selling Entities
shall be governed primarily by the pertinent provisions of the applicable Philippine tax treaty. As for the
residents of the United States, which include IC, Intel Americas, Inc., Intel Technologies, Inc., Intel
Mediterranean Trading and Intel Services APAC, Inc., the Philippines USA tax treaty shall apply.
Similarly, for Intel Kabushiki Kaishia and Intel Corp. (UK) Ltd., the Philippines-Japan and
Philippines-United Kingdom tax treaties apply, respectively and in the case of Intel Trading (Shanghai)
Ltd. and Intel Trading (Shenzhen) Ltd., the Philippines-China tax treaty, and for Intel International B.V.,
the Philippines-Netherlands tax treaty, to wit: TCacIE

Philippines-United States tax treaty

"Article 8

"BUSINESS PROFITS

"(1) Business profits of a resident of one of the Contracting States shall be taxable only in
that State unless the resident has a permanent establishment in the other Contracting State. If the
resident has a permanent establishment in that other Contracting State, tax may be imposed by that
other Contracting State on the business profits of the resident but only on so much of them as are
attributable to the permanent establishment.

"xxx xxx xxx"

"Article 5

"PERMANENT ESTABLISHMENT

"(1) For the purpose of this Convention, the term 'permanent establishment' means a fixed
place of business through which a resident of one of the Contracting States engages in a trade or
business."

"(2) The term 'fixed place of business' includes but is not limited to:

(a) A seat of management;

(b) A branch;

(c) An office;

(d) A store or other sales outlet;

(e) A factory;

(f) A workshop;

(g) A warehouse;

(h) A mine, quarry, or other place of extraction of natural resources;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 377
 (i) A building site or construction or assembly project or supervisory
activities in connection therewith, provided, such site, project or activity continues
for a period of more than 183 days; and

(j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or connected project) within the other
Contracting State for a period or periods aggregating more than 183 days.

"xxx xxx xxx"

"(4) A person acting in one of the Contracting States on behalf of a resident of the other
Contracting State, other than an agent of an independent status to whom paragraph (5) applies, shall
be deemed to give rise to a permanent establishment in the first-mentioned Contracting State if —

(a) Such person has, and habitually exercises in the first-mentioned

Contracting State, an authority to conclude contracts in the name of that resident,
unless the exercise of such authority is limited to the purchase of goods or
merchandise for that resident; or

(b) He has no such authority, but habitually maintains in the first-mentioned

State a stock of goods or merchandise from which he regularly delivers goods and
merchandise on behalf of the resident.

"(5) A resident of one of the Contracting States shall not be deemed to have a permanent
establishment in the other Contracting State merely because such resident carries on business in that
other Contracting State through a broker, general commission agent, or any other agent of an
independent status, where such broker or agent is acting in the ordinary course of his business.
However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that
resident, he shall not be considered an agent of independent status within the meaning of this
paragraph if the transactions between the agent and the resident were not made under arms length
conditions.

"xxx xxx xxx."

Philippines-Japan tax treaty

"Article 7

(1) The profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits
of the enterprise may be taxed in that other Contracting State but only so much of them as is
attributable to that permanent establishment.

"xxx xxx xxx."

"Article 5

(1) For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 378
 (2) The term "permanent establishment" includes especially:

a) a store or other sales outlet;

b) a branch;

c) an office;

d) a factory;

e) a workshop;

f) a warehouse;

g) a mine, an oil or gas well, a quarry or other place of extraction of natural

resources.

(3) A building site or construction or installation project constitutes a permanent

establishment only if it lasts more than six months.

"xxx xxx xxx."

(7) An enterprise of a Contracting State shall not be deemed to have a permanent

establishment in the other Contracting State merely because it carries on business in that other
Contracting State through a bona fide broker, general commission agent or any other agent of an
independent status, provided that such persons are acting in the ordinary course of their business.

"xxx xxx xxx."

Philippines-United Kingdom tax treaty

"Article 7

BUSINESS PROFITS

(1) The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State but only so much of them as is directly or indirectly
attributable to that permanent establishment.

"xxx xxx xxx."

"Article 5

PERMANENT ESTABLISHMENT

(1) For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

(2) The term "permanent establishment" shall include especially;

a) a place of management;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 379
 b) a branch;

c) an office;

d) a factory;

e) a workshop;

f) a mine, oil well, quarry or other place of extraction of natural resources;

g) an installation or structure used for the exploration of natural resources;

h) a building site or construction or assembly project which exists for more

than 183 days.

3) An enterprise of a Contracting State shall likewise be deemed to have a permanent

establishment in the other Contracting State if:

a) it carries on supervisory activities within that other Contracting State for

more than 183 days in connection with a building site, or a construction or assembly
project which is being undertaken, in that other Contracting State; or

b) it furnishes services, including consultancy services, in that other

Contracting State through its employees or other personnel (other than agents of an
independent status within the meaning of paragraph 7 of this Article) for a period
exceeding in the aggregate 183 days within any twelve-month period.

"xxx xxx xxx."

(7) An enterprise of a Contracting State shall not be deemed to have a permanent

establishment in the other Contracting State merely because it carries on business in that other State
through a broker, general commission agent or any other agent of an independent status, where such
persons are acting in the ordinary course of their business. However, when the activities of such an
agent are devoted wholly or almost wholly on behalf of that enterprise, he shall not be considered an
agent of an independent status within the meaning of this paragraph.

Philippines — China tax treaty

"Article 7

BUSINESS PROFITS

(1) The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State, but only so much of them as is attributable to that
permanent establishment.

"xxx xxx xxx."

"Article 5

PERMANENT ESTABLISHMENT

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 380
 (1) For the purposes of this Agreement, the term "permanent establishment" means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.

(2) The term "permanent establishment" includes especially:

a) a place of management;

b) a branch;

c) an office;

d) a factory;

e) a workshop; and

f) a mine, an oil or gas well, a quarry or any other place of extraction of

natural resources.

(3) The term "permanent establishment" likewise encompasses:

a) a building site, a construction, assembly or installation project or

supervisory activities in connection therewith, but only where such site, project or
activities continue for a period of more than 6 months.

b) an installation, drilling rig or ship used for the exploration of natural

resources; but only if so used for a period of more than three months; and

c) the furnishing of services, including consultancy services, by an

enterprise through employees or other personnel engaged by the enterprise but only
where activities of that nature continue (for the same or a connected project) within
the country for a period or periods aggregating more than 6 months within any
twelve-month period.

"xxx xxx xxx."

(6) An enterprise of a Contracting State shall not be deemed to have a permanent

establishment in the other Contracting State merely because it carries on business in that other State,
though a broker, general commission agent or any other agent of an independent status, provided that
such persons are acting in the ordinary course of their business. ETDAaC

Philippines — Netherlands tax treaty

"Article 7

BUSINESS PROFITS

(1) The profits of an enterprise of one of the States shall be taxable only in that State unless
the enterprise carries on business in the other State through a permanent establishment situated therein
if the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other
State but only so much of them as is attributable to that permanent establishment.

"xxx xxx xxx."

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 381
 "Article 5

PERMANENT ESTABLISHMENT

(1) For the proposes of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

(2) The term "permanent establishment" includes especially:

a) a place of management,

b) a branch;

c) an office;

d) a factory;

e) a workshop;

f) a mine, quarry or other place of exploration or extraction of natural

resources;

g) a building site or construction or assembly project or supervisory

activities in connection therewith, where such site, project or activity continues for a
period of more than 183 days;

h) the furnishing of services including consultancy services by an

enterprise through an employee or other personnel where activities of that nature
continue (for the same or a connected project) for a period or periods exceeding in
the aggregate 183 days within any twelve-month period.

"xxx xxx xxx."

(6) An enterprise of one of the States shall not be deemed to have a permanent establishment
in the other State merely because it carries on business in that other State through a broker, general
commission agent or any other agent of an independent status, where such persons are acting in the
ordinary course of their business."

Based on the above-quoted provisions, the income of IC and the Intel-Selling Entities shall be
taxable in the Philippines only if they are deemed to have a permanent establishment situated in the
Philippines as defined under the above Philippine tax treaties.

As regards IC, paragraph 2 of the Philippines-United States tax treaty contains a list, by no means
exhaustive, of examples, each of which constitutes a permanent establishment. As these examples are to be
seen against the background of the general definition given in paragraph l, it is assumed that the
Contracting States (i.e., the Philippines and the United States of America) interpret the terms listed in such
a way that such places of business constitute permanent establishments only if they meet the requirements
or conditions of paragraph 1, to wit: (1) the existence of a "place of business," i.e., a facility such as
premises; (2) this place of business must be "fixed," i.e., it must be established at a distinct place with a
certain degree of permanence; (3) the carrying on of the business of the enterprise through this fixed place
of business. 1 Inasmuch as IC neither has any fixed base of business in the Philippines to which its
business profits or income is attributable nor will send its employees for a period that will constitute
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 382
 permanent establishment, IC shall not be deemed to have a permanent establishment in the Philippines to
which its income may be attributed to. Likewise, ITPI shall not be considered a dependent agent of IC
under paragraph 5 supra as the compensation that IC pays for ITPI's assembly and testing services is set at
arm's length. Accordingly, the income of IC under the proposed sale structure shall not be subject to
income tax in the Philippines, pursuant to Article 8 in relation to Article 5 of the RP-US tax treaty. (BIR
Ruling No. ITAD-170-02 dated October 2, 2002)

On the other hand, pursuant to the pertinent provisions of the above Philippine tax treaties with the
United States, Japan, China, United Kingdom and The Netherlands, the Intel-Selling Entities also are not
deemed as having a permanent establishment in the Philippines because the requirements or conditions of
paragraph 1 of Article 5 of respective abovementioned tax treaties defining the term "permanent
establishment" are not present. Under the proposed structure, neither of the Intel-Selling Entities will
maintain fixed place of business in the Philippines nor will any of them send employees or other personnel
in the Philippines for a period that would otherwise constitute a permanent establishment. Moreover, ITPI
will not habitually maintain a stock of goods or merchandise from which ITPI may regularly deliver goods
or merchandise on behalf of the Intel-Selling Entities, a circumstance that would constitute ITPI a
permanent establishment, since the assembled and tested goods sold by IC to the Intel-Selling Entities will
stay with ITPI only for a brief period of time long enough for them to be packed and shipped to the
customers. In addition, ITPI cannot also be considered a permanent establishment because ITPI does not
have the authority to conclude contracts with customers in the name or on behalf of the Intel-Selling
Entities and is not deemed a broker nor an agent of the Intel-Selling Entities as the services to be
performed by ITPI are limited only to picking, packing and shipping. Accordingly, the income to be
derived by the Intel-Selling Entities under the proposed sale structure shall not be subject to income tax in
the Philippines. (BIR Ruling No. ITAD-182-00 dated December 6, 2000 and BIR Ruling No. ITAD-170-02
dated October 2, 2002)

Whether the sale of goods by IC to the Intel Selling Entities and the sale by the latter to customers located
in special economic zones registered with PEZA and SBMA are exempt from VAT

The Philippines' Value-Added Tax (VAT) law adheres to the Cross Border Doctrine or the
Destination Principle, hence, onus of taxation under our VAT system is in the country where the goods,
property or services are destined, used or consumed. For this reason, no VAT shall form part of the cost
component of products which are destined for consumption outside of the territorial border of the
Philippines. Conversely, those destined for use or consumption within the Philippines shall be subject to
the ten percent (10%) VAT. Accordingly, since the goods to be sold by IC to the Intel-Selling Entities,
both non-resident corporations, will be sold to PEZA and SBMA-registered enterprises located in
Economic Zones, whose sales are ultimately destined for export to foreign, countries, the sales of IC to
Intel-Selling Entities and the sales by the latter to PEZA and SBMA registered enterprises, under the
proposed sale structure, shall be exempt from VAT. (VAT Ruling No. 001-00 dated January 6, 2000)

Whether the sale of goods by the Intel-Selling Entities to customers outside economic zones are considered
importation subject to VAT on the part of the importer-customer

Republic Act (RA) 7916, as amended by R.A. 8748, otherwise known as "The Special Economic
Zone Act of 1995" (PEZA Law), provides that products manufactured by Economic Zone (ECOZONE)
registered enterprises are generally to be exported to foreign countries. Nonetheless, Section 26, RA 7916
as implemented by Sec. 2, Rule VIII, PART V of the PEZA Implementing Rules and Regulations,
provides, viz:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 383
 "PART V. Tax Treatment of Merchandise in the ECOZONES

"Rule VIII. Tax Treatment of Merchandise in the Restricted Areas of the ECOZONES

"xxx xxx xxx."

"Section 2. Domestic Merchandise. — Domestic Merchandise sent from the restricted areas
of the ECOZONES by registered Export or Free Trade Enterprises to the customs territory shall,
whether or not combines with or made part of other articles likewise the growth, product or
manufacture of the Philippines while in the ECOZONES subject to the internal revenue laws of the
Philippines as domestic goods sold, transferred or disposed of for local consumption."

Under the above-cited provisions, the sale, transfer or introduction of ECOZONE registered
enterprises of products from ECOZONES into the Philippine domestic market, otherwise known as the
"Customs Territory" (Sec. 3 (f) R.A. 7916), shall be treated as a "technical importation" into the
Philippines by the buyer, in which case, such buyer, rather than the ECOZONE registered enterprise or
seller, shall be responsible for the tax imposed. Accordingly, the buyer shall be technically treated as the
importer thereof who shall be personally liable for the tax, more particularly to the VAT on importation
imposed under Section 107 of the Tax Code of 1997. (VAT Ruling No. 001-00 dated January 6, 2000)

Be that as it may, in case the ECOZONE products are purchased by a Board of Investments
(BOI)-registered enterprise as raw materials, through a customs bonded manufacturing warehouse, the
importation thereof shall be exempt from VAT under Section 4.100-2(a)(5) of Revenue Regulations No.
7-95. This is so because the customs bonded manufacturing warehouse is removed from the jurisdiction of
the Philippines customs territory and, therefore, the subject importation is deemed not to have entered the
Philippines customs territory and never considered introduced into Philippine Commerce. (VAT Ruling
No. 011-98 dated March 4, 1998)

Whether the net income derived by ITPI from picking, packing and shipping services to be provided to
Intel-Selling Entities will be subject to the normal corporate income tax at 32% tax rate

Section 27(A) and (E) of the Tax Code of 1997 provides as follows:

"SEC. 27. Rates of Income Tax on Domestic Corporations. —

"(A) In General. — Except as otherwise provided in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the taxable income derived during each taxable year from all
sources within and without the Philippines by every corporation, as defined in Section 22(B) of this
Code and taxable under this Title as a corporation, organized in, or existing under the laws of the
Philippines; Provided, That effective January 1, 1998, the rate of income tax shall be thirty-four
percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and effective
January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).

"xxx xxx xxx."

"(E) Minimum Corporate Income Tax on Domestic Corporations. —

"(1) Imposition of Tax. — A minimum corporate income tax of two percent (2%) of the gross
income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable
under this Title, beginning on the fourth taxable year immediately following the year in which such
corporation commenced its operations, when the minimum income tax is greater than the tax

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 384
 computed under Subsection (A) of this Section for the taxable year.

"xxx xxx xxx."

The corporate income tax to be paid by ITPI for the services it renders to the Intel-Selling Entities
shall either be the Minimum Corporate Income Tax (MCIT) of two percent (2%) of its gross income as
defined by the Tax Code of 1997, or the thirty two (32%) of its taxable income, whichever is higher. For
this purpose, the comparison between the normal income tax payable by the corporation and the MCIT
shall be made at the end of the taxable year.

It is noteworthy that the foregoing rule shall apply to ITPI notwithstanding ITPI, being a
PEZA-registered enterprise, is subject to the five percent (5%) tax on its gross income from its registered
activities under the PEZA law. This is because the PEZA registration of ITPI pertains only to the assembly
and testing of microprocessor electronic integrated circuits (PENTIUM) and does not cover income
derived from picking, packing and shipping services rendered to the Intel-Selling Entities.

Whether the sale of picking, packing and shipping services by ITPI to the Intel-Selling Entities is subject
to zero percent (0%) VAT

Section 108 of the Tax Code of 1997 provides, viz:

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —

"(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.

xxx xxx xxx

"(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in
the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;

"(1) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);

"(2) Services other than those mentioned in the preceding paragraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);

"xxx xxx xxx."

Based on the foregoing provisions, services rendered by a VAT-registered person shall be subject
to zero percent (0%), VAT rate if the following requisites concur: (1) the services rendered by the
VAT-registered person are the processing, manufacturing, or repacking of goods, (2) such goods are
subsequently exported, (3) such services are performed for other persons doing business outside the
Philippines, and (4) such services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP (Section 108(B)(1) of the Tax Code of 1997); and if,
pursuant to Section 108(B)(2) of the same Code, the services rendered by the VAT-registered person are
other than the processing, manufacturing, or repacking of goods and such services are paid for in

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 385
 acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.

The services to be rendered by ITPI fall under the above-mentioned provisions of the Tax Code of
1997. It is noteworthy that although some of the goods are sold to Philippine residents located in
ECOZONES, the same are deemed "subsequently exported" since products manufactured or produced
within the ECOZONES are destined for export to other countries. Accordingly, the supply of the above
services which constitute picking, packing and shipping for and on behalf of the Intel-Selling Entities by
ITPI are zero-rated for VAT purposes.

This ruling is issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed or discovered that the facts are different, then this ruling shall be without
force and effect insofar as the herein parties are concerned. cADTSH

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue
Footnotes
1. Paragraphs 12 & 2, Commentary on Article 5 (Permanent Establishment), Model Tax Convention On
Income and Capital, June 1998, Condensed Version © OECD 1998

March 19, 2004

ITAD RULING NO. 026-04

Article 11, RP-Switzerland

BIR Ruling No. DA-ITAD 126-03

Joaquin Cunanan & Co.

29th Floor Philamlife Tower,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 386
 8767 Paseo de Roxas,
1226 Makati City

Attention: Alexander B. Cabrera

Tax Partner

Gentlemen :

This refers to your letter dated November 15, 2003, on behalf of your client, Philip Morris
Philippines Manufacturing, Inc. (PMPMI), requesting confirmation that the interest payments made by
your client to Altria Finance Europe AG (Altria) are subject to a ten percent (10%) final withholding tax
pursuant to the Philippines-Switzerland tax treaty.

It is represented that Altria is a non-resident foreign corporation duly organized and existing under
the laws of Switzerland with principal office located at CH-6301 Zug, Switzerland; 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 April 8, 2003; that PMPMI is a
domestic corporation duly organized and existing under the laws of the Philippines with principal address
at 27th Floor, The Enterprise Center, 6766 Ayala Ave. cor. Paseo de Roxas, Makati City; that it is
primarily engaged in the cigarette industry and in connection thereto, perform such other activities,
including but not limited to the manufacture, processing, packing, buying, selling on wholesale,
distributing and everything else dealing with cigarettes; that Altria granted PMPMI an interest bearing US
dollar denominated loan in the amount of US$ 8,000,000.00 with an interest rate of 1.55% per annum; that
in its letter dated March 13, 2003, Altria confirmed with PMPMI the details of the Short Term Deposit
under Contract Reference AA026392 in the total amount of US$8,000,000.00 (Eight Million United States
Dollars) which will mature on March 15, 2004; that the proceeds of the loan shall be used for PMPMI's
business operations.

In reply, please be informed that Article 11 of the Philippines-Switzerland tax treaty provides, viz:

"Article 11

"INTEREST

"(1) Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State.

"(2) However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so
charged shall not exceed 10 per cent of the gross amount of interest. (Emphasis supplied)

"(3) The term "interest" as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures, as well as income
assimilated to income from money lent by the taxation laws of the State in which the income arises.
Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

Based on the above-quoted provisions, interest arising in the Philippines and paid to a resident of
Switzerland may be taxed in the Philippines at a preferential rate not exceeding ten percent (10%) of the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 387
 gross amount of the interest if the recipient is the beneficial owner thereof. Such being the case, this Office
is of the opinion and so holds that the interest payments by PMPMI to Altria, the beneficial owner of the
interest, pursuant to their Loan Agreement are subject to a preferential rate of ten percent (10%) pursuant
to Article 11 of the Philippines-Switzerland tax treaty which provisions apply on income derived or which
accrued beginning January 1, 2002. (BIR Ruling No. DA-ITAD 126-03) cDECIA

This ruling is issued on the basis of the facts as represented. 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
Bureau of Internal Revenue

March 11, 2004

ITAD RULING NO. 025-04

RP-Japan, Article 11 &12

NIRC, Sec. 180
BIR Ruling No. DA-ITAD-104-01

JGC Philippines, Inc.

JGC Phil. Bldg., 2109 Prime St.
Madrigal Business Park, Ayala Alabang
1780 Muntinlupa City

Attention: Ms. Eugene K. Baria

VP/Administration Division Manager

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 388
 Gentlemen :

This refers to your letter dated December 2, 2003 requesting confirmation of your opinion that the
royalty and interest payments made by your company, JGC Philippines, Inc. (JPHIL), to JGC Corporation
(JGC), under the Trademark Licensing Agreement and Loan Agreement, are both subject to the
preferential withholding tax rate of 10 percent (10%) pursuant to Articles 11 and 12 of the RP-Japan tax
treaty.

It is represented that JGC is a non-resident foreign corporation duly organized and existing under
the laws of Japan with principal office address at Yokohama World Operations Center, 2-3-1, Minato
Mirai, Nishi-ku, Yokohama, Japan that JGC is registered as a corporation licensed to do business in the
Philippines through its Manila branch, JGC Corporation Manila ROHQ (JGC-Manila), as verified by the
Securities and Exchange Commission (SEC) dated October 23, 2003; that JPHIL is a domestic corporation
duly organized and existing under Philippine laws engaged in the business of providing engineering
services; that JPHIL was granted a pioneer status as a NEW IT service firm in the field of Information
Technology Services [engineering, procurement and construction services (EPC Services)] by the Board of
Investments (BOI) under Certificate of Registration No. 2001-024 dated March 6, 2001; that on April 1,
2002, JGC and JPHIL entered into and executed a Trademark Licensing Agreement (Licensing
Agreement), for a period of 5 years, whereby the former grants and assigns to latter the non-exclusive use
of JGC's trademarks in all of JPHIL's business transactions, sales promotion, and project execution here
and abroad; that said License Agreement is registered with the Intellectual Property Office under
Certificate of Compliance No. 5-2002-00158 dated January 31, 2003; and that in consideration of the
aforementioned rights conferred to, JPHIL shall pay JGC royalty in the amount of US$500,000 for the
year 2002 and for the year 2003 and thereafter, the amount of royalty shall be determined later.

Moreover, it is also represented that on September 27, 2000, a Loan Agreement was entered into by
and between JGC and JPHIL whereby the former agreed to lend the latter the aggregate amount of Three
Hundred Thirty Million Japanese Yen (JPY330,000,000.00), with an interest rate of 6 months TIBOR plus
0.7% per annum, for each interest period; that JGC-Manila, the Philippine branch of JGC, has no
participation whatsoever, directly or indirectly, to the above Licensing or Loan Agreements between JGC
and JPHIL, and that the income derived by JGC from said transactions is neither attributable to
JGC-Manila nor paid or coursed through the latter since payments are directly remitted to JGC, per
certification dated January 26, 2004 issued by the duly appointed resident agent of JGC-Manila.

In reply, please be informed that Articles 11 and 12 of the RP-Japan tax treaty provide as follows:

"Article 11

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other Contracting State.

2. However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed:

a) 10 per cent of the gross amount of the interest if the interest is paid in
respect of Government securities, or bonds or debentures;

b) 15 per cent of the gross amount of the interest in all other cases.
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 389
 3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the
Philippines on the interest paid by a company, being a resident of the Philippines, registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the interest,
shall not exceed 10 per cent of the gross amount of the interest. (emphasis supplied)

"xxx xxx xxx"

5. The term "interest" as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from Government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures.

6. The provisions of paragraphs 1, 2 and 3 above shall not apply if the beneficial owner of
the interest, being a resident of a Contracting State, carries on business in the other Contracting State
in which the interest arises, through a permanent establishment situated therein, or performs in that
other Contracting State independent personal services from a fixed base situated therein, and the
debt-claim in respect of which the interest is paid is effectively connected with such permanent
establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be,
shall apply."

"Article 12

1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.

2. However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed:

a) 15 per cent of the gross amount of the royalties if the royalties are paid
in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;

b) 25 per cent of the gross amount of the royalties in all other cases.

3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the

Philippines on the royalties paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the royalties
shall not exceed 10 per cent of the gross amount of the royalties. (emphasis supplied)

4. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films and films or tapes for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience.

5. The provisions of paragraphs 1, 2 and 3 shall not apply the beneficial owner of the
royalties, being a resident of a Contracting State, carries on business in the other Contracting State in
which the royalties arise, through a permanent establishment situated therein, or performs in that other

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 390
 Contracting State independent personal services, from a fixed base situated therein, and the right or
property in respect of which the royalties are paid is effectively connected with such permanent
establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be,
shall apply.

xxx xxx xxx"

Based on the above-quoted provisions, the royalty payments will be taxed at a preferential rate not
exceeding ten percent (10%) if the payor is a Philippine Board of Investments (BOI)-registered enterprise
engaged in preferred pioneer areas of investment, fifteen percent (15%) if the payments are in respect of
the use of or the right to use cinematograph films and films or tapes for radio of television broadcasting,
and in all other cases, twenty-five percent (25%) of the gross amount of royalties. On the other hand,
interest payments will be taxed at a preferential rate not exceeding ten percent (10%) if the payor is a
BOI-registered enterprise engaged in preferred pioneer areas of investment or if the interest is paid in
respect of Government securities, bonds or debentures, and 15% per cent of the gross amount of the
interest in all other cases. However, the said preferential rates shall not apply if the beneficial owner of the
interest or royalties carries on business in the Philippines through a permanent establishment and the right
or property in respect of which the interest or royalties are paid is effectively connected with such
permanent establishment or fixed base.

In the instant case, while the JGC maintains a Philippine branch, it is represented that the said
branch is not privy and does not have any participation whatsoever in the negotiation and implementation
of the License and Loan Agreements so that any income derived by JGC independently of its Philippine
Branch shall be considered income of JGC alone, applying the rule enunciated in the case of Marubeni vs.
CIR (GR. No. 76573 dated September 14, 1989), pertinently quoted hereunder:

''The general rule that a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the principal-agent relationship theory.
It is understood that the branch becomes its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal agent relationship is set aside.
The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer
is the foreign corporation, not the branch or the resident foreign corporation. Corollarily, if the
business transaction is conducted through the branch office, the latter becomes the taxpayer, and not
the foreign corporation." (emphasis ours)

Therefore, since JPHIL is a BOI-registered enterprise and engaged in preferred pioneer area of
investment, and that the interest and royalty income are not effectively connected with JGC-Manila as the
latter is not privy to the transactions between JGC and JPHIL, this Office is of the opinion and so holds
that the royalty and interest payments by JPHIL to JGC are both subject to the preferential withholding tax
rate of 10% of the gross amount of royalty and interest pursuant to Articles 11(3) and 12(3) of the
RP-Japan tax treaty. (BIR Ruling No. DA-ITAD-104-01 dated October 30, 2001)

Moreover, the royalty payments are subject to 10% value-added tax (VAT) pursuant to Section 108
of the Tax Code of 1997. Accordingly, JPHIL being the resident withholding agent and payor in control of
the payment, shall be responsible for the withholding of the 10% final VAT before making any payment to
JGC. In remitting the VAT withheld, JPHIL shall use BIR Form 1600 (Monthly Remittance Return of
Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form 1600 and proof of
payment thereof shall serve as documentary substantiation for the claim of input tax by JPHIL upon filing
its own VAT, if it is a VAT-registered taxpayer. In case JPHIL is a non-VAT registered taxpayer, the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 391
 passed-on VAT withheld shall form part of the cost of the service purchased or treated as "expense" or
"asset" whichever is applicable. In addition, JPHIL is required to issue the Certificate of Final Tax
Withheld at Source (BIR Form 2306) in quadruplicate upon request of JGC, the first three copies thereof
to be given to JGC and the fourth copy to be retained by JPHIL as its file copy. [Section 4 & 6, Revenue
Regulations (RR) No. 4-2002; Section 3 of RR 8-2002, Section 7 of RR 14-2002] aEAcHI

Finally, the Loan Agreement entered into by and between JGC and JPHIL is subject to the
documentary stamp tax imposed under Section 180 of the National Internal Revenue Code of 1997.

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
Bureau of Internal Revenue

March 11, 2004

ITAD RULING NO. 024-04

Arts. 5, 7 & 12, RP-Switzerland

Arts. 5, 7 & 12; RP-Singapore
BIR Ruling No. ITAD DA 39-03

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: A. C. Tionko
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 392
 Tax Division

Gentlemen :

This refers to your letter dated November 17, 2003 on behalf of your client, Panalpina World
Transport (Phils.) Inc. (P-Philippines), requesting confirmation of the following:

(1) The compensation to be paid by P-Philippines to Panalpina Management AG (P-Switzerland)

and Panalpina World Transport (Singapore) Pte. Ltd. (P-Singapore) for business services and IT services,
respectively, under Business Service Agreement and IT Service Agreement (Agreements) are considered
as compensation for services and not royalties; and

(2) Since P-Switzerland and P-Singapore do not have permanent establishments in the Philippines
as defined under the RP-Switzerland and RP-Singapore tax treaties, the compensation for services
received from P-Philippines shall not be subject to withholding tax in the Philippines under the Article on
Business Profits as provided for in the said treaties.

It is represented that P-Switzerland is a nonresident foreign corporation duly organized and existing
under the laws of Switzerland with office address at Viadukstrasse 42, Basel, Switzerland 4051; that
P-Singapore is a nonresident foreign corporation duly organized and existing under the laws of Singapore
with office address at # 1 Pickering Street, # 08-01 Singapore 048659; that both companies are not
registered either as a corporation or as a partnership and have not been licensed to do business in the
Philippines per certifications both dated November 13, 2003 issued by the Securities and Exchange
Commission (SEC); that P-Philippines is a domestic corporation duly organized and existing under the
laws of the Philippines with office address at Zealcor Business Center, Sta. Agueda Ave., Pascor Drive,
Sto. Niño, Parañaque City; that it is engaged in the freight forwarding business; that on January 1, 2003, it
entered into a Business Service Agreement with P-Switzerland and an IT Services Agreement with
P-Singapore; that under the Business Service Agreement, P-Switzerland shall render business services to
P-Philippines consisting of, but not limited to:

1. Information Technology

2. Finance

— Corporate Credit Control

— Corporate Controlling and Agent Relations

— Corporate Financial Reporting and Tax Management

— Accounting

— Corporate Treasury

3. Global Accounts

4. Executive Board

— Corporate Business Development

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 393
 — Human Resources

— Corporate Secretary

— Internal Duties

— Corporate Audit

5. General

— Projects

— Local Supports

— Training

that under the IT Services Agreement, on the other hand, P-Singapore shall provide P-Philippines
Information Technology services in the areas of Corporate Information Management, Management
Information System and Process Development; that IT services relate to forwarding systems, Internet
Systems, SAP, systems and communications, infrastructure, customer and logistics systems as well as data
centers; that the business and IT services are largely to be performed abroad and that any Philippine
services shall only last for a short duration of time, which will not exceed 6 months or 183 days in any
twelve-month period; that for their services, P-Switzerland and P-Singapore shall bill P-Philippines for
total cost directly incurred in rendering the services determined on the basis of the Cost Allocation Keys
outlined in the Panalpina Transfer Pricing Manual.

In reply, please be informed this Office's opinion on the above issues are as follows:

1. The service fees are not in the nature of royalties.

Article 12(3) of the RP-Switzerland and the RP-Singapore tax treaties, respectively, provides that:

"RP-Switzerland

"Article 12

Royalties

xxx xxx xxx

3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematographic films and films and tapes for television or radio broadcasting, any patent,
trademark, design or model, plan, secret formula, or process, or for information concerning industrial,
commercial or scientific experience.

"xxx xxx xxx."

RP-Singapore

"Article 12

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 394
 Royalties

xxx xxx xxx

3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or tapes for television or broadcasting, any patent, trade mark, design
or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific experience.
aHCSTD

"xxx xxx xxx."

Both tax treaties define "royalties" to include "payments of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the commentaries
of the ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(royalties), © 1998, p. 151), such information alludes to the concept of "know-how". The definition of
know-how, which has been adopted by the said Committee, is "all the undivulged technical information,
whether capable of being patented or not, that is necessary for the industrial reproduction of a product or
process, directly and under the same conditions; inasmuch as it is derived from experience, know-how
represents what a manufacturer cannot know from mere examination of the product and mere knowledge
of the progress of technique." In the know-how contract, one of the parties agree to impart to the other so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public. (BIR Ruling No. DA-ITAD 49-02 dated April 15, 2002)

Furthermore, in the case of Philippine Refining Company (PRC) vs. CIR, CTA case No. 2872 dated
January 15, 1986, the Court of Tax Appeals had an occasion to rule on the distinction of service fees from
royalties, to wit:

"To distinguish between compensation for service and royalty payments, one must inquire on
whether the payee has proprietary interest in the property giving rise to the income. If the payee has
none, then the payment is a compensation for personal services, if the payee has proprietary interest
then the payment is royalty."

Based on the above, the subject payments under the Business Service and the IT Service
Agreements are not within the definition of royalties under Article 12(3) of the RP-Switzerland and
RP-Singapore tax treaties. Nothing in the said Agreements would require transfer in the Philippines of
"know-how" or any property of which the payee has proprietary interest.

2. The service fees are business profits not subject to Philippine tax.

Article 5 of the RP-Singapore tax treaty provides:

"Article 5

PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 395
 2. The term "permanent establishment" includes specially but is not limited to:

a) A seat of management;

b) A branch;

c) An office;

d) A store or other sales outlet;

e) A factory;

j) A workshop;

g) A warehouse, in relation to a person providing storage facilities for

others;

h) A mine, quarry, or other place of extraction of natural resources;

i) A building site or construction or assembly project or installation

project or supervisory activities in connection therewith, provided such site, project
or activity continues for a period more than 183 days; and

j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days.

"xxx xxx xxx."

In relation thereto, Article 7 of the RP-Singapore tax treaty also provides:

"Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx."

On the other hand, Article 7 of RP-Switzerland tax treaty provides:

"Article 5

PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business through which the business of the enterprise is wholly or partly carried on:

2. The term "permanent establishment" includes especially:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 396
 a) a place of management;

b) a branch,

c) an office;

d) a factory;

e) a workshop;

j) a mine, an oil or gas well, a quarry or any other place of extraction of

natural resources;

g) a building site, a construction, assembly or installation project or

supervisory activities in connection therewith, but only where such site, project or
activity continues for a period of more than six months;

h) the furnishing of services, including consultancy services, by an

enterprise through employees or other personnel engaged by the enterprise for such
purpose, but only where activities of that nature continue (for the same or a
connected project) within the country for a period or periods aggregating more than
six months within any twelve-month period.

"xxx xxx xxx."

In relation thereto, Article 7 of the same tax treaty states:

"Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State but only so much of them as is attributable to that
permanent establishment.

"xxx xxx xxx."

It is clear from the aforequoted provisions that if a corporation which is a resident of Singapore or
Switzerland does not carry on business in the Philippines through a permanent establishment situated
therein, the profits of such corporation shall not be subject to Philippine income tax. For this purpose, a
corporation which is a resident of Singapore or Switzerland may be deemed to have a permanent
establishment in the Philippines if, among others, the furnishing of services through its employees
continue (for the same or a connected project) within the Philippines for a period or periods aggregating
more than 183 days. aACEID

Inasmuch as it has been represented that the business and IT services will be performed by the
P-Singapore and P-Switzerland outside the Philippines, and that any services to be performed in the
Philippines shall not exceed 6 months or 183 days in any twelve-month period, P-Singapore and
P-Switzerland cannot be considered to have a permanent establishment in the Philippines. Hence, the
herein service fees are considered income derived from sources outside the Philippines pursuant to Section
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 397
 42(C)(3) of the Tax Code of 1997 and are, therefore, not subject to Philippine income tax and
consequently to the withholding tax under Section 28(B)(1) of the same Code. (BIR Ruling No. DA-ITAD
39-03 dated March 4, 2003)

3. On Value-Added Tax

Moreover, while the compensation for services rendered outside the Philippines is not subject to the
10% VAT, however, the fees paid for that portion where the services of P-Singapore and P-Switzerland
are rendered in the Philippines are subject to the 10% VAT pursuant to Section 108(a) of the Tax Code of
1997. Accordingly, P-Philippines, being the resident withholding agent and payor in control of the
payment, shall be responsible for the withholding of the 10% final VAT on such service fees before
making any payment to P-Singapore and P-Switzerland. In remitting the VAT withheld, P-Philippines
shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Fax and Other Percentage
Taxes Withheld). The duly filed BIR Form 1600 and proof of payment thereof shall serve as documentary
substantiation for the claim of input tax by P-Philippines upon filing its own VAT Return, if it is a
VAT-registered taxpayer. In case P-Philippines is a non-VAT registered taxpayer, the passed-on VAT
withheld shall form part of the cost of the service purchased which may be treated as "expense" or "asset",
whichever is applicable. In addition, P-Philippines is required to issue the Certificate of Final Tax
Withheld at Source (BIR Form 2306) in quadruplicate upon request of P-Singapore and P-Switzerland, the
first three copies thereof to be given to P-Singapore and P-Switzerland and the fourth copy to be retained
by P-Philippines as its file copy. [Section 4 & 6, Revenue Regulations (RR) No. 4-2002; Section 3 of RR
8-2002; Section 7 of RR 14-2002]

This ruling is issued on the basis of the facts 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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 398
 March 9, 2004

ITAD RULING NO. 023-04

Article 10, RP-Japan

Article 10, RP-Singapore
BIR Ruling No. DA-ITAD No. 184-03
BIR Ruling No. DA-ITAD No. 53-03

Punongbayan & Araullo

20th Floor, Tower 1, The Enterprise Center
6766 Ayala Avenue
1200 Makati City

Attention: Ms. Marivic C. Espano

Tax Partner

Gentlemen :

This refers to your application for relief from double taxation dated November 27, 2003 requesting
confirmation of your opinion that the dividend payments of your client, JFE Techno Manila, Inc. (JFE
Phil.) to: (1) JFE Engineering Corporation (JFE Corp.); (2) JFE Soldec Corporation (JFE Soldec); (3) JFE
Plant and Service Corporation (JFE P&S); and (4) JFE Engineering Pte., Ltd. (JFE Ltd.), hereinafter
referred to as "Stockholders," are subject to the preferential tax rates of 10% and 25%, respectively,
pursuant to Article 10 of the RP-Japan and RP-Singapore tax treaties.

It is represented that JFE Corp., JFE Soldec and JFE P&S are non-resident foreign corporations
duly organized and existing under and by virtue of the laws of Japan while JFE Ltd. is a non-resident
foreign corporation duly organized and existing under the laws of Singapore; that the JFE Soldec, JFE
P&S and JFE Ltd. are not registered either as corporations or as partnerships and have not been licensed to
do business in the Philippines per certifications issued by the Securities and Exchange Commission (SEC),
all dated November 28, 2003; that JFE Corp. is registered as a corporation licensed to do business in the
Philippines through JFE Engineering Corp.-Philippine Branch (JFE-Manila), as verified by the Securities
and Exchange Commission (SEC) dated November 28, 2003; that JFE Phil, on the other hand, is a
domestic corporation organized and existing under Philippine laws with principal office at 23rd Floor,
Wynsum Corporate Plaza, 22 Emerald Ave., Ortigas Center, Pasig City; that the Stockholders have been
the stockholders of record of JFE Phil for a period of at least six months or more prior to the declaration of
cash dividends on June 30, 2003 with the following ownership, to wit:

ShareholderNumber of Par Value Paid-up Percent of

Shares Ownership

JFE Engineering Corp. 145,000 P14,500,000 P14,500,000 50.00%

JFE Soldec Corp. 86,999 P8,699,900 P8,699,900 29.99%

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 399
 JFE Plant & Service Corp 55,100 P5,510,000 P5,510,000 19.00%

JFE Engineering Pte. Ltd 2,886 P288,600 P288,600 .99%

that on June 30, 2003, the Board of Directors of JFE Phil declared cash dividends for the period covering
the fiscal year ending December 31, 2002 in the amount of Php29,000,000.00 to its stockholders of record,
payable not later than December 31, 2003; and that the said dividends were actually paid on December 9,
2003.

In reply, please be informed that Article 10 of the RP-Japan tax treaty provides as follows:

"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"

"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.

"5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the
dividends, being a resident of a Contracting State, carries on business in the other Contracting State of
which the company paying the dividends is a resident, through a permanent establishment situated
therein, or performs in that other Contracting State independent personal services from a fixed base
situated therein, and the holding in respect of which the dividends are paid is effectively connected
with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article
14, as the case may be, shall apply.

"xxx xxx xxx"

Based on the aforequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding 10% if the latter holds directly at least 25% either
of the voting shares or of the total shares of the former for a period of six (6) months immediately
preceding the date of payment of the dividends, and 25% tax rate in all other cases. However, the said
preferential rates shall not apply if the beneficial owner of the dividends carries on business in the
Philippines through a permanent establishment and the holding in respect of which the dividends are paid
is effectively connected with such permanent establishment or fixed base. (BIR Ruling No. DA-ITAD
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 400
 184-03 dated November 27, 2003)

In the instant case, while the JFE Corp. maintains a Philippine branch, it is represented that said
branch is not privy and does not have any participation whatsoever in the holding of JFE Corp.'s shares of
stocks in JFE Phil so that any income derived by JFE Corp. independently of its Philippine Branch shall be
considered income of JFE Corp. alone, applying the rule enunciated in the case of Marubeni vs. CIR (GR.
No. 76573 dated September 14, 1989), pertinently quoted hereunder:

"The general rule that a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the principal-agent relationship theory.
It is understood that the branch becomes its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal agent relationship is set aside.
The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer
is the foreign corporation, not the branch or the resident foreign corporation. Corollarily, if the
business transaction is conducted through the branch office, the latter becomes the taxpayer, and not
the foreign corporation." (emphasis ours)

Such being the case, considering that JFE Corp. and JFE Soldec hold directly 50% and 29.99%,
respectively, of the shares of stock of JFE Phil during the period of six months immediately preceding the
date of payment of the dividends, and that the holding of the subject shares are not effectively connected
with JFE-Manila as the latter is not privy to the transactions between JFE Corp. and JFE Phil, this Office
is of the opinion and so holds that the dividends received by JFE Corp. and JFE Soldec are subject to the
preferential tax rate of 10% of the gross amount of dividends pursuant to Article 10(2)(a) of the RP-Japan
tax treaty. On the other hand, since JFE P&S holds only 19% of the shares of stock of JFE Phil, the
dividends received by JFE P&S are subject to the preferential tax rate of 25% of the gross amount of
dividends pursuant to Article 10(2)(b) of the said treaty.

As regards the taxability of the dividend income received by JFE Ltd., please be informed that
Article 10 of the RP-Singapore 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 State.

"2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed:

"a) 15 per cent of the gross amount of the dividends if the recipient is a
company (including partnership) and during the part of the paying company'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 15 per cent of the outstanding shares of the voting
stock of the paying company was owned by the recipient company; and

"b) in all other cases, 25 per cent of the gross amounts of the dividends.

The competent authorities of the Contracting States shall by mutual agreement settle the mode

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 401
 of application of this limitation.

"3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in
respect of the profits out of which the dividends are paid.

"4. The term "dividends" as used in this Article means income from shares, jouissance
shares or jouissance rights, mining shares, founder's shares or other rights, not being debt-claims,
participating in profits, as well as income assimilated to income from shares by the taxation law of the
State of which the company making the distribution is a resident.

"xxx xxx xxx"

Based on the foregoing provisions, the 15 percent preferential tax rate on dividend applies
whenever the beneficial owner/recipient of the dividend owns at least 15 percent of the outstanding voting
shares of the paying company and such shareholdings should have existed during the part of the taxable
year immediately preceding the day of payment and during the whole of its prior taxable year, and 25%
tax rate in all other cases. Since JFE Ltd. holds only 0.99% of the shares of stock of JFE Phil., the
dividends received by JFE Ltd. shall be subject to the preferential tax rate of 25% pursuant to Article
10(2)(b) of the RP-Singapore tax treaty. (BIR Ruling No. DA-ITAD 53-03 dated April 9, 2003)

In fine, the dividend income received by JFE Corp. and JFE Soldec are subject to the preferential
tax rate of 10% while dividends received by JFE P&S and JFE Ltd. are subject to 25% pursuant to the
pertinent provisions of the RP-Japan and RP-Singapore tax treaties.

It is understood that the obligations to deduct and withhold the tax arises at the time that the cash
dividend is paid or payable, whichever comes first. The term "payable" refers to the date the obligation
becomes due, demandable or legally enforceable. Accordingly, the obligations to deduct and withhold the
tax arise at the time the cash dividends become payable in accordance with the terms of the resolution of
the Board of Directors. Also, the due date is within 10 days from the end of month that it becomes paid or
payable.

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. EcSCAD

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 402
 March 9, 2004

ITAD RULING NO. 022-04

Article 11, RP-Singapore tax treaty

Sec 180, NIRC of 1997
RR No. 12-01
BIR Ruling No. DA-ITAD-93-01

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Romulo S. Danao, Jr.

Tax Division

Gentlemen :

This refers to your application for relief from double taxation dated December 29, 2003, on behalf
of your client, Reach Network Philippines (Reach Philippines), requesting confirmation of your opinion
that the interest payments on the convertible note (c-note) issued by Reach Philippines to Reach Holdings
Singapore Pte., Ltd. (Reach Singapore) are subject to the preferential tax rate of 15%, pursuant to the
Philippines-Singapore tax treaty.

It is represented that Reach Singapore is a non-resident foreign corporation organized and existing
under the laws of Singapore with principal address at 20 Raffles PL # 09-01, Singapore 048620; that it is a
resident of Singapore for purposes of the Philippines-Singapore tax treaty for taxable years 2004 and 2005
per certificates of residence issue by the Inland Revenue Authority of Singapore; that it has no permanent
establishment in the Philippines; that it is not registered either as a corporation or as a partnership per
certification issued by the Securities and Exchange Commission dated December 10, 2003; that Reach
Philippines is a corporation organized and existing under the laws of the Philippines and registered with
the Philippine Economic Zone Authority with office address at 34th Floor, RCBC Tower, 6819 Ayala
Avenue, Makati City; that on February 21, 2003, Reach Philippines issued to Reach Singapore a registered
convertible note (c-note) with US$2,040,000 which carries a coupon at a rate of 5.8% per annum of the
face value of the note from the date of issuance to the date of maturity; that Reach Singapore shall have
the right, at maturity or at any earlier time and at its sole option, by written notice to Reach Philippines to
convert the outstanding principal amount of the loan together with any accrued interest thereon (including
default interest, if any) and any other "unpaid obligation" referred to in the c-note, into such number of
unissued shares of common capital stock of Reach Philippines, the total par value of which is equal to the
total amount of the "unpaid obligation"; that under the terms of the issuance, Reach Philippines is required
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 403
 to pay interest annually; that in this respect, while the accrual of the interest is being made annually in the
books of Reach Philippines, it is payable upon maturity, that unless Reach Singapore exercises its
conversion right, the maturity date of the c-note is on February 21, 2006.

In reply, please be informed that Article 11 of the Philippines-Singapore tax provides as follows, to
wit:

"Article 11

"Interest

"1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State.

"2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the law of that State, but if the recipient is the beneficial owner of the interest the tax so
charged shall not exceed 15 per cent of the gross amount of the interest. The competent authorities of
the Contracting States shall by mutual agreement settle the mode of application of this limitation.

"3. The term 'interest' as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures, as well as income
assimilated to income from money lent by the taxation law of the State in which the income arises,
including interest on deferred payment sales. Penalty charges for late payment shall not be regarded as
interest for purposes of this Article."

"xxx xxx xxx"

Based on-the aforesaid provisions, interest income which arises in the Philippines and paid to a
resident of Singapore is taxable in the Philippines at the preferential tax rate not exceeding 15% of the
gross amount of the interest if the recipient of such interest is also the beneficial owner thereof.

In view thereof, this Office confirms your opinion and so holds that the interest payments by Reach
Philippines to Reach Singapore, the beneficial owner of the interest on the said convertible note, are
subject to the preferential tax rate of 15% based on the gross amount of interest, pursuant to Article 11 of
the Philippines-Singapore tax treaty. (BIR Ruling No. DA-ITAD-93-01 dated October 19, 2001)

However, Section 2.57.4 of Revenue Regulations No. (RR) 2-98, as amended by RR 12-01,
provides, viz;

"Sec. 2.57.4 Time of Withholding — The obligation of the payor to deduct and withhold the
tax under Section 2.57 of these Regulations arises at the time an income payment is paid or payable,
or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the
payor's books, whichever comes, first. The term `payable' refers to the date the obligation becomes
due, demandable or legally enforceable.

Such being the case, Reach Philippines shall be required to withhold the said tax upon the annual
accrual of the interests, although such interests are payable only upon maturity, i.e., on February 21, 2006,
and shall remit the tax withheld within ten (10) days after the month of accrual of said interests. (Section
2.58, RR 2-98)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 404
 In addition, the convertible notes executed by and between Reach Philippines and Reach Singapore
covering the above loans shall be subject to documentary stamp tax under Section 180 of the National
Internal Revenue Code of 1997 (NIRC)

This ruling is issued on the basis of the facts as represented. It shall be without force and effect
insofar as the herein parties are concerned, if upon investigation it shall be disclosed that the facts are
different or where Reach Singapore exercises its conversion rights under the c-note. In the latter case,
another ruling may be applied for if confirmation of opinion on the proper tax treatment should be sought.
aEIADT

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

March 9, 2004

ITAD RULING NO. 021-04

Articles 5 & 7, Philippines-Singapore tax treaty

Sections 57 & 113, Tax Code of 1997
Revenue Regulations No. 7-95
BIR Ruling No. ITAD-182-00
BIR Ruling No. ITAD-29-02

Joaquin Cunanan & Co.

29th Floor Philamlife Tower
8767 Paseo de Roxas
1226 Makati City

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 405
 Attention: Mary Assumption S. Bautista-Villareal
Principal, Tax Services

Gentlemen :

This refers to your application for relief from double taxation dated August 15, 2002, on behalf of
your client, JOHNSON & JOHNSON PTE Limited (JJS), requesting confirmation of your opinion on the
following, pursuant to the Philippines-Singapore tax treaty:

"1) JJS has no permanent establishment in the Philippines.

"2) Since JJS will have no permanent establishment in the Philippines, it will not be subject
to Philippine income tax on business profits or income derived from sale of goods in the Philippines
and consequently to 32% withholding tax under Section 28(B) of the Tax Code of 1997; neither is it
subject to 15% profit remittance tax.

"3) JJS will not be subject to withholding tax under Section 57 of the Tax Code including
creditable 1% withholding tax on income payments made by the top 5,000 corporations to their local
suppliers of goods because JJS is not subject to Philippine income tax.

"4) JJS will not be required to withhold 1% creditable withholding tax when making
payments to local suppliers of raw and packing materials because it has no permanent establishment
in the Philippines.

"5) JJPI (i.e., JOHNSON and JOHNSON PHILS., INC.) will not be subject to creditable
withholding tax on sale of goods belonging to JJS because it merely sells goods as independent agent.

"6) JJS will be allowed to register as a separate VAT entity and be issued its own TIN/VAT
Number.

"7) JJS will be allowed to issue duly registered sales or commercial invoices for sales made
to Philippine customers and that such invoices shall bear the name of JJPI but using JJS' VAT/TIN
Number.

"8) JJS can authorize JJPI as independent agent, to issue JJS' VAT invoices to Philippine
customers and to file VAT returns and pay the VAT due on the sales to local customers on behalf of
JJS.

"9) JJS' VAT invoices issued by JJPI will give rise to an output tax on the part of JJS and
input tax credit in the hands of the Philippine customers.

"10) JJS will be allowed to offset against its output tax, input VAT for payments made to third
party manufacturing service providers, suppliers of finished goods, and on importation of raw
materials and finished goods into the Philippines.

It is represented that JJS is a corporation organized and existing under the laws of Singapore with
principal place of business in Singapore; that it is not registered either as a corporation or as a partnership
as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission
dated December 30, 2003; that it is a resident of Singapore and is a wholly owned subsidiary of Johnson &
Johnson, a United States multinational corporation (JJUS); that JJUS, has many subsidiaries around the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 406
 world; that the principal activities of the group are research, development, manufacture and sale of certain
healthcare and consumer products; that in 1998, the Johnson & Johnson consumer products group
announced that it was undertaking a major review of its worldwide business operations and management
structure; that since then, the group has begun implementing this restructuring in several regions of the
world and has started reviewing its operating arrangements in the Asia Pacific Region; that the review is
designed to: (1) improve cost structure to deliver superior value to customers, (2) reduce introduction time
for new or improved products, (3) integrate the sourcing strategies with research & development activities
and marketing strategies, and (4) allow the local affiliates to concentrate on customers and consumers; that
on a global basis, the group is organized on the principles of decentralized management; that the parent
company, JJUS, establishes certain worldwide standards and objectives, and its international subsidiaries
generally act autonomously to implement the overall strategies to the extent economically viable in the
local market; that what is changing is that most of the entrepreneurial functions and risks currently borne
by local affiliates are being transferred to regional entities for better management of their exposures; that
in the Asia Pacific Region, JJS will be the regional entrepreneur and will be the owner and/or licensor of
the manufacturing rights, trademarks, patents, technical know-how and the legal owner of all imported and
locally produced goods; that in this capacity, JJS assumes the risks, loss and profit arising or derived from
the distribution of the products in the region; that for consumer products, it will enter into manufacturing
agreements with independent third party manufacturers as well as related parties-manufacturers; that JJS
will sell and distribute its products in each country in the region through an independent agent; that in the
Philippines, Johnson and Johnson Philippines, Inc. (JJPI), a corporation organized and existing under
Philippine laws with principal place of business at Edison Rd., Barrio Ibayo, Parañaque City, will act as
the independent agent of JJS; that JJPI will assist JJS with the introduction of and marketing of the
products in the Philippine market as well as to assist with the roll out of marketing programs and strategies
developed and approved by JJS; that JJPI will have the sole discretion in choosing its own operational
marketing activities although it may consult JJS and will be responsible for the day-to-day identification
and management of local marketing initiatives; and that the following would be the flow of transaction in
the Philippines: IcCEDA

"JJS will export to the Philippines, finished products and raw materials for manufacture into
finished goods by third party full service and toll manufacturers. It will likewise acquire finished
goods from local suppliers in the Philippines. These finished goods will be sold and distributed to the
Philippine customers with the assistance of an independent agent. JJS shall retain ownership of the
goods manufactured by independent local third party toll manufacturers (Independent Manufacturers)
and the finished goods it exported to the independent agent until they are sold by the latter."

It is further represented that JJS will have ultimate control and responsibility for the marketing and
promotion of the products it distributes in the region; that in this regard, JJS will have all legal rights in
respect of the marketing and related tangible assets associated with the products it distributes in the
Philippines, such as trademarks and trade names; that JJS will also bear all of the economic and
commercial responsibilities and risks associated with the development and maintenance of the above
stated marketing assets for all products it distributes in the Philippines; that a service provider agreement
will be entered into between JJS and JJPI wherein, JJPI will be responsible for selling and distributing the
products of JJS in the Philippines in its own name but for the account and risk of JJS; that JJPI will sell
JJS' goods in its capacity as consignee-independent agent; that as such, JJPI will act as principal in the
transaction covering the sale of the goods but it will not have legal title over the goods, ownership of
which remain with JJS until these are sold to the customers of JJPI; that JJPI will have no power nor
authority to legally bind JJS since the customers will transact business with JJPI only and not with JJS
regarding the goods that they purchase; that JJPI shall assume all the obligations and warranties of a seller;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 407
 and that any and all claims, whether from tort or contract, arising from the buyer's purchase of goods shall
be filed solely against JJPI; that the customers will pay JJPI but JJPI will account for the proceeds of sale
and remit the same less expenses to JJS; that JJPI will maintain separate books of accounts for the sale of
JJS' goods in the Philippines; that for the services rendered by JJPI, JJS will pay JJPI an arm's length
service fee which shall be derived, evaluated, and supported having regard to all relevant transfer pricing
guidelines promulgated by the Organization for Economic Co-operation and Development (OECD); that
JJPI, as an independent agent, has no exclusive contract with JJS and can enter into similar arrangements
with third parties in the pursuit of its ordinary course of business; that JJS will register as a separate VAT
entity and secure its own Tax Identification Number (TIN)/VAT number; that the sales of its goods in the
Philippines shall be covered by its own invoice which shall be issued by JJPI in its capacity as
independent agent; that since JJPI acts as the principal in the sale, JJS' invoice shall bear the name of JJPI
but using JJS' own TIN/VAT Number; that JJS shall pay the 10% VAT on the sales of its goods to local
customers; that JJPI, as independent agent, shall be authorized to prepare and file JJS' monthly and
quarterly VAT returns and pay the corresponding tax; that it is proposed that a request for accreditation of
JJS as the importer/consignee of record of the raw materials and finished goods sent to the Philippines will
be submitted to the Bureau of Customs; that as importer/consignee of record, JJS, through JJPI, will settle
all customs duties, and VAT upon importation of the raw materials and finished goods sent to the
Philippines; that JJPI will then deliver the raw materials to independent local third party toll manufacturers
of JJS for processing into finished goods; that the Independent Manufacturers (IMs) are local companies
that own their plants and manufacturing facilities and are not in any way related to JJS or JJPI; that they
have sole discretion to make day to day decision and are not in any way related to the manufacturing
processes and methods subject to the standards and quality required by JJS; after the products are
manufactured, the IMs will safekeep the products only for such period of time necessary for JJS to conduct
final quality control test on the finished goods, they will be delivered to or withdrawn by JJPI for sale to
customers; that the said IMs will be paid service or tolling fees on an arm's length basis; that in the
Philippines, the group plans to establish a regional operating headquarters (ROHQ) which will render
certain services to Johnson & Johnson companies operating for the Asia Pacific Region; that this ROHQ
will render certain services for JJS and, product development services for JJUS; and that the ROHQ will
generate employment in the Philippines and earn foreign exchange for services rendered to affiliates in the
Asia Pacific Region.

In reply, please be informed as follows:

INCOME TAX ASPECT

Articles 5 and 7 of the Philippines-Singapore tax treaty provides as follows, viz:

"Article 5

PERMANENT ESTABLISHMENT

"1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place of business in which the business of the enterprise is wholly or partly carried on.

"2. The term 'permanent establishment' includes specially but is not limited to:

a) A seat of management;

b) A branch;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 408
 c) An office;

d) A store or other sales outlet;

e) A factory;

f) A workshop;

g) A warehouse, in relation to a person providing storage facilities for

others;

h) A mine, quarry, or other place of extraction of natural resources;

i) A building site or construction or assembly project or installation

project or supervisory activities in connection therewith, provided such site, project
or, activity continues for a period more than 183 days; and

j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days.

xxx xxx xxx

"4. A person acting in one of the Contracting States on behalf of an enterprise of the other
Contracting State, other than an agent of an independent status to whom paragraph 5 applies, shall be
deemed to be a permanent establishment in the first-mentioned Contracting State if —

a) he has, and habitually exercises in the first-mentioned Contracting State,

an authority to conclude contracts in the name of that enterprise unless the exercise
of such authority is limited to the purchase of goods or merchandise for that
enterprise; or

b) he has no such authority, but habitually maintains in the first-mentioned

State a stock of goods or merchandise from which he regularly delivers goods or
merchandise on behalf of the enterprise.

"5. An enterprise of one of the Contracting States shall not be deemed to have a permanent
establishment in the other Contracting State merely because that enterprise carries on business in that
other Contracting State through a broker, general commission agent, or any other agent of an
independent status, where such broker or agent is acting in the ordinary course of his business.
However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that
enterprise, he shall not be considered an agent of independent status within the meaning of this
paragraph if the transactions between the agent and the enterprise were not made under arm's length
conditions.

"xxx xxx xxx."

"Article 7

"BUSINESS PROFITS

"1. The profits of an enterprise of a Contracting State shall be taxable only in that State

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 409
 unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.

"xxx xxx xxx"

Under the aforequoted provisions, business profits of JJS shall only be taxable in the Philippines if
it has a permanent establishment situated therein. For purposes of paragraph 4(a) of Article 5, neither the
IMs of JJS nor JJPI has the authority to conclude contracts in the name of JJS. As a toll manufacturer, the
said IMs will process raw and packing materials belonging to JJS. However, it is JJS rather than the IMs,
which will be responsible for the negotiation and the strategic purchases of the raw and packing materials.
On the other hand, a critical feature of JJPI is its inability to contractually bind JJS. JJPI will sell the goods
in its capacity as consignee-independent agent and will invoice the customers in its own name pursuant to
its status as an independent agent. It will have no ability to conclude contracts with customers in the name
of, or on behalf of, JJS. Neither the IMs nor JJPI, both in the Philippines, habitually maintains a stock of
goods or merchandise from which either the IMs or JJPI may regularly deliver goods or merchandise on
behalf of JJS pursuant to Article 5(4)(b). CDTHSI

Furthermore, nothing in the foregoing facts as represented will show that JJS will establish a
permanent establishment in the Philippines. If a permanent establishment will be established in the
Philippines, the profits of the Singapore entity like JJS may be taxed in the Philippines but only so much
of them as are attributable to the permanent establishment. While JJS will enter into an agreement relating
to the provision of toll processing and other services with IMs and will also enter into a commissionaire
agreement with JJPI, they will not constitute a permanent establishment since the IMs and JJPI will have a
separate and distinct personality from JJS and their activities will not be devoted wholly or almost wholly
to JJS and will be done in the ordinary course of their business under arm's length conditions.

For purposes of Article 5 (5), the IMs and JJPI are not dependent agents of JJS. Rather, they are
independent entities that merely provide services to JJS in return for arm's length consideration, acting in
the ordinary course of their trades or businesses for which the IMs and JJPI cannot be considered as a
permanent establishment of JJS. The IMs have the freedom and autonomy to carry out their business
operations without any immediate interference or control from JJS. Also, the processing arrangement of
the IMs with JJS is non-exclusive. The IMs remain free to contract with other parties as long as they do
not transmit or use the technology, formulas, processes, standards or know-how for the processing of
goods owned by them (IMs) or third parties. The same holds true for JJPI as it will independently
undertake its operations in the manner it determines and will be able to provide similar services to third
parties and engage in other activities for financial gain.

The independent status of the IMs and JJPI is likewise supported by the fact as represented that
their respective transactions with JJS will be compensated on arm's length basis.

With the payment of arm's length service fees, neither the IMs nor JJPI cannot be considered a
permanent establishment of JJS. For this purpose, JJS will commission independent experts to undertake
transfer pricing studies to identify the market rates paid for comparable services by independent parties
dealing at arm's length, in the context of the same facts and circumstances.

Moreover, if JJS will have no permanent establishment in the Philippines, then the business profits
to be derived by JJS, in particular, the income from the sale of goods to customers in the Philippines,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 410
 should not be subject to Philippine income tax and should be subject to tax only in Singapore. However,
all income derived from the Philippines by the IMs and JJPI will be subject to Philippine income tax.

Under Section 57 of the Tax Code, the income tax imposed under the Tax Code shall be withheld
by the payor-corporation and/or person. Implementing this provision, Revenue Regulations (RR) No. 2-98
dated April 17, 1998, provides, among others, that income payments made by any of the top five thousand
(5,000) corporations, as determined by the Commissioner, to their local supplier of goods shall be subject
to a 1% creditable withholding tax. (Sec. 2.57.2(M) of RR No. 2-98) However, Sec. 2.57.5(B) of the same
Regulations provides that the withholding of creditable withholding tax prescribed therein shall not apply
to income payments made to persons enjoying exemption from payment of income taxes pursuant to the
provisions of any law, general or special.

Since JJS does not have a permanent establishment in the Philippines and will not be subject to tax
on the business profits it derives from the sale of goods to the customers in the Philippines, it follows that
the payments to JJS should not be subject to any withholding tax under Section 57 of the Tax Code,
including the 1% creditable tax to be withheld on income payments made by any of the top 5,000
corporations to their local supplier of goods.

For the same reason that it does not have a permanent establishment in the Philippines, JJS should
not be required to withhold the same tax (1% creditable withholding tax) when making payments to local
suppliers of raw and packing materials. Likewise, JJPI should not be subject to the creditable withholding
tax on the sale of goods belonging to JJS because it merely sells as an independent agent.

In fine, your opinion that JJS will not have a permanent establishment in the Philippines pursuant to
Articles 5 and 7 of the Philippines-Singapore tax treaty and will not be subject to Philippine income tax on
the business profits or income to be derived on the sale of goods to customers in the Philippines and that
JJS will not be subject to the 1% creditable withholding tax on the sale of goods to customers in the
Philippines, and JJS will also not be required to withhold the same tax on payments to local suppliers of
raw and packing materials, is hereby confirmed. (BIR Ruling No. ITAD-182-00 dated December 6, 2000)

VALUE-ADDED TAX ASPECT (including the issuance of a Tax Identification Number)

1. While JJS is not subject to Philippine income tax, it remains subject to value-added tax.

The Philippines-Singapore tax treaty only covers elimination of double taxation with respect to
taxes on income (Article 2, Taxes Covered). Under the National Internal Revenue Code (Tax Code) of
1997, value-added tax (VAT) is not an income tax but a form of sales tax, a tax imposed on consumption
levied on the sale or supply of goods and services in the Philippines and on imports of goods into the
Philippines. As opposed to income tax which is a direct tax, VAT is an indirect tax such that the amount of
tax may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.
Therefore, and since JJS sells its goods in the Philippines in the course of its trade or business, it shall be
subject to VAT equivalent to 10% of the gross selling price of the subject goods sold to customers in the
Philippines (Sections 105 & 106, Tax Code of 1997).

While the taxpayer's profits are derived from the conduct of a trade or business in the Philippines,
which thus makes it subject to VAT, the manner in which such business is conducted does not give rise to
a permanent establishment as the term is described in the treaty, and as earlier elaborated in BIR Ruling
No. ITAD-182-00 dated December 6, 2000. The determination of whether a taxpayer is subject to income
tax, on one hand, or VAT, on the other, is grounded on different principles, in this case, one contained in a

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 411
 tax treaty, an international agreement, and the other, in the Tax Code, which is a law of domestic origin.
Thus, this Bureau has held several times in the past that a taxpayer may be subject to VAT even if its
activities do not give rise to a permanent establishment in the Philippines. Accordingly, JJS shall be
required to secure a Tax Identification Number (TIN) and register as a VAT taxpayer, but nonetheless
remains a non-resident foreign corporation without a permanent establishment in the Philippines. The
issuance of a TIN to a non-resident foreign person/corporation is not conclusive as to the presence of a
"permanent establishment" in such Contracting State as defined under Article 5 of the
Philippines-Singapore tax treaty.

In this regard, Section 4.107-1 of Revenue Regulations No. 7-95 (Consolidated Value-Added Tax
Regulations), in implementing Section 113 and 236 of the Tax Code of 1997, provides that any person
who sells, barters, exchanges, leases goods or properties and renders services subject to VAT is required
to secure a Taxpayer Identification Number (TIN) and register as a VAT taxpayer. (BIR Ruling No.
ITAD-29-02 dated March 14, 2002)

2. JJS is required to issue duly registered receipts or sales or commercial invoices for every sale
or lease of goods or properties or services, BUT ONLY IN ITS OWN NAME.

Section 113 of the Tax Code of 1997 provides as follows, to wit:

"SEC 113. Invoicing and Accounting Requirements for VAT-Registered Persons. —

"(A) Invoicing Requirements. — A VAT-registered person shall, for every sale, issue an
invoice or receipt. In addition to the information required under Section 237, the following
information shall be indicated in the invoice or receipt:

"(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN); and

"(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax.

Section 4.108-1 of the above Consolidated Value-Added Tax Regulations provides as follows:

"Section 4.105-1. Invoicing Requirements — All VAT registered persons shall, for every
sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial
invoices which must show:

1. the name, TIN and address of seller;

2. date of transaction;

3. quantity, unit cost and description of merchandise or nature of service;

4. the name, TIN business style, if any, and address of the VAT-registered purchaser,
customer or client;

5. the word 'zero rated' imprinted on the invoice covering zero-rated sales; and

6. the invoice value or consideration. TEHIaD

xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 412
 Based on the aforecited provisions, a corporation liable to pay VAT is required to register as a VAT
taxpayer and issue duly registered receipts or sales or commercial invoices to evidence the sale of its
goods in the Philippines. Hence, as a registered VAT taxpayer, JJS is required to issue its duly registered
receipts or sales or commercial invoices for every sale or lease of goods or properties or services to its
Philippine customers (BIR Ruling No. ITAD-29-02 dated March 14, 2002).

It must be emphasized, however, that the law requires, among others, that the invoice states that the
seller is a VAT-registered person which must be "followed by his" TIN (Also refer to 3rd par. of Section
4.108-1, RR 7-95), since the "(u)se of TIN other than that assigned to the taxpayer" may expose the
violator to criminal responsibility under Section 8 of RR 11-99. Thus, JJS, as a VAT-registered person,
shall not be allowed to issue its invoices bearing the name of JJPI using JJS' TIN.

3. JJS may authorize JJPI to issue JJS' invoices to Philippine customers, file VAT returns and
pay the VAT due of JJS.

As already stated, JJS will issue its own official invoice to evidence its sale in the Philippines and
pay the corresponding VAT. However, since JJS does not maintain an office in the Philippines, by a
contract of agency, JJS may constitute JJPI as its local agent who shall be responsible for the issuance of
official receipts of JJS to its Philippine customers and for the filing and payment of the corresponding
VAT of JJS' sale of goods in the Philippines. For this purpose, JJPI must maintain separate books of
accounts for the sale of JJS' goods in the Philippines (BIR Ruling No. ITAD-29-02 dated March 14, 2002).

Please be reminded, however, that JJPI, in filing the VAT returns for and on behalf of JJS, must
state that it is so filing on behalf of JJS indicating JJS' TIN for the latter's proper identification for tax
purposes [Section 236(J), Tax Code of 1997]

4. JJS' VAT invoices issued by JJPI will give rise to an output tax on the part of JJS and input
tax credit in the hands of the Philippine customers.

JJS will be allowed to offset against its output tax, input VAT for payments made to third party
manufacturing service providers, suppliers of finished goods, and on importation of raw materials and
finished goods into the Philippines

Section 4.104-1 of RR 7-95 provides, viz:

"SEC. 4.104-1. Credits for input tax. — 'Input tax' means the value-added tax due from or
paid by a VAT-registered person on importation of goods or local purchases of goods or services,
including lease or use of property, from another VAT-registered person in the course of his trade or
business. It shall also include the transitional or presumptive input tax determined in accordance with
Section 105 of the Code.

"It includes input taxes which can be directly attributed to transactions subject to the
value-added tax plus a ratable portion of any input tax which cannot be directly attributed to either the
taxable or exempt activity.

Any input tax evidenced by a VAT invoice or official receipt issued by a VAT-registered
person in accordance with Section 108 (now Section 113) of the Code, on the following transactions,
shall be creditable against the output tax:

"xxx xxx xxx."

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 413
 Furthermore, Section 4.104-2 of RR 7-95 provides, viz:

"SEC. 4.104-2. Persons who can avail of the input tax credit. — The input tax credit on
purchase of goods or properties or services shall be creditable:

"(a) To the purchaser of the domestic goods or properties upon consummation of the sale and
on the importation of said goods or properties.

"(b) To the importer upon payment of VAT prior to the release of goods from Customs
custody.

"(c) To the purchaser of services or the lessee or licensee upon payment of the compensation,
rental, royalty or fee."

Based on the foregoing provisions, the input VAT paid by a VAT-registered person in the sale of
goods, properties or services from another VAT-registered person, in the course of his trade or business,
shall be creditable against the output VAT.

Thus, JJS' VAT invoices issued by JJPI (for and on behalf of JJS) will give rise to an output tax on
the part of JJS, being a VAT-registered person, and input tax credit in the hands of its Philippine
customers. On the other hand, JJS will be allowed to offset against its output tax, input VAT for payments
made to third party manufacturing service providers, suppliers of finished goods, who are all
VAT-registered persons, and on importation of raw materials and finished goods into the Philippines.

This ruling is issued on the basis of the facts as represented. 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.) JOSE MARIO C. BUÑAG

Deputy Commissioner
Legal and Inspection Group
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 414
 March 8, 2004

ITAD RULING NO. 020-04

Article 12, RP-Japan tax treaty

BIR Ruling No. DA-ITAD-35-03

SyCip Gorres Velayo & Co.

6F Ayala Life-FGU Center
Mindanao Avenue cor. Biliran Road
Cebu Business Park, Cebu City
6000 Cebu

Attention: Lauris L. Dela Peña

Tax Services

Gentlemen :

This refers to your application for relief from double taxation dated December 17, 2003 on behalf
of NEC Technologies Philippines, Inc. (NEC Technologies) requesting confirmation that the royalty
payments made by NEC Corporation are subject to the preferential tax rate of 25% withholding tax,
pursuant to Article 12(2)(b) of the RP-Japan tax treaty.

It is represented that NEC Corporation is a nonresident foreign corporation organized and existing
under the laws of Japan with principal office at 7-1 Shiba 5-chome, Taito-ku, Japan; that NEC
Corporation is no longer registered either as a corporation or as a partnership licensed to do business in
the Philippines since the cancellation of its license on July 29, 1998 per certification dated April 1, 2003
issued by the Securities and Exchange Commission; that NEC Technologies is a corporation duly
organized and existing under the laws of the Philippines with principal office at Mactan Economic Zone I,
Lapu-lapu City, Cebu; that NEC Technologies is a Philippine Economic Zone Authority (PEZA)-registered
enterprise under Certificate of Registration No. 89-031 dated August 18, 1989; that on August 1, 2003
NEC Technologies and NEC Corporation entered into a License Agreement (Agreement) whereby NEC
Corporation shall grant NEC Technologies a license to use the trade name/trademark, service mark and
corporate mark "NEC" as part of its trade name, corporate mark, trademark and service mark; and that in
consideration thereof, NEC Technologies shall pay royalty in the amount calculate according to the
following formula:

(i) 0.12% of NEC Technologies' gross sales amount to customers other than NEC and/or
NEC SEC Consolidated Subsidiaries, plus

(ii) 0.12% of NEC Technologies' total gross sales amount

It is further represented that both corporations agree that the royalty shall be applicable and paid for
all products and services of NEC Technologies even if some of those products and services are provided
by NEC Technologies without using NEC mark; and that in the event that NEC Technologies has

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 415
 conducted advertising activities using the NEC mark through the mass-media, such as TV, newspapers and
magazines and has reported to NEC Corporations actual cost for the advertising activities, the former may
deduct 30% of the amount of the actual cost incurred for such advertising activities from the amount of
royalty payable to the latter, subject only to certain limitations.

In reply, please be informed that Article 12 of the RP-Japan tax treaty provides, viz:

"Article 13

"Royalties

"(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting States.

"(2) However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed:

"(a) 15 per cent of the gross amount of the royalties if the royalties are paid
in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;

"(b) 25 per cent of the gross amount of royalties in all other cases.

"(3) Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the
Philippines on the royalties paid by a company, being a resident of the Philippines, registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the royalties,
shall not exceed 10 per cent of the gross amount of the royalties.

"(4) The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films or films or tapes used for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience.

Based on the aforementioned provisions, royalty payments made by a Philippine corporation to a

resident of Japan may be taxed at a rate not exceeding 10 per cent of the gross amount of royalties if the
payor is a Board of Investments (BOI)-registered enterprise engaged in preferred pioneer areas of
investment, 15 per cent if it is paid in respect of the use of or the right to use cinematograph films and
films or tapes for radio or television and, 25 per cent in all other cases.

Such being the case, this Office is of the opinion and so holds that since NEC Technologies is not a
BOI-registered enterprise engaged in preferred pioneer areas of investment, and, the subject royalty
payments are not paid in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting, the said royalty payments by NEC Technologies to NEC Corporation
under the above License Agreement shall be subject to tax at the rate not exceeding 25% of the gross
amount of the royalties pursuant to Article 12(2)(b) of the RP-Japan tax treaty.

Moreover, Section 108 of the Tax Code of 1997 states that the lease or use of any trademark, trade
brand or other like property or right is embraced within the definition of "sale or exchange of services" and
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 416
 is subject to value-added tax (VAT). Under the current regulations, the sale of services to Ecozone
Enterprises may be considered effectively zero-rated for VAT purposes but subject to the limitation that
the sale of service is made to persons or entities who enjoy indirect tax exemption [Section 4.102-2 (c),
Revenue Regulations No. 7-95]. Since there is no express provision under the PEZA law granting
exemption from indirect taxes to Ecozone Enterprises, the recognition of zero-rated sale of services is
made to rest on the Cross Border Doctrine or Destination Principle of the VAT system, viz: "the country
taxes all value-added, at home and abroad, for goods that have as their destination the consumers of that
country. Exports are exempt, imports are taxable. . . . " (VAT Ruling No. 009-99 dated January 21, 1999)

The same principle is applicable to the case at hand. It should be noted that the grant of license to
use trademark is in connection with the manufacture of products for export. However, instead of
zero-rating which is not available to non-resident suppliers, the provision for exempt transactions under
Section 109 of the Tax Code of 1997 which provides VAT exemption for transactions which are exempt
under special laws, e.g., Republic Act 7916 or PEZA law, is particularly applicable to the instant case. In
the case of payment for lease or royalties to a non-resident owner, the responsibility for withholding the
VAT and paying the same rest on the payor. However, since PEZA-registered export enterprise may not be
passed on with nor claim input VAT, then its payment of royalties to a non-resident owner, such as NEC
Japan should be, as it is hereby confirmed to be, exempt from VAT. (VAT Ruling No. 095-99 dated
September 14, 1999) aHTEIA

This ruling is issued on the basis of the facts 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
Bureau of Internal Revenue

February 23, 2004

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 417
 ITAD RULING NO. 019-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. ITAD-24-01

Embassy of Australia
16F 2627 Roxas Boulevard
Pasay City

Attention: Mr. Gregory Raymond Baker

Second Secretary

Gentlemen :

This has reference to your Note No. 028/04 dated January 16, 2004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs (DFA), requesting for exemption from
payment of ad valorem and value-added taxes (VAT) on one (1) 2004 Honda CRV 2.0 4X4 A/T for the
personal use of Mr. Gregory Raymond Baker, Second Secretary of the Embassy of Australia:

Make: Honda CRV 2.0 4X4 A/T

Model Year: 2004
Color: Titanium Silver
Frame Number: PADRD58503V100326
Engine Number: PRLD65-3100256

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or
services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Section 106 and
108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
Australia or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs that your Government allows similar exemption to the

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 418
 Philippine Embassy personnel on their purchases of goods and services in your country.

Hence, the local purchase of one (1) Honda CRV 2.0 4X4 A/T for the personal use of Mr. Gregory
Baker is exempt from VAT and ad valorem taxes. (BIR Ruling No. ITAD-24-01 dated March 12, 2001)
AEHCDa

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

February 23, 2004

ITAD RULING NO. 018-04

Sec 109 (q) of the Tax Code of 1997

BIR Ruling No. DA-ITAD-91-03

Deutsche Gesselschaft Fur Technische

Zusammenarbeit (GTZ)
c/o GDC-GTZ Office, 9/F, PDCP Bank Center
LP Leviste cor. V.A. Rufino Sts., Salcedo Village
Makati City

Attention: Dirk Rahlenbeck

Third Secretary

Gentlemen :

This has reference to your Note Verbale KFZ No. 2/2004 dated January 13, 2004 indorsed to this
Office by the Department of Foreign Affairs (DFA), requesting for exemption from payment of
value-added tax (VAT) on the local purchase of three (3) motor vehicles, for the official use of GDC-GTZ
Office of the German Embassy, specifically described as follows:

Type of use: Official use

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 419
 Organization: GTZ—"Support of Decentralization Structures in
the Visayas Regions"
9/F, PDCP Bank Center, L.P. Leviste corner
V.A. Rufino Streets, Salcedo Village, Makati City
Make: Three (3) units Toyota Revo VX200
Model year: 2003
Color: Kool Kristal
Engine No: 1) RZF82 003412 2) RZF82 003425
3) RZF82 0003416
Chassis No: 1) 1RZ 3132417 2) 1RZ 3134420
3) 1RZ 3132871

In reply, please be informed that paragraph 4(a) of the Diplomatic Exchange of Notes dated May 6,
2002, provides:

"4. The Government of the Republic of the Philippines shall make the following
contributions:

It shall

(a) exempt the material and motor vehicles supplied for the Office from taxes, licenses,
harbour dues, import and export duties and other public charges, as well as storage fees, and ensure
that such material is cleared by customs without delay. The aforementioned exemptions shall, with
regard to value-added tax (VAT), also apply to material and services (including consulting services)
procured in the Republic of the Philippines, as well as to the renting of office premises and
accommodation for seconded experts; (Emphasis supplied)

In addition, please be informed that Sec. 109 of the NIRC provides, viz:

"SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added
tax:

xxx xxx xxx

(q) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529
and 1590;

xxx xxx xxx

Under the above-cited provisions, a transaction is exempt from VAT when a special law or an
international agreement to which the Philippines is a signatory provides for such exemption. The herein
Agreement between the Government of the Federal Republic of Germany and the Government of the
Republic of the Philippines Concerning Technical Co-operation executed on September 7, 1971, with
Diplomatic Exchange Notes dated May 6, 2002 partakes of the nature of an international agreement. The
cited paragraph 4(a) of the Diplomatic Exchange of Notes dated May 6, 2002 is, in effect, a grant of
exemption from VAT. AaHcIT

In view thereof, this Office is of the opinion and so holds that the purchases made by GTZ of
materials and services in the Philippines under the Agreement between the Government of the Federal
Republic of Germany and the Government of the Republic of the Philippines Concerning Technical

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 420
 Co-operation executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6, 2002 are
exempt from VAT, pursuant to Sec. 109(q) of the NIRC.

In view thereof, you herein request for exemption from VAT on the local purchase of three (3) units
of Toyota Revo VX200, for the official use of GTZ is hereby exempt from value-added tax (VAT). (BIR
Ruling No. DA-ITAD-91-03 dated July 3, 2003)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

February 23, 2004

ITAD RULING NO. 017-04

Sec 109 (q) of the Tax Code of 1997

BIR Ruling No. DA-ITAD-91-03

Deutsche Gesselschaft Fur Technische

Zusammenarbeit (GTZ)
c/o GDC-GTZ Office, 9/F, PDCP Bank Center
LP Leviste cor. V.A. Rufino Sts., Salcedo Village
Makati City

Attention: Dirk Rahlenbeck

Third Secretary

Gentlemen :

This has reference to your Note Verbale KFZ No. 1/2004 dated January 13, 2004 indorsed to this
Office by the Department of Foreign Affairs (DFA), requesting for exemption from payment of
value-added tax (VAT) on the local purchase of one (1) motor vehicle, for the official use of GDC-GTZ
Office of the German Embassy, specifically described as follows:

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 421
 Type of use: Official use
Organization: GTZ—"Siquijor Integrated Resources
Management Project" (SIRMAP)
9/F, PDCP Bank Center, L.P. Leviste corner
V.A. Rufino Streets, Salcedo Village, Makati City
Make: one (1) unit Toyota Revo GLX M/T
Model year: 2003
Color: Lithium
Engine No: 2L-9785313
Chassis No: LF82-6000885

In reply, please be informed that paragraph 4(a) of the Diplomatic Exchange of Notes dated May 6,
2002, provides:

"4. The Government of the Republic of the Philippines shall make the following
contributions:

It shall

(a) exempt the material and motor vehicles supplied for the Office from taxes, licenses,
harbour dues, import and export duties and other public charges, as well as storage fees, and ensure
that such material is cleared by customs without delay. The aforementioned exemptions shall, with
regard to value-added tax (VAT), also apply to material and services (including consulting services)
procured in the Republic of the Philippines, as well as to the renting of office premises and
accommodation for seconded experts; (Emphasis supplied) aHSCcE

In addition, please be informed that Sec. 109 of the NIRC provides, viz:

"SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added
tax:

xxx xxx xxx

(q) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529
and 1590;

xxx xxx xxx"

Under the above-cited provisions, a transaction is exempt from VAT when a special law or an
international agreement to which the Philippines is a signatory provides for such exemption. The herein
Agreement between the Government of the Federal Republic of Germany and the Government of the
Republic of the Philippines Concerning Technical Co-operation executed on September 7, 1971, with
Diplomatic Exchange Notes dated May 6, 2002 partakes of the nature of an international agreement. The
cited paragraph 4(a) of the Diplomatic Exchange of Notes dated May 6, 2002 is, in effect, a grant of
exemption from VAT.

In view thereof, this Office is of the opinion and so holds that the purchases made by GTZ of
materials and services in the Philippines under the Agreement between the Government of the Federal
Republic of Germany and the Government of the Republic of the Philippines Concerning Technical
Co-operation executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6, 2002 are
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 422
 exempt from VAT, pursuant to Sec. 109(q) of the NIRC.

In view thereof, you herein request for exemption from VAT on the local purchase of one (1) unit
of Toyota Revo GLX M/T, for the official use of GTZ is hereby exempt from value-added tax (VAT).
(BIR Ruling No. DA-ITAD-91-03 dated July 3, 2003)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

February 20, 2004

ITAD RULING NO. 016-04

RP-US, Arts. 13 (2) (b) (iii)

RP-China, Art. 12 (2) (b)
NIRC, Sec. 108;
RMC 46-2002

Sycip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City

Attention: Joel L. Tan-Torres

Tax Division

Gentlemen :

This refers to your letter dated December 8, 2003, on behalf of your client, Kimberly-Clark
Philippines, Inc. (KCPI), requesting confirmation that the royalty payments of KCPI to its licensors,
Schweitzer-Mauduit International, Inc. (SMII) and Kimberly-Clark Worldwide, Inc. (KCWI), both
residents of the United States of America, are subject to the withholding tax rate of ten percent (10%)
pursuant to the "most-favored-nation" clause of the RP-US tax treaty in relation to the RP-China tax treaty.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 423
 It is represented that SMII is a non-resident foreign corporation duly organized and existing under
the laws of the State of Delaware, USA, with executive office located at 1400 Holcomb Bridge Road,
Roswell, Georgia 30076-2199, USA; that KCWI is a non-resident foreign corporation duly organized and
existing under the laws of the State of Delaware, USA, with executive office located at Neenah,
Wisconsin, USA, USA; that SMII and KCWI are not registered either as a corporation or as a partnership
and have not been licensed to do business in the Philippines per certifications issued by the Securities and
Exchange Commission both dated October 22, 2003; that KCPI is a corporation duly organized and
existing under the laws of the Philippines with principal address at 32/F The Enterprise Center, Tower 1,
Ayala Avenue, Makati City; that KCPI and SMII entered into a License and Technological and Marketing
Assistance Agreement dated December 3, 1996 which was registered with the Intellectual Property Office
under Certificate of Registration No. 1518-A dated December 29, 1997; that pursuant to the said
Agreement, SMII granted to KCPI the following rights; (1) An exclusive license to use the Licensed
Trademarks and Patents in manufacturing, converting and packaging of cigarette papers and other
specialty papers in the Philippines and; (2) A non-exclusive license under the Licensed Patents in the
distribution and sale of Licensed Products as specified in Appendix A of the Agreement to customers and
distributors and through sales representatives of Licensee's choice in the Philippines and elsewhere which
are approved by Licensor; that in consideration thereof, KCPI shall pay to SMII royalty at the rate of one
and one-half percent (1.5%) on the total new sales of the licensed products in addition to which a payment
of one percent (1%) shall be made on total net sales of new cigarette and other specialty papers; that KCPI
and KCWI entered into a License and Technical Assistance Agreement dated November 1, 1998, whereby
the latter granted the former the following rights; (1) An exclusive nontransferable sublicense, without the
right to further sublicense, to use each Licensed Trademark and Patents and the proprietary information
obtained by Licensor in connection with the manufacture, conversion, packaging of each licensed
products, to wit: tissue paper, table napkins, paper towels, sanitary products, diapers, baby cologne, baby
powder, cotton buds and balls and other absorbent products and; (2) A non-exclusive nontransferable
sublicense, without the right to further sublicense, to use each Licensed Trademark and Patents and the
proprietary information obtained by Licensor in the distribution and sale of each Product in the territory
and to Licensor approved outlets in the Export Territory; that in consideration thereof, KCPI shall pay to
KCWI, royalty at the rate of two percent (2%) of net sales for tissue products and three percent (3%) of
net sales for personal care products.

In reply, please be informed that Article 13 of the RP-US tax treaty provides, viz:

"Article 13

"ROYALTIES

"(1) Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States.

"(2) However, the tax imposed by that other Contracting State shall not exceed —

(a) In the case of the United States, 15 percent of the gross amount of the royalties, and

(b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties,

(ii) 15 percent of the gross amount of the royalties, where the royalties are
paid by a corporation registered with the Philippine Board of Investments and
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 424
 engaged in preferred areas of activities, and

(iii) the lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third State. (Emphasis
supplied)

"(3) The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or films or tapes used for radio or television broadcasting, any
patent, trade mark, design or model, plan, secret formula or process, or other like right or property,
of for information concerning industrial, commercial or scientific experience. The term "royalties"
also includes gains derived from the sale, exchange or other disposition of any such right or property
which are contingent on the productivity, use, or disposition thereof.

"xxx xxx xxx"

and, in relation thereto, Article 12 of the RP-China tax treaty provides, viz:

"Article 12

"ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State

"2. However, such royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but if the recipient is the beneficial owner of the royalties,
the tax so charged shall not exceed:

a) 15 per cent of the gross amount of royalties arising from the use of, or
the right to use, any copyright of literary, artistic or scientific work including
cinematograph films or tapes for television or broadcasting, or

b) 10 per cent of the gross amount of the royalties arising from the use of,
or the right to use, any patent, trade mark, design or model, plan, secret formula or
process, or from the use of, or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial, commercial or scientific
experience.

For as long as transfer of technology, under Philippine law is subject to

approval, the limitation of the tax rate mentioned under (b) shall, in the case of
royalties, arising in the Republic of the Philippines, only apply if the contract giving
rise to such royalties has been approved by the Philippine competent authorities.

"xxx xxx xxx"

Based on the above-mentioned provisions, the tax imposed on royalties derived by a resident of the
United States from sources within the Philippines shall be the lowest rate of Philippine tax that may be
imposed on royalties of the same kind paid under similar circumstances to a resident of a third State.
Relative thereto, it is noteworthy that under Article 12(2)(b) of the RP-China tax treaty, the tax charged
shall not exceed 10% of the gross amount of royalties.

In the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. and Court of
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 425
 Appeals, G.R.N. 127105, promulgated on June 25, 1999, the Supreme Court interpreted the
"most-favored-nation" clause, particularly the phrase "paid under similar circumstances", as referring to
the manner of payment of taxes and not to the subject matter of the tax which is royalties. (BIR Ruling No.
ITAD 118-01 dated February 23, 2001 and the BIR Ruling No. ITAD 109-02 dated May 30, 2002)

Such being the case, this Office is of the opinion and so holds that the royalty payments of SMII
and KWCI under the said License Agreements are subject to final withholding tax at the rate of 10%
pursuant to the "most favored nation" provision of the RP-US tax treaty in relation to the RP-China tax
treaty effective January 1, 2002. [Revenue Memorandum Circular (RMC) No. 46-2002 dated September 2,
2002; BIR Ruling No. DA-ITAD 101-03 dated July 24, 2003] KCPI shall deduct and withhold the tax at
the time the royalty income payment is paid or payable, or the income payment is accrued or recorded as
an expense or asset, whichever is applicable, and whichever comes first. The term "payable" refers to the
date the obligation become due, demandable, or legally enforceable. [Section 4-Time of Withholding,
Revenue Regulations (RR) NO. 12-2001] aHTCIc

Moreover, the said royalty payment by KCPI to SMII and KCWI shall be subject to the 10%
value-added tax (VAT) under Section 108 of the Tax Code. Accordingly, KCPI, being the resident
withholding agent and payor in control of the payment, shall be responsible for the withholding of the 10%
final VAT on such royalty before making any payment to SMII and KCWI. In remitting the VAT
withheld, KCPI shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other
Percentage Taxes Withheld). The duly filed BIR form 1600 and proof of payment thereof shall serve as
documentary substantiation for the claim of input tax by KCPI is a non-VAT registered taxpayer, the
passed, on VAT withheld shall form part of the service purchased which may be treated as "expense" or
"asset", whichever is applicable. In addition, KCPI is required to issue the Certificate of Final Tax
Withheld at Source (BIR Form 2306) in quadruplicate upon request of SMII and KCWI, the first three
copies thereof to be given to SMII and KCWI and the fourth copy to be retained by KCPI as its file copy.
[Section 4 & 6, RR No. 4-2000; Section 3; RR No. 8-2002; Section 7, RR No. 14-2002]

This ruling is issued on the basis of the facts as represented. 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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 426
 February 20, 2004

ITAD RULING NO. 015-04

Article 12; RP-Japan Tax treaty

BIR Ruling No. DA-ITAD-58-02

Joaquin Cunanan & Co.

Unit 306, Keppel Center
Samar Loop corner
Cardinal Rosales Avenue
Cebu Business Park
6000 Cebu City

Attention: Virgilio L. Manguilimotan

Partner-VISMIN Operations
Assurance Services

Gentlemen :

This refers to your application for tax treaty relief dated December 15, 2003 on behalf of your
client, NEC Corporation (NEC Japan), requesting confirmation that the royalty payments of NEC Telecom
Software Philippines, Inc. (NEC Phil.) to NEC Japan are subject to twenty five per cent (25%)
withholding tax pursuant to Article 12(2)(b) of the RP-Japan tax treaty.

It is represented that NEC Japan is a non resident foreign corporation duly organized and existing
under the laws of Japan with principal office address at 7-1, Shiba 5-Chome Minato-Ku, Tokyo 108-8001,
Japan; that it is no longer registered either as a corporation or as a partnership licensed to do business in
the Philippines since the cancellation of its license on July 29, 1998 per certification dated December 16,
2003 issued by the Securities and Exchange Commission (SEC); that NEC Phil. is a domestic corporation
duly organized and existing under the laws of the Philippines with office address at Asiatown I.T. Park,
Apas, Cebu City; that NEC Phil. is a Philippine Economic Zone Authority (PEZA)-registered enterprise
under Certificate of Registration No. 01-018-IT dated December 21, 2001; that NEC Phil. is licensed to
engage in, operate, conduct, and maintain the business of researching, studying, designing, developing,
processing, modifying, repairing, debugging, subcontracting, importing and exporting of software for
telecommunication equipment and systems; that on August 1, 2003, NEC Japan and NEC Phil. entered
into a License Agreement whereby the former grants and agrees to grant to the latter the following: a) the
authority to use NEC Letters in a part of its trade name, b) a non-transferable and non-exclusive right to
use NEC Mark in the Territory on the Products and Services and in catalogues, pamphlets, promotional
materials, and other advertisement media to be utilized by the latter for the marketing, distribution, and/or
provision of Products and Services, and c) the authority to use NEC Mark as its corporate mark in its
advertising, outdoor signs, vehicles, business cards for employees, displays, office stationery goods, and

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 427
 the like; that in consideration for the authorization and grant of license, NEC Phil. agrees to pay to NEC
Japan the royalty in the amount calculated according to the following:

(i) 0.12% of NEC Phil.'s gross sales amount to customers other than NEC and/or NEC SEC
Consolidated Subsidiaries, plus

(ii) 0.12% of NEC Phil.'s total gross sales amount;

and that the License Agreement is covered by Certificate of Compliance No. 5-2003-00036 issued by the
Intellectual Property Office (IPO) on November 28, 2003.

In reply, please be informed that Article 12 of the RP-Japan tax treaty provides as follows:

"Article 12

1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.

2. However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
royalties the tax charged shall not exceed:

a) 15 per cent of the gross amount of the royalties if the royalties are paid
in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;

b) 25 per cent of the gross amount of the royalties in all other cases.

3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the

Philippines on the royalties paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the
royalties, shall not exceed 10 per cent of the gross amount of the royalties.

4. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films and films or tapes for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience.

xxx xxx xxx"

Based on the foregoing, the royalty payments shall be subject to 15% if the royalties are paid in
respect of the use of or the right to use cinematograph films and films or tapes for or television
broadcasting, 10% if the Philippine Company is a Board of Investments (BOI)-registered enterprise, and
25% of the gross amount of royalties in all other cases.

Such being the case, the royalty payments of NEC Phil. to NEC Japan are subject to preferential tax
rate of 25% pursuant to Article 12(2)(b) of the RP-Japan tax treaty. (BIR Ruling No. DA-ITAD 58-02
dated April 24, 2004)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 428
 Moreover, Section 108 of the Tax Code of 1997 states that, the lease or use of property or property
rights is embraced within the definition of "sale or exchange of services" and is subject to value-added tax
(VAT). Under the current regulations, the sale of services to Ecozone Enterprises may be considered
effectively zero-rated for VAT purposes but subject to the limitation that the sale of service is made to
persons or entities who enjoy indirect tax exemption [Section 4.102-2 (c), Revenue Regulations No. 7-95].
Since there is no express provision under the PEZA law granting exemption from indirect taxes to
Ecozone Enterprises, the recognition of zero-rated sale of services is made to rest on the Cross Border
Doctrine or Destination Principle of the VAT system, viz: "the country taxes all value-added, at home and
abroad, for goods that have as their destination the consumers of that country. Exports are exempt,
imports are taxable. . . .(VAT Ruling No. 009-99 dated January 21, 1999)

The same principle is applicable to the case at hand. It should be noted that the transfer of
technology is in connection with the manufacture of products for export. However, instead of zero-rating
which is not available to non-resident suppliers, the provision for exempt transactions under Section 109
of the Tax Code of 1997 which provides VAT exemption for transactions which are exempt under special
laws, e.g., Republic Act 7916 or PEZA law, is particularly applicable to the instant case. In the case of
payment for lease or royalties to a non-resident owner, the responsibility for withholding the VAT and
paying the same rest on the payor. However, since PEZA-registered export enterprise may not be passed
on with nor claim input VAT, then its payment of royalties to a non-resident owner, such as NEC Japan
should be, as it is hereby confirmed to be, exempt from VAT. (VAT Ruling No. 095-99 dated September
14, 1999) TacESD

Thus ruling is issued on the basis of the facts 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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 429
 February 20, 2004

ITAD RULING NO. 014-04

Article 13 (Royalties) Philippines-United States of America

tax treaty BIR Ruling No. ITAD 90-03

Paper Handling Systems, Inc.

17 Gil Puyat Avenue
Makati City

Attention: Joel G. Santos

Vice President

Gentlemen :

This refers to your application for relief from double taxation dated August 1, 2003 on behalf of
Pitney Bowes requesting confirmation that the technology license fees paid by the Bureau of Internal
Revenue (Bureau) to Pitney Bowes are exempt from Philippine income tax, pursuant to the National
Internal Revenue Code of 1997 (Tax Code) and the Philippines-United States of America tax treaty.

It is represented that Pitney Bowes is a nonresident foreign corporation engaged in providing

solutions related to integrated mail and document management; that Pitney Bowes is organized and
existing under the laws of the United States of America with principal office at World Headquarters, One
Elmcroft Road, Connecticut 06926-0700, United States of America; that on January 1, 2003, a Technology
License Agreement (Agreement) was entered into between the Bureau and Pitney Bowes, where Pitney
Bowes grants the Bureau the license to use the latter's technical information for operating a Revenue
Collection System and a Verification System, for the purpose of increasing the Bureau's collection of
documentary stamp taxes through electronic means; that the Revenue Collection System is designed to
remotely enable the resetting of documentary stamp tax meters (meters) equipped with Pitney Bowes' lock
technology, while the Verification System will securely verify the authenticity of an indicia or image
which is printed by a meter representing proof of tax payment; that the Revenue Collection System and the
Verification System are series of software each containing trade secrets, and know-how of Pitney Bowes,
which are considered proprietary, confidential, and of significant commercial value to Pitney Bowes. HDTISa

That in consideration for the license granted, the Bureau shall pay Pitney Bowes an annual
operating license fee in advance beginning on the date of execution of the Agreement on January 1, 2003,
calculated in accordance with the following schedule:

Revenue Collection System (based on the total number of meters installed as of the date of execution
of the Agreement)
Up to 1,500 meters U.S. $25,000
1,501 to 3,000 meters U.S. $45,000
3,001 to 4,000 meters U.S. $68,000
4,001 to 5,000 meters U.S. $90,000

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 430
 5,001 to 12,500 meters U.S. $150,000
More than 12,500 meters Special Quote
Verification System (based on the total number of verification systems installed as of the date of
execution of the Agreement)
Up to 5 Verification Systems U.S. $7,500
6-10 Verification Systems U.S. $15,000
11-20 Verification Systems U.S. $30,000
21-40 Verification Systems U.S. $50,000
41-75 Verification Systems U.S. $90,000
75+ Verification Systems Special Quote
In reply, pleased be informed that the license fees paid by the Bureau to Pitney Bowes, being
payments for software, are payments for the use or the right to use of a copyright of literary, artistic or
scientific work and as such are considered royalties within the definition of such term in paragraph 3,
Article 13 (Royalties) of the Philippines-United States tax treaty and under the recent Revenue
Memorandum Circular No. 77-2003 (Classification of Payments for Software for Income Tax Purposes)
dated November 18,2003:

Philippines-United States tax treaty:

"3. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or films or tapes used for radio or television broadcasting, any
patent, trade mark, design or model, plan, secret formula or process, or other like right or property,
or for information concerning industrial, commercial or scientific experience." (emphasis supplied)

Revenue Memorandum Circular No. 77-2003:

"Software is generally assimilated as a literary, artistic or scientific work protected by the copyright
laws of various countries including the Philippines, thus, payments is consideration for the use of, or
the right to use, a copy or a copyrighted article relating to software are generally royalties."

Accordingly, the license fees for the use or the right to use of the Revenue Collection System and
the Verification System, being royalties, are subject to the preferential tax rate under paragraph 2(b),
Article 13 of the tax treaty, to wit:

"Article 13

ROYALTIES

1. Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States.

2. However, the tax imposed by the other Contracting State shall not exceed —

a) In the case of the United States, 15 percent of the gross amount of the
royalties, and

b) In the case of the Philippines, the least of:

(i) 25 percent of the gross amount of the royalties,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 431
 (ii) 15 percent of the gross amount of the royalties, where the
royalties are paid by a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, and

(iii) the lowest rate of Philippine tax that may be imposed on

royalties of the same kind paid under similar circumstances to a resident of a
third State."

Based on the abovecited provision, royalties arising from sources within the Philippines and
derived by a resident of the United States shall be subject to a preferential tax rate of: (a) 25 percent of the
gross amount of the royalties; (b) 15 percent of the gross amount of the royalties, where the royalties are
paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas
of activities; or (c) the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid
under similar circumstances to a resident of a third State.

Such being the case, since the Bureau is not a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, royalties paid by the Bureau to Pitney Bowes
shall be subject to either 25 percent of the lowest rate of Philippine tax imposed on royalties of the same
kind paid under similar circumstances to a resident of a third State.

In interpreting the phase "the lowest rate of Philippine tax imposed on royalties of the same kind
paid under similar circumstances to a resident of a third State," or commonly known as the most favored
nation clause, the Supreme Court, in Commissioner of Internal Revenue vs. S.C. Johnson and Son Inc. and
Court of Appeals (G.R. No. 127105 dated June 25, 1999), had cited two conditions that must be satisfied
in granting such lowest rate. First, the income arising in the Philippines derived by a resident of the United
States and subject to Philippine income tax must be of the same nature as that derived by a resident of the
third country subject to a rate lower than 25 percent. Second, the mechanism for relieving double taxation
of foreign-sourced income applied by the United States must be the same as that applied by the third
country. The Court noted:

"The purpose of a most favored nation clause is to grant to the contracting party, treatment not less
favorable than that which has been or may be granted to the `most favored' among other countries.
The most favored clause is intended to establish the principle of equality of international treatment
by providing that the citizens or subject of the contracting nations may enjoy the privileges accorded
by either party to those of the most favored nation. The essence of the principle is to allow the
taxpayer in one State to avail of more liberal provisions granted in another tax treaty to which the
country of residence of such taxpayer is also a party provided that the subject matter of taxation, in
this case royalty income, is the same as that in the tax treaty under which the taxpayer is liable. Both
Article 13 of the RP-US tax treaty and Article 12(2)(b) of the RP-West Germany tax treaty, above
quoted, speaks of tax on royalties of the use of trademark, patent and technology. The entitlement of
the 10% rate by U.S. firms despite the absence of a matching credit (20% for royalties) would
derogate from the design behind the most favored clause to grant equality of international treatment
since the tax burden laid upon the income of the investor is not the same in the two countries. The
similarity in the circumstances of payment of taxes is a condition for the enjoyment of most favored
nation treatment precisely to underscore the need for equality of treatment."

In looking for tax treaties providing most-favored nation treatment of royalties arising in the
Philippines, it is noteworthy to take into account and use as basis the existing Philippine tax treaties with
Austria, Belgium, China, and the like. Under the Royalties article of these treaties, royalties from the use
or the right to use of copyright literary or artistic, or scientific work arising in the Philippines shall be
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 432
 subject to tax at a rate not exceeding 15 percent of the gross amount of such royalties. Likewise, under the
Relief from Double Taxation of these treaties, the mechanism for relieving double taxation of
foreign-sourced income applied by these countries is the same as that applied by the United States; that is,
only taxed actually paid on such foreign-sourced income are subject to relief from double taxation in all
these countries.

Such being the case, this Office is of the opinion and so holds that the license fees paid by the
Bureau to Pitney Bowes for the use or the right to use of the Revenue Collection System and the
Verification System, being royalties, shall be subject to income tax at a rate not exceeding 15 percent of
the gross amount thereof. (BIR Ruling No. ITAD 90-03 dated July 2, 2003)

Finally, Section 108(A)(1) of the Tax Code states that "the lease or the use of the right or privilege
to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right" falls within the definition of sale or exchange of services subject to
10 percent value-added tax (VAT). Accordingly, the license fees paid by the Bureau to Pitney Bowes shall
be subject to 10 percent VAT. (BIR Ruling No. ITAD 90-03 dated July 2, 2003)

Under Sections 4 and 6 of Revenue Regulations 4-2000, Section 3 of Revenue Regulations 8-02,
and Section 7 of Revenue Regulations 14-2002, the Bureau, being the resident withholding agent and
payor in control of the payment, shall be responsible for the withholding of the 10 percent VAT on such
license fees before paying them to Pitney Bowes. In remitting the VAT withheld, the Bureau shall use BIR
Form 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). If
the Bureau is a VAT-registered taxpayer, the duly filed BIR Form 1600 and proof of payment thereof shall
serve as documentary substantiation for the claim of input VAT by the Bureau upon filing its own VAT. If
not a VAT-registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service
purchased which may be treated as an "expense" or "asset" on the part of the Bureau, whichever is
applicable. In addition, the Bureau is required to issue the Certificate of Final Tax Withheld at Source
(BIR Form 2306) in quadruplicate upon request of Pitney Bowes, the first three copies to be kept by the
Bureau and the fourth copy by Pitney Bowes as its file. cCSDTI

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
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 433
 February 18, 2004

ITAD RULING NO. 013-04

Sec 106, 108 & 149 of the Code 1997;

Article 34, Vienna Convention
BIR Ruling No. DA-ITAD-139-02

Delegation of the European Union in the Philippines

Salustiana D. Ty Tower, 7th Floor, 104 Paseo de Roxas
Legaspi Village
Makati City

Attention: Mr. Frank Hess'

First Secretary/Head of Operations Section

Gentlemen :

This has reference to your Note Verbale No. 03/005 dated January 9, 2004, referred to this Office
by the Department of Finance and the Department of Foreign Affairs (DFA), requesting for exemption
from payment of all taxes on one (1) motor vehicle specifically described hereunder, for the personal use
of Mr. Frank Hess, First Secretary/Head of Operations Section, a representative of the Federal Republic
Germany to the Delegation of the European Union:
Make: Toyota Altis 1.6 E MT 1.6 5S
Model Year: 2003
Color: Freedom White
Chassis Number: ZZE121-8010538
Motor Number: 3ZZ-4256400
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 3

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or
services:

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 434
 the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997. SHIcDT

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
the Federal Republic of Germany or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs that your Government allows
similar exemption to Philippine Embassy personnel on their purchase of goods and services in your
country.

Hence, the local purchase of one (1) Toyota Altis 1.6 E MT 1.65S for the personal use of Mr. Frank
Hess, First Secretary/Head of Operations Section, a representative of the Federal Republic of Germany to
the Delegation of the European Union is exempt from VAT and ad valorem taxes. (BIR Ruling No.
DA-ITAD-139-02 dated August 8, 2002)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

February 18, 2004

ITAD RULING NO. 012-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. ITAD-97-00

Embassy of Finland
21st Floor, BPI Buendia Center
Sen. Gil Puyat Avenue
Makati City

Attention: Ms. Mervi Kultamaa

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 435
 Second Secretary

Gentlemen :

This has reference to your Note No. 680 dated January 7, 2004 referred to this Office by the
Department of Finance and the Department of Foreign Affairs, (DFA), requesting for exemption from
payment of value-added tax (VAT) and ad valorem tax on one (1) motor vehicle specifically described
hereunder, for the personal use of Mr. Mervi Kultamaa, Second Secretary of the Embassy of Finland:
Make: Honda City 1.3 A MT
Model Year: 2003
Color: Taffeta White
Chassis Number: MRHGD65603P010181
Motor Number: L13A31800659
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads: SECHIA

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except.

"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic age does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
Finland or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the Department of Foreign Affairs that your Government allows similar exemption to
Philippine Embassy personnel on their purchase of goods and services in your country.

Hence, the local purchase of one (1) Honda City 1.3 A MT for the personal use of Ms. Mervi
Kultamaa, Second Secretary of the Embassy of Finland is exempt from VAT and ad valorem taxes. (BIR
Ruling No. DA-ITAD-97-00 dated August 2, 2000)

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 436
 February 18, 2004

ITAD RULING NO. 011-04

Agreement Between the Asian Development Bank and the

Government of the Republic of the Philippines Regarding
the Headquarters of the Asian Development —Sections
34,44 (c), and 45;
Department of Finance (DOF) Order No. 43-89 dated
October 13, 1989;
Memorandum of the Executive Secretary of the Office of
the President of the Philippines dated August 15, 1973
VAT Ruling No. 008-00
BIR Ruling No. ITAD-80-00
BIR Ruling No. ITAD-125-02
VAT Ruling No. 033-2000

Asian Development Bank

6 ADB Avenue
0401 Mandaluyong City

Attention: Mohammed Parvez Imdad

Head-Shipping Section, General Services Division
Office of Administrative Services

Gentlemen :

This refers to your letter dated February 5, 2004 requesting reconfirmation of the exemption of the
qualified Asian Development Bank (ADB) personnel from the payment of value-added tax (VAT).
Likewise, you also seek clarification on the application/treatment of said VAT exemption by sellers of
goods, and services, more particularly, the car manufacturers with respect to their sale of motor vehicles to
VAT exempt ADB personnel.

It is represented, that pursuant to the Department of Finance (DOF) Order No. 43-89 dated October
13, 1989 entitled "Procedure in the Availment of the 2nd Car Privilege by Qualified Asian Development
Bank Personnel," and BIR Ruling No. 083-90 dated May 15, 1990, the qualified personnel of the ADB are
accorded VAT exemption from the purchase of one motor vehicle from local car manufacturers. However,
the Toyota Motor Philippines, Inc. only applies a 3.5% "differential rate" instead of the full 10% VAT
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 437
 exemption on the basis of VAT Review Committee Ruling No. 033-2000 dated September 8, 2000.

In reply, and to fully clarify the tax exemption privileges and immunities of the ADB and its
qualified personnel, this Office is of the opinion and so holds as follows:

The Asian Development Bank

Section 109 of the National Internal Revenue Code of 1997 (NIRC) provides, viz:

"Sec. 109. Exempt transactions. — The following shall be exempt from the value-added
tax:

"xxx xxx xxx"

"(q) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529
and 1590;"

In this connection, Article IX, Section 34 of the Agreement Between the Asian Development Bank
and the Government of the Republic of the Philippines Regarding the Headquarters of the Asian
Development (RP-ADB Agreement) provides, viz:

"Section 34

The Bank its property and its operations and transactions shall be exempt from:

(a) all taxation and any obligation for the payment, withholding or collection of any tax or
duty. The Bank will not claim exemption from taxes or charges which are no more than payments
for public utility services; (emphasis supplied)

(b) all customs duties and other levies on any goods, articles, including motor vehicles,
spare parts and publications, imported or exported by the Bank for its official use, and any
obligation for the payment, withholding or collection of any customs duties. The goods and articles,
including vehicles, spare parts and publications imported under such exemption will not be sold in
the Republic of the Philippines except under conditions agreed upon with the Government; and"

"xxx xxx xxx"

Based on the above-quoted provisions, it is clear that the properties, operations and transactions,
which include but are not limited to official purchases of goods and services in the Philippines, by the
ADB are accorded exemption from all taxes or duties, whether direct and indirect taxes such as VAT and
ad valorem tax (AVT). Such being the case, the official purchases of goods and services by the ADB,
which include official purchase of a motor vehicle, are exempt from all taxes and duties, more particularly
from VAT pursuant Section 109(q) of the NIRC in relation to the RP-ADB Agreement. (BIR Ruling No.
ITAD-80-00 dated July 25, 2000)

Qualified Bank Personnel

Pursuant to Article XII, Sections 44(c) of the RP-ADB Agreement, Governors, other
Representatives of Member Countries, Directors, the President, the President, Vice President and
Executive Officers, as agreed by ADB and the Philippine Government, enjoys tax exemptions, immunities,
privileges and facilities enjoyed by members of diplomatic missions of comparable rank.
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 438
 Other Officers and staff of the ADB, including but not limited to experts and consultants, as
determined by the Department of Foreign Affairs (DFA), enjoy the following tax privileges under Section
45(b)(f) and (g) of the same Agreement:

(1) Exemption from taxation on or in respect of the salaries and emoluments paid by the ADB,
subject to the power of the Philippine Government to tax its nationals; [i.e. Filipinos
working in the ADB are subject to tax]

(2) The right to import, free of duty and other levies, prohibition and restrictions on imports,
furniture and effects including one automobile within twelve (12) months after taking up
their post in the Republic of the Philippines, and the same right to import one automobile for
replacement three (3) years after the last importation. [Should the previously imported
automobile be sold, conveyed or transferred, due notice shall be given by the ADB to the
Government and delivery shall be made at the place designated by the Government in
consultation with the ADB]; and

(3) The right to import, free of duty and other levies, prohibitions and restrictions on imports,
through the medium of the ADB, reasonable quantities of foodstuffs and other articles for
personal use and consumption.

In addition to the above tax privileges, the professional staff members and higher of the ADB, as
determined by the DFA, are granted the right to a second tax-free purchase of one unit locally assembled
motor vehicle under certain conditions pursuant to the Memorandum of the Executive Secretary of the
Office of the President of the Philippines dated August 15, 1973, as reproduced hereunder:

"1. In connection with the request of the Asian Development Bank that each member of its
professional staff be allowed to import two (2) tax-exempt automobiles, I wish to inform you that
the request is hereby approved, provided that;

(i) the second car should be locally assembled drawn from those covered
by the Progressive Car Manufacturing Program (PCMP), (Emphasis supplied)

(ii) with a right of rebate of taxes as if said locally assembled, cars were
exported,

(iii) that the exemption shall be extended only to staff members in the
professional or higher level, and

(iv) that the payment be made in a foreign currency acceptable as part of the
international reserves of the Philippines.

"2. The request by the Bank for its staff who are at higher or equivalent level to
Administrative Assistant to import one (1) duty free automobile is likewise approved, subject to the
four conditions cited above.

In addition to the above conditions is the procedure in the availment of the "2nd car" privilege
outlined under DOF Order No 43-89 dated October 13, 1989. Moreover, the qualified ADB personnel may
now choose to avail its 1st imported car privilege under 45(f) of the Agreement locally under the PCMP.
Exemption in either case includes both VAT and AVT. (BIR Ruling No ITAD-125-02 dated July 22, 2002)

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 439
 Seller of Goods and Services under the Above Exempt Transactions

As regards the seller of goods and services to ADB and its qualified personnel, it is worthy to note
that sales by a VAT-registered entity of goods and services under the above circumstances shall be treated
as effectively zero-rated transactions [Sec. 4.100-3, Revenue Regulations No. 7-95] In this jurisdiction, the
grant of VAT exemption alone would mean that the sellers shall bear the burden of the tax if they will not
be allowed to pass-on the VAT to the ADB or its personnel. To enable local sellers to refund the amount
of the tax inputted into the cost of goods and services supplied to an exempt entity, VAT zero-rating is
resorted to. In other words, from the point of view of the VAT-registered seller, although the sale of goods
or services to ADB and its personnel is a taxable transaction for VAT purposes, the process of zero-rating
operates to nullify the output tax on the part of the local supplier and the input tax on his own purchase of
goods, properties or services related to such effectively zero-rated sale becomes available as tax credit or
refund (VAT Ruling No 008-00 dated February 7, 2000)

Treated as effectively zero-rated transactions, the VAT-registered seller of goods or services to

ADB or its qualified personnel is required to file an application and secure prior approval for zero-rating
to be able to claim tax credit/refund on VAT (input tax) previously paid. The said application shall be
filed, before an initial sale, to the Large Taxpayers Audit and Investigation Division II (LTAID II) of this
Bureau, which, when approved, shall be effective for 12 months from the date of issuance of the approval
(Revenue Memorandum Circular No 17-96). Without an approved application for effective zero-rating, the
transaction otherwise treated to be zero-rated shall be considered exempt. Consequently, failure on the part
of a VAT-registered seller to secure an approval for effective zero-rating of said transaction will result in
the forfeiture of his entitlement to claim tax credit/refund on the (VAT) input tax passed on to him. [Secs.
4.107-1(d), 4.102-2 and 4.103-1, Revenue Regulations 7-95] Nonetheless, such requirement prior approval
for effective zero-rating supra to seller of goods and services to ADB (but not to its qualified personnel)
had been dispensed with by VAT Ruling No. 33-2000 dated September 8, 2000, as the VAT ruling itself is
a certification of sufficient and continuing compliance by local sellers to such requirement. For proper
documentation purposes, the sellers are required to clearly stamp their VAT invoice with the notation
"zero-rated sale," with reference to the number and date of the dispensing ruling. In other words, sale of
goods or services to ADB (the Bank) is deemed an effectively zero-rated sale even without prior approval
therefor. On the other hand, sale of goods or services to qualified ADB personnel requires a prior
approved application for zero-rating in order to consider such sale to be effectively zero rated. CIAacS

Accordingly, whether or not the seller had secured approval for effective zero-rating of the
aforementioned transactions, the exemptions accorded to the ADB and its qualified personnel stand and
may still be invoked to resist payment of the VAT. This is because even in the absence of prior approval
for effective zero-rating of a given transaction, the same is still an exempt transaction which the seller is
not allowed to charge any VAT (output tax) to buyer ADB or its personnel. In the event, however, that the
seller, more particularly car manufacturers in this case, erroneously passed on the VAT, the ADB or its
qualified personnel are entitled to claim for refund in the amount of passed on VAT. Since Toyota, in its
sale to qualified ADB personnel, allowed a VAT exemption only to the extent of 3.5% which it
denominates as "tax differential," then, Toyota is liable to refund the 6.5% passed on VAT to the
concerned qualified ADB personnel. (VAT Ruling No. 008-00 dated February 7, 2000)

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.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 440
 Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

February 16, 2004

ITAD RULING NO. 010-04

Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention
BIR Ruling No. 206-93

Royal Norwegian Embassy

21/F, Petron Mega Plaza Bldg.
358 Sen. Gil Puyat Avenue,
Makati City

Gentlemen :

This has reference to your Note No. 2/04 dated January 16, 2004 referred to this Office by the
Immunities and Privileges Division, Office of Protocol of the Department of Foreign Affairs (DFA),
requesting for the issuance of value-added tax (VAT) exemption certificate for the Embassy and its
officials.

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 441
 regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or
services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant exemption to the Royal
Norwegian Embassy or its personnel on their local purchases of goods and/or services it appearing from
the list submitted by the Department of Foreign Affairs that your Government allows similar exemption to
Philippine Embassy personnel on their purchases of goods and services in your country.

Hence, the Royal Norwegian Embassy is exempt from value-added tax on its purchases of local
goods and/or services. (BIR Ruling No. 206-93 dated May 11, 1993) DHcTaE

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

February 10, 2004

ITAD RULING NO. 009-04

Art. 12, RP-Japan tax treaty

Sec. 108 (A) (1) & (3), NIRC

Bernaldo Mirador Law Offices

Unit 1807 Cityland Condominium 10-Tower 1
6815 Ayala Avenue cor. H.V. Dela Costa St.
1220 Makati City

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 442
 Attention: Rosario S. Bernaldo
Managing Partner

Gentlemen :

This refers to your application for relief from double taxation dated October 24, 2003, requesting
confirmation of your opinion that the royalty payments of your client, Shinryo (Philippines) Company, Inc.
(Shinryo-Phils), to Shinryo Corporation (Shinryo-Japan) are subject to the 25 percent preferential tax rate
pursuant to Article 12 of the RP-Japan tax treaty.

It is represented that Shinryo-Japan is a non-resident foreign corporation duly organized and

existing under the laws of Japan with principal office address at #2-4 Yotsuya, 2 Chome Shinjuku-Ku,
Tokyo 160-8510 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 November 11, 2003; that Shinryo-Phils is a domestic corporation duly organized and
existing under Philippine laws with office address located at One Corporate Plaza 845 A. Arnaiz Avenue,
Makati City; that October 1, 1993, Shinryo-Japan and Shinryo-Phils entered into and executed a Royalty
& Technical Assistance Agreement (Agreement), for a period of 10 years, whereby the former will
transfer to the latter certain know-how, technical information and technical services and assistance
regarding the development of equipment and systems for mechanical building services and latest
equipment and systems for environmental controls for industrial production; that in consideration for the
above services, Shinryo-Phils shall pay Shinryo-Japan royalty fees equivalent to 3.5 percent (3.5%) of the
net sales, defined under the Agreement as the invoice value based on the contract price of projects being
undertaken by Shinryo-Phils less (a) commission, if any, and (b) taxes, excise or other government
charges; that on September 1, 2003, the same parties entered into a Renewal of Royalty & Technical
Assistance Agreement (Renewal Agreement), whereby the Agreement was renewed for another 5 years, to
end on September 30, 2008, with the same terms and conditions; and that the Renewal Agreement is
registered with the Intellectual Property Office (IPO) with Certificate of Compliance No. 5-2003-00114,
valid for a period of five (5) years from October 1, 2003 to September 30, 2008.

In reply, please be informed that Article 12 of the RP-Japan tax treaty provides, viz:

"Article 12

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.

"2. However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed:

"a) 15 per cent of the gross amount of the royalties if the royalties are paid
in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;

"b) 25 per cent of the gross amount of the royalties in all other cases.
(emphasis supplied)

"3. Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 443
 Philippines on the royalties paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the
royalties, shall not exceed 10 per cent of the gross amount of the royalties.

"4. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films and films or tapes for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience.

"xxx xxx xxx"

Based on the foregoing, the royalty payments will be taxed at a preferential rate not exceeding ten
percent (10%) if the payor is a Board of Investments (BOI-registered enterprise, fifteen percent (15%) if
the payments are in respect of the use of or the right to use cinematograph films and films or tapes for
radio of television broadcasting, and in all other cases, twenty-five percent (25%) of the gross amount of
royalties.

The tax treaty defines "royalties" to include "payments of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the commentaries
of the ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(Royalties), © 1998, p. 151), such information alludes to the concept of "know-how". The definition of
know-how, which has been adopted by the said Committee, is "all the undivulged technical information,
whether capable of being patented or not, that is necessary for the industrial reproduction of a product or
process, directly and under the same conditions; inasmuch as it is derived from experience, know-how
represents what a manufacturer cannot know from mere examination of the product and mere knowledge
of the progress of technique." In the know-how contract, one of the parties agrees to impart to the other, so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public.

As thus defined by the Technical and Assistance Agreement by and between Shinryo-Japan and
Shinryo-Phils, the information to be imparted by Shinryo-Phils is not a BOI-registered enterprise and the
payments made by Shinryo-Phils to Shinryo-Japan are not in respect of the use of or the right to use
cinematograph films and films or tapes for radio or television broadcasting, this Office is of the opinion
and so holds that herein payments are subject to tax at the rate of 25% of the gross amount of royalties
pursuant to Article 12 of the RP-Japan tax treaty. (BIR Ruling No. DA-ITAD-163-02 dated September 23,
2003)

Moreover, the said royalty payments are subject to 10% value-added tax (VAT) pursuant to Section
108 of the Tax Code of 1997. Accordingly, Shinryo-Phils being the resident withholding agent and payor
in control of the payment, shall be responsible for the withholding of the 10% final VAT before making
any payment to Shinryo-Japan. In remitting the VAT withheld, Shinryo-Phils shall use BIR Form 1600
(Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly filed
BIR Form 1600 and proof of payment thereof shall serve as documentary substantiation for the claim of
input tax by Shinryo-Phils upon filing its own VAT, if it is a VAT-registered taxpayer. In case
Shinryo-Phils is a non-VAT registered taxpayer, the passed-on VAT withheld shall form part of the cost of
the service purchased or treated as "expense" or "asset" whichever is applicable. In addition, Shinryo-Phils
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 444
 is required to issue the Certificate of Final Tax Withheld at Source (BIR Form 2306) in a quadruplicate
upon request of Shinryo-Japan, the first three copies thereof to be given to Shinryo-Japan and the fourth
copy to be retained by Shinryo-Phils as its file copy. [Section 4 & 6, Revenue Regulations (RR) No.
4-2002; Section 3 of RR 8-2002; Section 7 of RR 14-2002] AacDHE

In fine, Shinryo-Phils shall be responsible for the withholding of income tax at the rate of 25% of
the gross amount of royalties, and the value-added tax at the rate of 10% of the contract amount.

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
Bureau of Internal Revenue

February 9, 2004

ITAD RULING NO. 008-04

Tax Code of 1997 — Sections 28 (B) (1) & 42

BIR Ruling No. DA-ITAD-152-02
BIR Ruling No. DA-ITAD-148-03

C.L. Manabat & Co.

Certified Public Accountants and
Management Consultants
3rd to 6th Floor, Salamin Bldg.,
197 Salcedo St., Legaspi Village
1229 Makati City
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 445
 Attention: Atty. Domingo Lagundi, Jr.
Corporate and Tax Services

Gentlemen :

This refers to your application for relief from double taxation dated October 2, 2003, on behalf of
your client, Datacraft Asia Ltd. (Datacraft Asia), requesting confirmation of your opinion that the
payments of service fees by Datacraft Communications System Inc. (Datacraft Phils.) to Datacraft Asia is
not subject to income tax, pursuant to Article 7 in relation to Article 5 of the Philippines-Singapore tax
treaty.

It is represented that Datacraft Asia is a nonresident foreign corporation organized and existing
under the laws of Singapore with business address at 6 Shenton Way #24-01 DBS Bldg. Tower II,
Singapore 068809; that it is not registered either as a corporation or as a partnership in the Philippines as
evidenced by a Certificate of Non-Registration issued by the Securities and Exchange Commission dated
September 2, 2003; that Datacraft Asia is not engaged in trade or business in the Philippines; that
Datacraft Asia is an affiliate of Datacraft Phils., a domestic corporation duly organized and existing under
the laws of the Philippine, with principal office at 4th Floor, Gammon Center, Philamlife Building, 126
Alfaro Street, Salcedo Village, Makati City; that Datacraft Asia entered into an "Agreement for Provision
of Management, General Support and Administrative Services" (Agreement) with Datacraft Phils.,
wherein Datacraft Asia shall provide Datacraft Phils. with services as detailed in Schedule 1 which is
made as integral part and parcel of the Agreement for a fee; that under the Agreement, the said services
shall be provided by Datacraft Asia in Singapore through teleconferencing, internet, email, and other
similar forms of communication; that no employee or any authorized representative of Datacraft Asia shall
come to the Philippines for more than one hundred eighty (180) days to render services as provided for in
the Agreement and per Certification issued by Datacraft Phils. dated November 18, 2003; and that
Datacraft Phils. shall pay Datacraft Asia a fee calculated based on 110% of all direct and indirect costs
incurred by the latter in rendering the said services.

In reply, based on the representation that the services rendered by Datacraft Asia shall be performed
entirely in Singapore, then the fees to be paid by Datacraft Phils. to Datacraft Asia are considered income
derived from sources outside the Philippines, which shall be governed by Section 28(B)(1), in relation to
Section 42, both of the 1997 Tax Code, to wit:

"SEC. 28. Rates of Income Tax on Foreign Corporation. — . . .

"xxx xxx xxx'

"(B) Tax on Nonresident Foreign Corporation. — . . .

"(1) In General — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty five percent (35%) of
the gross income received during each taxable year from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall be thirty-three percent (33%); and effective January 1, 2000 and thereafter, the rate

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 446
 shall be thirty-two percent (32%). (Emphasis supplied) SITCEA

"xxx xxx xxx.

"SEC. 42. Income from Sources Within the Philippines. — . . .

"(A) Gross Income From Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx.

"(3) Services — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx"

"(C) Gross Income From Sources Without the Philippines. — The following items of gross
income shall be treated as income from sources without the Philippines:

"xxx xxx xxx"

"(3) Compensation for labor or personal services performed without the Philippines;

"xxx xxx xxx"

It is clear from the aforequoted provisions that a non-resident foreign corporation is taxable only on
income derived from sources within the Philippines. The source of the income derived from services is the
place where the services are rendered so that if the non-resident foreign corporation furnishes and
performs services in the Philippines, the compensation therefor are taxable in the Philippines. In the
instant case, based on your representation that the services rendered by Datacraft Asia to Datacraft Phils.
shall be performed entirely in Singapore, the service fees to be remitted by Datacraft Phils. are considered
income derived from sources outside the Philippines and are, therefore, not subject to Philippine income
tax and consequently to withholding tax. (DA-ITAD-148-03 dated October 2, 2003)

It is noteworthy that, since that income is derived entirely from sources abroad, then the
Philippines-Singapore tax treaty will find no application as the transaction does not result in a case of
double taxation for which a tax treaty relief is sought. (DA-ITAD 152-02 dated August 29, 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
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 447
 Legal Service
Bureau of Internal Revenue

February 9, 2004

ITAD RULING NO. 007-04

RP-Switzerland tax treaty — Articles 12

BIR Ruling No. DA-ITAD-73-03

Joaquin Cunanan & Co.

29th Floor Philamlife Tower
8767 Paseo de Roxas
1226 Makati City

Attention: Atty. Alexander B. Cabrera

Partner, Tax Services

Gentlemen :

This refers to your application for relief from double taxation dated November 5, 2003, on behalf of
your client, Philip Morris Philippines Manufacturing, Inc.(PMPMI), requesting confirmation of your
opinion that the royalty payments made by PMPMI to Philip Morris Products SA (PMPSA) are subject to
preferential tax rate of 15% pursuant to Article 12(2) of the Philippines-Switzerland tax treaty.

It is represented that PMPSA is a nonresident foreign corporation organized and existing under the
laws of Switzerland with business address at Quai, Jeanrenaud 3, 2000 Neuchatel, Switzerland; that it is
not registered either as a corporation or as a partnership in the Philippines as evidenced by a Certificate of
Non-Registration issued by the Securities and Exchange Commission dated September 4, 2003; that
PMPMI is a domestic corporation duly organized and existing under the laws of the Philippines, with
principal office at 27th Floor The Enterprise Center, Ayala Avenue, Makati City; that PMPSA and
PMPMI entered into a License Agreement effective January 1, 2003, whereby the former granted the latter
a non-exclusive right to use the trademarks of PMPSA for the manufacture of cigarettes in the Philippines;
that the said agreement complied with the provisions of Sections 87 and 88 of the Intellectual Property
Code (RA 8293) on Voluntary licensing per Certificate of Compliance No. 5-2003-00085 dated August
13, 2003; and that in consideration of rights to use the trademarks covered by the agreement, PMPSA shall
be entitled to receive royalty payments based on certain percentages of the Net Sales Value of the various
Philip Morris products listed in Schedule A of the said agreement.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 448
 In reply, please be informed that Article 12 of the Philippines-Switzerland tax treaty provides as
follows:

"Article 12

"ROYALTIES

"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other State.

"2. However, the royalties may also be taxed in the Contracting State in which they arise
and according to the laws of that State, but the tax so charged shall not exceed 15 per cent of the
gross amount of the royalties.

"3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematographic films and films and tapes for television or radio broadcasting, any patent,
trademark, design or model, plan, secret formula or process, or for information concerning
industrial, commercial or scientific experience.

"xxx xxx xxx"

Based on the aforequoted provisions, a resident of Switzerland may be taxed in the Philippines on
the royalties derived from sources within the Philippines at a rate not exceeding 15 percent of the gross
amount of the royalties. AHaETS

In view thereof, your opinion that the royalties paid by PMPMI to PMPSA are subject to a
preferential tax rate of 15 percent of the gross amount of royalties is hereby confirmed. (BIR Ruling No.
DA-ITAD-73-03 dated May 27, 2003)

Moreover, the royalty payments by PMPMI for the License Agreement provided by PMPSA are
subject to the 10% value-added tax pursuant to Section 108 of the Tax Code of 1997. Accordingly,
PMPMI, being the resident withholding agent and payor in control of the payment, shall be responsible for
the withholding of the 10% final VAT before making any payment to PMPSA. In remitting the VAT
withheld, PMPMI shall use BIR Form No 1600 (Monthly Remittance Return of Value-Added Tax and
Other Percentage Taxes Withheld). The duly filed BIR Form 1600 and proof of payment thereof shall
serve as sufficient basis for the claim of input to be applied against the output tax that may be due from
PMPMI, if it is a VAT-registered taxpayer. In case PMPMI is non-VAT registered taxpayer, the passed-on
VAT withheld shall form part of the cost of the service purchased or treated as "expense" or "asset"
whichever is applicable. In addition, PMPMI is required to issue the Certificate of Creditable Tax
Withheld at Source (BIR Form 2306) in quadruplicate upon request of PMPSA, the first three copies
thereof to be given to PMPSA and the fourth copy to be retained by PMPMI as its file copy. [Section 4 &
6, Revenue Regulations No, (RR) 4-2002, Section 3 of RR 8-2002; Section 7 of RR 14-2002]

This ruling is issued on the basis of the facts as represented. 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,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 449
 Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

February 6, 2004

ITAD RULING NO. 006-04

Tax Code of 1997 — Sections 28(B)(1) & 42

BIR Ruling No. DA-ITAD-152-02
BIR Ruling No. DA-ITAD-148-03

C.L. Manabat & Co.

Certified Public Accountants and
Management Consultants
3rd to 6th Floor, Salamin Bldg.,
197 Salcedo St., Legaspi Village
1229 Makati City

Attention: Atty. Domingo Lagundi, Jr.

Corporate and Tax Services

Gentlemen :

This refers to your application for relief from double taxation dated October 2, 2003, on behalf of
your client, Training Partners Pte Ltd (TPPL), requesting confirmation of your opinion that payments of
service fees by Datacraft Communications System Inc. (Datacraft Phils.) to TPPL is not subject to income
tax, pursuant to Article 7 in relation to Article 5 of the Philippines-Singapore tax treaty.

It is represented that TPPL is a nonresident foreign corporation organized and existing under the
laws of Singapore with business address at 135 Cecil St., #12-00 LKN Building, Singapore 069536, that
its not registered either as a corporation or as a partnership in the Philippines as evidenced by a Certificate
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 450
 of Non-Registration issued by the Securities and Exchange Commission dated September 2, 2003; that
TPPL is not engaged in trade or business in the Philippines; that Datacraft Phils. is a domestic corporation
duly organized and existing under the laws of the Philippines, with principal office at 4th Floor, Gammon
Center, Philamlife Building, 126 Alfaro Street, Salcedo Village, Makati City; that on September 1, 2003,
TPPL entered into an Agreement for Provision of Services with Datacraft Phils., wherein the former shall
provide the latter with the following services: (1) adequate computers, networking equipment, mobile lab,
remote lab and training equipment, (2) certified trainor to conduct courses for Cisco, Symantec and
Checkpoint, Project Management (hereinafter called "suppliers") products, (3) training materials, (4)
issuance of certificates on behalf of suppliers to the attendees who will be recognized by the suppliers, (5)
tailor made courses as specified, and (6) training to fly in packages students; that the said services will be
provided by TPPL in Singapore though teleconferencing, internet, email, and other similar forms of
communication; and that no employees of TPPL shall come to the Philippines to render the services per
Certification of Datacraft Phils. dated November 18, 2003.

In reply, based on the representation that the services rendered by Datacraft Asia shall be performed
entirely in Singapore, then the fees to be paid by Datacraft Phils. to TPPL are considered income derived
from sources outside the Philippines, which shall be governed by Section 28(B)(1), in relation to Section
42, both of the 1997 Tax Code, to wit:

"SEC. 28. Rates of Income Tax on Foreign Corporation. — . . .

"xxx xxx xxx

"(B) Tax on Nonresident Foreign Corporation. — . . .

"(1) In General — Except as otherwise provided in this Code, a foreign corporation not
engaged in trade or business in the Philippines shall pay a tax equal to thirty five percent (35%) of
the gross income received during each taxable year from all sources within the Philippines, such as
interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities,
emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and
capital gains, except capital gains subject to tax under subparagraphs 5(c): Provided, That effective
January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999,
the rate shall, be thirty-three percent (33%); and effective January 1, 2000 and thereafter, the rate
shall be thirty-two percent (32%). (Emphasis supplied) ScaCEH

"xxx xxx xxx.

"SEC. 42. Income from Sources Within the Philippines. — . . .

"(A) Gross Income From Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:

"xxx xxx xxx.

"(3) Services — Compensation for labor or personal services performed in the Philippines;

"xxx xxx xxx"

"(C) Gross Income From Sources Without the Philippines. — The following items of gross
income shall be treated as income from sources without the Philippines:

"xxx xxx xxx"

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 451
 "(3) Compensation for labor or personal services performed without the Philippines;

"xxx xxx xxx"

It is clear from the aforequoted provisions that a non-resident foreign corporation is taxable only on
income derived from sources within the Philippines. The source of the income derived from services is the
place where the services are rendered so that if non-resident foreign corporation furnishes and performs
services in the Philippines, the compensation therefor are taxable in the Philippines. In the instant case,
based on your representation that the services rendered by TPPL to Datacraft Phils. shall be performed
entirely in Singapore, the fees to be remitted by Datacraft Phils. are considered income derived from
sources outside the Philippines and are, therefore, not subject to Philippine income tax and consequently
to withholding tax. (DA-ITAD-148-03 dated October 2, 2003)

It is noteworthy that, since that income is derived entirely from sources abroad, then the
Philippines-Singapore tax treaty will find no application as the transaction does not result in a case of
double taxation for which a tax treaty relief is sought. (DA-ITAD 152-02 dated August 29, 2002).

This ruling is issued on the basis of the facts as represented. 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
Bureau of Internal Revenue

February 3, 2004

ITAD RULING NO. 005-04

Sec 108 & 109 of the Tax Code 1997;

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 452
 Article 34, Vienna Convention
BIR Ruling No. DA ITAD-124-03

Royal Thai Embassy

107 Rada St., Legaspi Village
Makati City

Attention: Mr. Pornsith Pibulnakararintr

Second Secretary

Gentlemen :

This has reference to your Note No. 40001/12 dated January 8, 2004 referred to this Office by the
Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for exemption
from the payment of ad valorem and value-added taxes (VAT) on a locally purchased one (1) unit motor
vehicle, for the personal use of Mr. Pornsith Pibulnakararintr, Second Secretary of the Royal Thai
Embassy, specifically described as follows:

Make: Honda Civic 1.6 VTi-S A/T

Model Year: 2003
Color: Aqua Green
Frame Number: PADES56703V202297
Motor Number: PSJD57-3203855

In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:

"ARTICLE 34

"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:

"(a) indirect taxes of a kind which are normally incorporated in the price of goods or
services;

"xxx xxx xxx"

the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from the
value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by that
Embassy of goods and/or services shall be subject to the value-added tax prescribed under Sections 106
and 108 and ad valorem taxes under Section 149, all of the National Internal Revenue Code of 1997.

However, applying the principle of reciprocity, this Office may grant VAT and ad valorem tax
exemption to the Royal Thai Embassy or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs that your Government allows
similar exemption to Philippine Embassy personnel on their purchase of goods and services in your
country.

Hence, the local purchase of one (1) Honda Civic 1.6 VTi-S A/T, for the personal use of Mr.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 453
 Pornsith Pibulnakararintr is exempt from VAT and ad valorem taxes. (BIR Ruling No. DA-ITAD-124-03
dated September 11, 2003) ASHEca

Very truly yours,

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

January 30, 2004

ITAD RULING NO. 004-04

Article 12, RP-Japan Tax Treaty;

Section 108 & 109 of the Tax Code of 1997
CTA Case No. 6176
BIR Ruling No. 046-95
BIR Ruling No. ITAD 117-03

Nanox Philippines, Inc.

1E-5 Clark Premiere International Park
M.A. Roxas Highway
Clark Special Economic Zone
Clark Field, Pampanga

Attention: Mr. Katsuhiro Takahashi

Director/VP — Administration

Gentlemen :

This refers to your letter dated November 24, 2003, requesting to amend DA-ITAD Ruling No.
104-01 dated October 30, 2001 so that your royalty payments to Nanox Corporation Japan (Nanox Japan)
be declared exempt from value-added tax, in view of the additional representation that Nanox Philippines
(Nanox Philippines) is a duly registered Clark Special Economic Zone (CSEZ) Regional Enterprise per
Regional Enterprise Certificate No. 2002-004 dated December; 3, 2002.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 454
 It is represented that Nanox Japan is a non-resident foreign corporation duly organized and existing
under the laws of 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 as per certification dated December 22, 2003 issued by the
Securities and Exchange Commission (SEC); that Nanox Philippines is a domestic corporation duly
organized and existing under the laws of the Philippines and a Board of Investments (BOI)-registered
enterprise as per Certificate of Registration No. EP 99-079 dated July 19, 1999; that on April 1, 2000,
Nanox Philippines, in its desire to engage in the business of manufacturing and selling of liquid crystal
display products of Nanox Japan and to acquire the right to use the know-how and other technical
information relating thereto, entered into Technical License and Management Service Agreement with
Nanox Japan whereby the latter shall grant Nanox Philippines a non-exclusive and non-assignable license,
with no right to grant sublicense, to manufacture and sell the aforementioned products of Nanox Japan
within the Philippines by using such know-how, and, management services relative thereto; that said
Agreement shall continue in full force for ten (10) years and shall be automatically renewed for another
ten (10) year period thereafter; that in consideration for the grant of such license and services, Nanox
Philippines shall pay to Nanox Japan a running royalty of two per cent (2%) of the net sales of the
Licensed Products during the same royalty period; that the term "net sales" refers to the invoiced amount
of the Licensed Products sold by Nanox Philippines; and that said Agreement is covered by Certificate of
Compliance No. 5-2001-00029 issued by the Intellectual Property Office (IPO).

In reply, please be informed that under Section 108 of the National Revenue Code of 1997, the sale
of services shall be subject to value-added tax (VAT). However, Section 109(q) of the Tax Code of 1997
exempts from VAT transactions which are exempt under special laws. Republic Act (R.A.) No. 7227,
otherwise known as the "BASES CONVERSION and DEVELOPMENT ACT (BCDA) OF 1992"
particularly Section 12(c) thereof provides, as follows: CDHAcI

"Section 12. — Subic Special Economic Zone. —

xxx xxx xxx

(c) The provisions of existing laws, rules and regulations to the contrary notwithstanding,
no taxes, local and national shall be imposed within the Subic Special Economic Zone. In lieu of
paying taxes, three percent (3%) of the gross income earned by all business and enterprises within
the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%)
each to the local government units affected by the declaration of the zone in proportion to their
population area, and other factors. In addition, there is hereby established a development fund of
one percent (1%) of the gross income earned by all businesses and enterprises within the Subic
Special Economic Zone to be utilized for the Municipality of Subic, and other municipalities
contiguous to the base areas." (Emphasis supplied)

While the foregoing law applied only to Subic Special Economic Zone (SSEZ)-registered
enterprises, Executive Order (E.O.) No. 80 dated April 1993, however, has extended the coverage of the
said tax incentives to Clark Special Economic Zone (CSEZ)-registered enterprises. By virtue of the said
E.O., the Clark Development Corporation (CDC) was established as the implementing arm of the BCDA
to manage the CSEZ. [BIR Ruling No. 046-95 dated March 3, 1995; and C.T.A. Case No. 6176 dated
December 16, 2002] Section 5 of the said E.O. clearly provides that all the incentives (including tax
incentives) enjoyed by the SSEZ-registered enterprise shall also apply to CSEZ-registered enterprises, to
wit:

"Section 5. Investments Climates in the CSEZ. —

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 455
 xxx xxx xxx

Among others, the CSEZ shall have all the applicable incentives in the Subic Special
Economic and Free Port Zone under RA 7227 and those applicable incentives granted in the Export
Processing Zones, the Omnibus Investments Code of 1987, the Foreign Investments Act of 1991
and new investments law which may hereinafter be enacted." (Emphasis supplied)

Moreover, Section 43 of the Rules and Regulations Implementing the Provisions Relative to the
Subic Special Economic and Free Port Zone and the Subic Bay Metropolitan Authority under R.A. No.
7227, and under Section 6(f) of Revenue Regulations No. 1-95, which applies to CSEZ-registered
enterprises by virtue of the said E.O. No. 80, provides that SBF-registered enterprises shall pay a final tax
of five percent (5%) of gross income earned in lieu of paying taxes, thus:

"Section 43. Tax exemption. — SBF Enterprises shall be exempt from all national and local
taxes, including but not limited to the following:

xxx xxx xxx

In lieu of paying taxes, all SBP Enterprises shall pay a final tax of five (5%) percent of gross
income earned in accordance to breakdown specified and defined under Section 57 hereunder."

In view of all the above, this Office is of the opinion as it hereby rules that, pursuant to the
additional representation that Nanox Philippines is a duly registered CSEZ-Regional Enterprise, the
subject royalty payments by Nanox Japan to Nanox Japan, covering the period from December 3, 2002,
are not subject to VAT. This ruling is deemed incorporated in DA-ITAD Ruling No. 104-01 to the extent
of the above pronouncement that Nanox Philippines is exempt from VAT.

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. aHECST

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 456
 January 22, 2004

ITAD RULING NO. 003-04

Article 2&3, RP-US tax treaty

Section 22, NIRC
BIR Ruling No. DA-ITAD-I77-03
BIR Ruling No. DA-ITAD-099-03

Phelps Dodge Exploration Corp.

Regional Headquarters
7th Floor Legaspi Suites
178 Salcedo Street, Legaspi Village,
Makati City, Philippines

Attention: Mr. Michael Huenne

Authorized Signatory

Gentlemen :

This refers to your application for a Certificate of Residency dated October 10, 2003.

It is represented that Phelps Dodge Exploration Corp. — Regional Headquarters (Phelps Dodge for
brevity) is a multinational company organized and existing under the laws of the State of Delaware, USA
located at 7th Floor Legaspi Suites, 178 Salcedo Street Legaspi Village, Makati City, Philippines, with
Taxpayer Identification Number (TIN) 004-832-762 that the Securities and Exchange Commission (SEC)
issued a Certificate of Registration and License under SEC License No. FM-132 to Phelps Dodge on
January 16, 1996, for the establishment of a regional or area headquarters in the Philippines, pursuant to
the Omnibus Investments Code of 1987 and its implementing rules and regulations; and that Phelps
Dodge's business involves supervision and coordination of affiliates, branches and subsidiaries.

In reply, please be informed that Article 3 of the RP-US tax treaty provides as follows:

"Article 3

"FISCAL RESIDENCE

"1. In this Convention:

a) The term 'resident of the Philippines' means:

(i) A Philippine corporation, and

(ii) Any other person (except a corporation or any entity treated as a corporation for
Philippine tax purposes) resident in the Philippines for purposes of Philippine tax, but in the case of a
professional partnership, estate, or trust only to the extent that the income derived by such partnership,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 457
 estate, or trust is subject to Philippine tax as the income of a resident either in the hands of the
respective entity or of its partners or beneficiaries.

b) The term 'resident of the United States' means:

(i) A United States corporation, and (emphasis supplied)

(ii) Any other person (except a corporation or any entity treated as a corporation for United
States tax purposes) resident in the United States for purposes of United States tax, but in the case of a
partnership, estate, or trust only to the extent that the income derived by such partnership, estate, or
trust is subject to United States tax as the income of a resident either in the hands of the respective
entity or of its partners or beneficiaries. HEITAD

In this connection, Article 2(1)[e](i) of the same treaty provides, viz:

"Article 2

"GENERAL DEFINITIONS

"1. In this Convention, unless the context otherwise-requires:

"xxx xxx xxx"

"(e)(i) The term 'United States corporation' means a corporation (or any
unincorporated entity treated as a corporation for United States tax purposes) which
is created or organized in or under the laws of the United States or any state thereof
or the District of Columbia;"

Based on the above treaty provisions, the term "resident of the United States''' includes a
corporation created or organized in or under the laws of the USA or in any state thereof. As represented by
your Office and based on the documents submitted, the fact that Phelps Dodge is organized and existing
under the laws of the United States more particularly in the State of Delaware, confirms that Phelps Dodge
is a resident of the United States and not of the Philippines. (BIR Ruling No. DA-ITAD-177-03 dated
November 24, 2003)

It is noteworthy that Phelps Dodge's office in the Philippines and operating therein is merely a
regional headquarters of a United States corporation. Under Philippine laws, the term "regional or area
headquarters" is within the purview "branch" (Section 22(DD)) 1 of the Tax Code of 1997. The rule
shaped out by jurisprudence is that we follow the single entity concept wherein the head office and the
branch are considered one and the same juridical personality. The branch is considered a mere extension
of the head office. Consequently, Phelps Dodge has no separate and distinct juridical personality from its
head office residing in the United States. Accordingly, the tax treatment of Phelps Dodge follows that of
its head office and is not in any way affected by the location of its office or operation. (BIR Ruling No.
DA-ITAD-99-03 dated July 16, 2003)

Such being the case, since Phelps Dodge is a duly registered regional headquarters of a United
States corporation and has no separate and distinct personality from the latter, this office is of the opinion
and so holds that Phelps Dodge Exploration Corp. — Regional Headquarters is within the purview of the
term "resident of the United States" under the RP-United States tax treaty and, therefore, a resident of the
United States and not of the Philippines.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 458
 In view thereof, your request for a certificate of residency is hereby denied for lack of legal basis.

Any certificate of residency issued in favor of Phelps Dodge is hereby revoked and set aside.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue
Footnotes
1. (DD) The term 'regional or area headquarters' shall mean a branch established in the Philippines by
multinational companies and which headquarters do not earn or derive income from the Philippines and
which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or
branches in the Asia-Pacific Region and other foreign markets.

January 14, 2004

ITAD RULING NO. 002-04

Art. 10, Philippines-Korea tax treaty

BIR Ruling No DA-ITAD-138-03

Samsung Electro-Mechanics Philippines Corp.

Blk. 5 Calamba Premiere International Park
Brgy: Batino, Prinza, Calamba Laguna

Attention: Mr. Dae Sik Choi

General Manager

Gentlemen :

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 459
 This refers to your letter dated July 29, 2003, requesting that the preferential tax rate of 10% be
applied on the dividend payments of Samsung Electro-Mechanics Philippines Corp. (Samsung-Phil) to
Samsung Electro-Mechanics Co., Ltd (Samsung-Korea) pursuant to Article 10 of the Philippines-Korea
tax treaty.

It is represented that Samsung-Korea is a corporation organized and existing under the laws of
Korea with principal address at 314 Maetan 3-Dong, Paldal-Gu, Suwon-Si, Kyunggi-Do, Korea; that it is
not registered either as a corporation or as a partnership per certification issued by the Securities and
Exchange Commission dated August 18, 2003; that Samsung-Phil is a PEZA registered corporation
organized and existing under the laws of the Philippines with principal address at Blk. 5, CPIP Batino,
Prinza, Calamba Laguna, that Samsung-Korea is the registered owner of Four Million Forty Six Thousand
Seven Hundred Six (4,046,706) shares with a par value of P2,023,353,000 with the percentage ownership
of 93.67% of the outstanding capital of Samsung-Phil; and that at the meeting of the Board of Directors of
Samsung-Phil held on May 10, 2002, it was resolved that the amount of US$ 9 Million or its equivalent,
based on the exchange rate prevailing at the time of payment, is declared as cash dividend to be shared
according to individual shareholdings of stockholders of record as of the date of the said meeting payable
on or before May 31, 2002.

In reply please be informed that Article 10 of the Philippines-Korea tax treaty provides as follows:

"Article

"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 State.

2. However, such dividends may also be taxed in Contracting State of which the company
paying the dividends is a resident and according to the laws of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged not exceed;

"(a) 10 per cent of the gross amount of the dividends if the beneficial owner
is a company (other than a partnership) which holds directly at least 25 per cent of
the capital of the company paying the dividends; and

"(b) 25 per cent of the gross amount of the dividends in all other cases.

"This paragraph shall not affect the taxation of the company in respect of the profits out of
which the dividends are paid.

"3. ...

"4. The term 'dividends' as used in this Article means income from shares 'jouissance'
shares or 'jouissance' rights, mining shares, founders' shares or other rights, not being debt-claims,
participating in profits, as well as income from other corporate rights which is subjected to the same
taxation treatment as income from shares by the laws of the State of which the company making the
distribution is a resident.

"xxx xxx xxx"

In view of the foregoing, and since Samsung-Korea is a beneficial owner which holds directly more

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 460
 than 25% of the total shares of Samsung-Phil, the case dividends payable by Samsung-Phil to
Samsung-Korea are subject to the preferential tax rate of 10% of the gross amount of the dividends. (BIR
Ruling No. 138-03 dated September 15, 2003)

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. ETaHCD

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

January 12, 2004

ITAD RULING NO. 001-04

NIRC, Sec. 109

VAT Ruling No. 109-99

International Labour Organization

Subregional Office for South-East Asia and the Pacific
NEDA sa Makati Bldg., 106 Amorsolo St.
Legaspi Village, Makati City

Attention: Warner Konrad Blenk

Director

Gentlemen :

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 461
 This refers to your letter dated September 17, 2003, indorsed to this Office by the Department of
Foreign Affairs and the Department of Finance, requesting exemption from the payment of value-added
tax (VAT) on the purchase of goods and services by the International Labour Organization Sub-Regional
Office for South-East and the Pacific, Manila (ILO Manila).

It is represented that ILO Manila is a specialized agency of the United Nations; that it is in the
process of considering to relocate its office and consequently reviewing its lease agreement; that included
in the lease agreement are some provisions for payment VAT; and that pursuant to the UN Charter and to
the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations to
which the Philippines is a signatory, ILO Manila is exempt from the payment of VAT.

In reply, please be informed that Section 109 of the National Internal Revenue Code of 1997
(NIRC) provides, viz:

"Sec. 109. Exempt transactions — The following shall be exempt from the value-added
tax:

"xxx xxx xxx"

"(q) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529
and 1590;

In this connection, Article 3, Section 10 of the Convention on the Privileges and Immunities of the
Specialized Agencies of the United Nations to which the Philippines is a signatory, provides, viz;

"Article III

Property, Funds and Assets

"Section 10 — "While the specialized agencies, will not, as a general rule, claim exemption
from excise duties and from taxes on the sale of movable and immovable property which form part
of the price to be paid, nevertheless when the specialized agencies are making important purchases
for the official use of property on which such duties and taxes have been charged or chargeable,
States parties to this Convention will, whenever possible, make appropriate administrative
arrangements for the remission or return of the amount of duty or tax."

Based on the above-quoted provisions, official purchases of goods and services in the Philippines
by specialized agencies of the United Nations are recorded exemption from indirect taxes such as the VAT
imposed under Section 106 of the Tax Code of 1997. Such being the case, and since the International
Labour Organization is a specialized agency of the United Nations, this Office is of the opinion and so
holds that ILO Manila is exempt from the payment of VAT on its official purchases of goods and services
in the Philippines. (VAT Ruling No. 109-99 dated November 22, 1999)

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 as the herein
parties are concerned. DHEaTS

Very truly yours,

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 462
 Commissioner of Internal Revenue

By:

(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 463
 Endnotes

1 (Popup - Popup)
* Note from the Publisher: Copied verbatim from the official copy.

2 (Popup - Popup)
* Note from the Publisher: Copied verbatim from the official copy.

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 464