2000 ITAD Rulings

December 26, 2000
ITAD RULING NO. 201-00
RP-Japan Article 13 ITAD 40-00
Bengzon Narciso Cudala Jimenez

Gonzales & Liwanag
Attorneys & Counselors at Law
SOL Building, 112 Amorsolo Street
Legaspi Village, 1229 Makati City
Attention: Jose V.E. Jimenez

Jenalyn R. Carabeo
Gentlemen :
This refers to your tax treaty relief application dated September 1, 2000, on behalf of Marubeni
Corporation (Marubeni), requesting for exemption from Philippine income tax on the sale of its
shareholdings in Nachi Pilipinas Industries Inc. (NPII) to Nachi-Fujikoshi Corporation (Nachi-Fujikoshi),
pursuant to Article 13 of the RP-Japan Tax Treaty.
It is represented that Marubeni is a nonresident foreign corporation duly organized and existing
under the laws of Japan with principal address at 4-2, Ohtemachi 1-chome, Chiyoda-ku, Tokyo, Japan; that
NPII is a corporation organized and existing under and by virtue of Philippine laws, with principal office
at 15th Avenue, Manalac Cpd/Arturo Drive Sta. Maria Industrial Estate Bagumbayan, Taguig Metro
Manila; that Marubeni is the stockholder of record for 4,999 shares of common stock and is the beneficial
owner of one (1) share under the name of its nominee Director Mr. Takeshi Hojo, or an aggregate
shareholding of 5,000 shares, at par value of One Thousand Pesos per share, for a total of Five Million
Pesos (P5,000,000.00) of NPII; that Nachi-Fujikoshi is a corporation duly organized and existing under the
laws of Japan, with business address at World Trade Center, 4-1, Hamamatsucho 2-chome, Minato-ku,
Tokyo, Japan; that on August 11, 2000, Marubeni sold all said shareholding to Nachi-Fujikoshi; that for
and in consideration of the foregoing premises, Marubeni agreed to sell and transfer its shares for a total
purchase price of SIX MILLION THREE HUNDRED FORTY THOUSAND SEVENTY SIX
(PHP6,340,076.00) Philippine Pesos, subject to the conditions set forth in the Deed of Conveyance.
In reply, please be informed that Article 13 (3) of the RP-Japan Tax Treaty provides that:
"Article 13
Gains from the Alienation of Property
"xxx xxx xxx
"3. Gains from the alienation of shares of a company the property of which consists
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 1
principally of immovable property situated in a Contracting State may be taxed in that State. Gains
from the alienation of an interest in partnership or a trust, the property of which consists principally of
immovable property situated in a Contracting State, may be taxed in that State. cCHETI
xxx xxx xxx"
In the instant case, the gains which will be realized by Marubeni from the transfer of its shares of
stock in NPII to Nachi-Fujikoshi shall be taxable only in Japan. However, under the aforequoted provision,
the Philippines may tax the gains derived from the disposition of interest in a corporation if its entire
assets consist principally of real property interest located in the Philippines. "Real Property Interest"
means interest on 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. (a) and (b), Revenue
Regulations No. 4-86).
Verification of the August 2000 Interim Financial Statement and 1999 Audited Financial Statement
of NPII, disclosed that its net property and equipment located in the Philippines are valued at P14.69M in
August 2000 and P18.10M in 1999, representing less than fifty percent (50%) of its total assets of
P95.45M and P83.78M, respectively, thereby making the assets of NPII not consisted principally of real
property interest located in the Philippines. Hence, the gain from sale of 5000 shares of stock of Marubeni
to Nachi-Fujikoshi is not taxable in the Philippines. (BIR Ruling No. ITAD 40-00)
Accordingly, your opinion is hereby confirmed that the sale by Marubeni of its shares of stock in
NPII to Nachi-Fujikoshi is exempt from capital gains tax imposed under Section 28(b)(5)(C) of the Tax
Code of 1997 pursuant to Article 13(3) of the RP-Japan Tax Treaty. However, the Deed of Assignment of
Shares shall be subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997.
Upon presentment of proof of payment of documentary stamp thereon, the corporate secretary of
NPPI shall be authorized to register the transfer of the shares from Marubeni to Nachi-Fujikoshi in the
Stock and Transfer Book of the Corporation concerned and to cancel and issue new certificates in the
name of Nachi-Fujikoshi.
This ruling is issued on the basis of the foregoing representations. However, if upon investigation it
will be disclosed or discovered that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,
Commissioner of Internal Revenue

By:
(SGD.) LILIAN B. HEFTI

Deputy Commissioner
Legal and Inspection Group
Bureau of Internal Revenue
December 20, 2000
Sec- 32 (B) (6) (c)

RP-France, Art. 18
Quisumbing Fernando & Javellana

Law Offices
CVQ CENTER, 42 Esteban Abada St.
Loyola Heights, Quezon City
Attention: Atty. Emmanuel Q. Fernando
Gentlemen :
This refers to your letter dated September 7, 2000, requesting amendment of the issued BIR Ruling
No. ITAD-110-00 dated August 23, 2000, exempting from Philippine income tax the pension received by
your client, Mr. Serge Laumond, from the French Government.
In your letter, you have mentioned that the pension of Mr. Serge Laumond is not derived
exclusively from the French Government, contrary to your previous representation that Mr. Laumond's
only source of income is the pension from the French Government. This clarification thus prompted you to
request for an amended ruling as to likewise exempt from Philippine income tax the other pensions of Mr.
Laumond.
In reply, please be informed that the instant request to amend BIR Ruling No. ITAD-110-00 is
hereby treated as a new application for relief from double taxation with respect to the other pension of
your client. Thus, the issued ruling shall continue to govern the pension received by Mr. Laumond from
the French Government in relation to his past services rendered thereto. HCSEcI
In this light, your previous representations with respect to the above-mentioned ruling are hereby
incorporated to include the new information as above-stated which will serve as a basis for this new
application, to wit:
It is represented that Mr. Laumond is a French national who has been granted permanent residency
status in the Philippines pursuant to Executive Order No. 1037 (Philippine Retirement Authority Law);
that Mr. Laumond is a holder of a Special Resident Retiree's Visa (SRRV) issued by the Philippine
Retirement Authority of the Office of the President; that he is not engaged in any trade or business nor in
the exercise of any profession in the Philippines; that aside from the pension he is receiving from the
French government, he is also receiving pensions from the following:
1. CAVCIC Caisse d'allocation Vieillesse from Les Cadres de I'industrie et du Commerce

(Retirement benefits for elder executives of industry and commerce);
2. Pension fund from Banque Nationale de Paris (a privatized institution which was
previously public or government-owned); and
3. Groupe Vauban Retirement Benefits (for forty-two (42) years of service in banking
institutions) (Emphasis supplied)
In this regard, it is worthy to note Article 18 of the RP-France Tax Treaty which states:
"Article 18
PENSIONS
1. Subject to the provisions of paragraph 2 of Article 19, pensions and other similar
remuneration said to a resident of a Contracting State in consideration of past employment shall be
taxable only in that State. However pensions paid out of pension plans of Philippine enterprises not
registered under Philippine law may be taxed in the Philippines. (Emphasis supplied)
2. Notwithstanding the provisions of paragraph 1, social security pensions paid by a social

security instrumentality of a Contracting State shall be taxable only in that Contracting State." AIDcTE
The above-quoted provision of the RP-France Tax Treaty allows the country of residence to tax the
pensions and other similar remuneration of the recipient. Since Mr. Laumond is a holder of a Special
Resident Retiree's Visa (SRRV) issued by the Philippine Retirement Authority of the Office of the
President, he is considered as fiscal resident of the Philippines and therefore the Philippines may tax the
pensions received by Mr. Laumond.
However, Sec. 32 (B)(6)(c) of the National Internal Revenue Code of 1997 (Tax Code of 1997)
provides:
"Sec. 32. Gross Income. —
xxx xxx xxx
(B) Exclusions from Gross Income. — The following items shall not be included in gross
income and shall be exempt from taxation under this Title:
xxx xxx xxx
(6) Retirement Benefits, Pensions, Gratuities, etc. —
xxx xxx xxx
(c) The provisions of any existing law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident
citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign
government agencies and other institutions, private or public." (Emphasis supplied)
It is clear that the Tax Code of 1997 exempts from income tax the pensions received from foreign
government agencies and other institutions, private or public by aliens permanently residing in the
Philippines.
Hence, although the Philippines may tax the pensions of Mr. Laumond under the RP-France Tax
Treaty, the Tax Code of 1997 in turn expressly exempts from tax pension received by an alien
permanently residing in the Philippines.
Accordingly, the pensions of Mr. Serge M. Laumond from the aforementioned institutions are
exempt from Philippine income tax and he is not required to file income tax return in the Philippines in
accordance with Section 51(A)(2)(d) of the Tax Code of 1997. cAaETS
This ruling is issued on the basis of the foregoing representations. However, if upon investigation it
will disclosed or discovered that the facts are different, then this ruling shall be considered null and void.
Very truly yours,
(SGD.) DAKILA B. FONACIER

Commissioner
December 8, 2000
Article 13 RP-Netherlands
BIR ITAD 18-00
Castro Cadiz & Carag Law Offices

Suite 25PC, Eisenhower Condominium
No. 7 Eisenhower Street, Greenhills
San Juan, Metro Manila
Attention: Attys. Othelo C. Carag

and
Anna Liza M. Ang-Co
Gentlemen :
This refers to your letter dated September 15, 2000 requesting for a confirmation of your opinion
on the tax consequences of the proposed assignment and transfer by EPEC Nederland Holding BV of its
shares of stock in EPHE Philippines Energy Company, Inc. (formerly El Paso Holding Company, Inc.) to
El Paso Philippines Energy Co., Inc.
It appears that EPEC Nederland Holding BV is a non-resident foreign corporation organized and
existing under the laws of Netherlands with no permanent establishment in the Philippines; that on the
other hand, EPHE Philippines Energy Company, Inc. is a corporation organized and existing under
Philippine laws, with an authorized capital stock of Two Billion Nine Hundred Ninety Million Pesos
(P2,990,000,000.00) divided into Sixty Eight Million Five Hundred Thousand (68,500,000) common
shares with par value of Forty Pesos (P40.00) per share and Two Hundred Fifty Million (250,000,000)
preferred non-voting redeemable shares with a par value of One Peso (P1.00) per share; that at present, the
stockholders of EPHE Philippines Energy Company, Inc. are as follows:
No. of Shares Paid-In Additional Paid-In

1. EPEC Nederland 34,250,000 P1,370,000,000.00 P3,689,000.00
Holding BV common shares
2. HEIPC Philippines
Holdings Co., Inc. 34,250,000 P1,370,000,000.00 P2,188,300,000.00
common shares
3. El Paso Philippines 250,000,000 P250,000,000.00 0
Energy Co., Inc. preferred shares
——————— ——————— ———————
318,500.000 P2,990,000,000.00 P2,191,989,000.00
========== ============= ==============
that aside from its common shares in EPHE Philippines Energy Company, Inc., EPEC Nederland Holdings
BV also owns Two Hundred Three Thousand Five Hundred (203,500) shares of stock of El Paso
Philippines Energy Co., Inc. ("EPPE Shares"), equivalent to one hundred percent (100%) of the
outstanding shares of stock, with a par value of Forty Pesos (P40.00) per share or an aggregate par value of
Eight Million One Hundred Forty Thousand Pesos (P8,140,000.00); that El Paso Philippines Energy Co.,
Inc. is also a corporation organized and existing under Philippine laws; that EPEC Nederland Holdings BV
intends to transfer its Thirty Four Million Two Hundred Fifty Thousand (34,250,000) common shares of
stock in EPHE Philippines Energy Company, Inc. (the "Subject Shares") at cost to El Paso Philippines
Energy Co., Inc. as additional capital contribution of EPEC Nederland Holdings BV to El Paso Philippines
Energy Co., Inc.; that the Subject Shares have an aggregate par value of One Billion Three Hundred
Seventy Million Pesos (P1,370,000,000.00) and in the hands of EPEC Nederland Holdings BV, have a
cost or basis of One Billion Three Hundred Seventy Three Million Six Hundred Eighty Nine Thousand
Pesos (P1,373,689,000.00); that El Paso Philippines Energy Co., Inc. shall not issue additional shares to
EPEC Nederland Holdings BV, but shall simply record the total cost of the Subject Shares as additional
paid-in capital. DIAcTE
You are now requesting for a confirmation of your opinion that:
"1. El Paso Philippines Energy Co. is not subject to income tax upon its receipt of the
Subject Shares from EPEC Nederland Holding BV based on Sec. 56 of Revenue Regulations No. 2.
"2. Although EL Paso Philippines Energy Co. will not issue additional shares to EPEC
Nederland Holding BV in exchange for the Subject Shares, the transfer of the Subject Shares is not
subject to donor's tax (BIR Ruling DA-134-3-5-99).
"3. To determine the adjusted basis of the EPPE Shares in the hands of EPEC Nederland
Holding BV, the additional capital contribution of EPEC Nederland Holding BV equivalent to the
total cost of the Subject Shares should be added to the original acquisition cost of the EPPE shares
(BIR Ruling No. 107-95 dated 19 July 1995).
"4. Since no additional shares will be issued by El Paso Philippines Energy Co. to EPEC
Nederland Holding BV, Section 175 of the Tax Code which imposes documentary stamp tax (DST)
on the original issue of shares of stock at the rate of Two Pesos (P2.00) on each Two Hundred Pesos
(P200.00) of the par value of the shares will not apply.
"5. There is no capital gain that will be derived from the disposition and transfer of the
Subject Shares from EPEC Nederland Holding BV to El Paso Philippines Energy Co. since the
Subject Shares are to be transferred at cost. Although the book value of the Subject Shares is higher
than the cost or basis of the Subject Shares, capital gain presumed to have been realized for purposes
of computing the capital gains tax under Revenue Regulations 2-82 shall not be subject to Philippine
income tax under Section 27 (D) (2) of the Tax Code as amended, because any capital gain shall be
taxable only in Netherlands, the State where EPEC Nederland Holding BV is a resident (Art. 13,
RP-Netherlands Tax Treaty).
"6. The transfer of the Subject Shares from EPEC Nederland Holding BV to El Paso
Philippines Energy Co. is subject to DST at the rate of One Peso and Fifty Centavos (P1.50) on each
Two Hundred Pesos (P200.00) of the par value of the Subject Shares pursuant to Section 176 of the
Tax Code."
In reply, please be informed that "where a corporation requires additional funds for conducting its
business and obtains such needed money through voluntary pro-rata payments by its shareholders, the
amounts so received being credited to its surplus account or to a special capital account, will not be
considered income, although there is no increase in the outstanding shares of stock of the corporation. The
payments in such circumstances are in the nature of voluntary assessments upon, and represent an
additional price paid for, in shares of stock held by the individual shareholders, and will be treated as an
addition to and as a part of the operating capital of the company." (Section 56, Revenue Regulations No.
2) Thus, since the Subject Shares will be transferred by EPEC Nederland BV Holding Co., Inc. as its
additional capital contribution to El Paso Philippines Energy Co., Inc., the Subject Shares shall be treated
as a capital investment which is not included within the purview of the term "taxable income" as defined
in Section 31 in relation to Section 32 of the Tax Code of 1997 Hence, EPEC Nederland Holding BV's
contribution consisting of the Subject Shares is not subject to income tax as well as donor's tax. (Section
56, Revenue Regulations No. 2; BIR Ruling No. 107-95 dated July 19, 1995; BIR Ruling No. 270-87 dated
September 8, 1987; BIR Ruling [UN-195-7-1-94; BIR Ruling [UN-221-7-25-94]; BIR Ruling
[DA-134-3-5-99])
We likewise confirm your opinion that in determining the adjusted basis of the EPPE Shares, the
additional capital contribution of EPEC Nederland Holding BV equivalent to the total cost of the Subject
Shares should be added to the original acquisition cost of the EPPE Shares (BIR Ruling No. 107-95 dated
19 July 1995). ATcEDS
Since no additional shares will be issued by El Paso Philippines Energy Co., Inc. to EPEC
Nederland Holding BV, the transfer is not subject to DST on the original issue of shares of stock under
Section 175 of the Tax Code of 1997.
Moreover, we confirm your opinion that there is no capital gains tax due on the disposition and
transfer of the Subject Shares from EPEC Nederland Holding BV to El Paso Philippines Energy Co., Inc.
Article 13 of the RP-Netherlands Tax Treaty provides as follows:
"Article 13
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 State in the other State for the
purpose of performing professional services, including such gains from the alienation of such
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. Capital 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." (Emphasis
supplied).
It is clear from the aforequoted provisions of the RP-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 sale of shares of
stock is not among those mentioned in said paragraphs 1, 2 and 3 of Article 13 of the tax treaty, the gains
that may be derived by EPEC Nederland Holding BV, which is a resident of Netherlands, from the transfer
of the Subject Shares shall not be subject to Philippine income tax under Section 27(D)(2) of the Tax
Code of 1997, but are subject to tax only in Netherlands (BIR Ruling 009-96 dated January 23, 1996). DHIETc
However, the transfer of the Subject Shares from EPEC Nederland Holding BV to El Paso
Philippines Energy Co., Inc. is subject to DST at the rate of One Peso and Fifty Centavos (P1.50) on each
Two Hundred Pesos (P200.00) of the par value of the Subject Shares under Section 176 of the Tax Code
of 1997.
This ruling is being 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 considered null and
void.
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
RP-Singapore Article 12
BIR Ruling No. 078-97
Sycip Gorres Velayo & Co.

3rd Floor Insular Life Bldg.
Cor. Gorordo and Gen. Maxilon Avenue
Cebu City
Attention: Rita Asuncion S. Fernandez

Tax Division
Gentlemen :
This refers to your letter dated August 9, 2000 on behalf of Van Seumeren (Philippines) Inc. (VSPI)
requesting confirmation of your opinion that the remittances of VSPI to Van Seumeren (Singapore) Pte
Ltd (VVS) of rental payments for the use of one (1) unit 250 Crawler Crane be exempt from withholding
tax pursuant to Article 5 and Article 7 paragraph (1) of the RP-Singapore Tax Treaty.
It is represented that VVS is a nonresident foreign corporation duly organized and existing under
the laws of Singapore with principal address at 51 Newton Road #19-07/08, Goldhill Plaza, Singapore;
that it is not registered as a corporation or partnership and is not licensed to do business in the Philippines
as per certification dated September 13, 2000 issued by the Securities and Exchange Commission; that
VSPI is a domestic corporation organized and existing under the laws of the Republic of the Philippines
with principal office at PDI Condominium, Archbishop Reyes Avenue, Cebu City; that VSPI is engaged in
the leasing of cranes, specialized equipment for heavy lifting and transportation for onshore and offshore
industries on a turnkey basis and sea transportation thereof or any services related thereto or connected
therewith; that to augment the machineries and equipment being leased by VSPI, it entered into a Lease
Agreement with VSS for the lease of one (1) unit Crawler Crane; that in consideration thereof, VSPI shall
pay rental payments of US$35,000.00 per month from May 1, 2000 to June 30, 2000.
In reply thereto, please be informed that Article 12 of the RP-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 charged shall not exceed: SDIaCT
(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
Investment and engaged in preferred areas of activities and also royalties in respect of
cinematograph films or tapes for television or broadcasting; SAEHaC
(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.
"(3) The term "royalties" 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 television or 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 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
gross amount of royalties, however, Section 28(B)(4) 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,
charter and other fees derived by non-resident lessors of aircrafts, machineries and other equipment
shall be subject to a tax of not less than 5% but not more than 10% to be fixed and determined by the
President upon recommendation of the Secretary of Finance; provided, that the rate of 7.5% shall be
imposed on such rentals, charter and other fees until such time as the President shall have prescribed
the rates appropriate for each category or property.
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.(Emphasis supplied)
In view thereof, this Office hereby rules that the rental income derived by VSS from its lease
transaction with VSPI is subject to seven and one-half percent (7½%) tax rate on gross rentals, the same
not having exceeded the 25% rate imposed on the gross amount of royalties under the RP-Singapore Tax
Treaty, contrary to your opinion that the said rental income may be exempted from income tax pursuant to
Article 7 & 5 of the RP-Singapore Tax Treaty. (UN 296-94, BIR Ruling No. 078-97)
Finally, said rental payments made by VSPI to VSS for the lease of one (1) unit Crawler Crane
shall be subject to the 10% value added tax (VAT) imposed under Sec. 108 of the Tax Code of 1997,
based on the contract price agreed upon by the parties. VSPI, being the lessee, shall be responsible for the
payment of VAT on such rentals on behalf of VSS by filing a separate VAT declaration/return. The said
VAT declaration/return can be used by VSPI as evidence in claiming input tax credit.(Sec. 4.102-1(b)
Revenue Regulations No. 7-95)
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 considered null and
void. DIECTc
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
RP-Malaysia Art. 5 & 7

179-95
ITAD 92-00
Roxas Delos Reyes Laurel & Soriano

19/F PDCP Building, 8737 Paseo de Roxas Avenue
Makati City 1200
Attention: Anna Melissa L. Rosario

Maria Portia E. Rosell
Gentlemen :
This refers to your letter dated August 15, 2000, on behalf of your client the ENG Teknologi
Holdings Bhd (ETHB), requesting confirmation of your opinion that business profits received from Engtek
Precision Philippines Inc. (EPPI), a Philippine subsidiary, are not subject to Philippine Income tax
pursuant to the SP-Malaysia Tax treaty.
It is represented that ETHB is a non-resident foreign corporation duly organized and existing under
and by virtue of the laws of Malaysia and with business address at Plot 69-70 Persiaran Kampung Jawa,
Bayan Lepas Industrial Zone, Bayan Lepas, Penang, Malaysia 11900; that ETHB is not registered to
engage in business in the Philippines as evidenced by Securities and Exchange Commission certification
dated February 2, 2000; that EPPI, a subsidiary of ETHB, is a corporation organized and existing under
the laws of the Philippines, with business address at L10 Phase II-A Special Export Processing Zone II
Carmelray Industrial Park I, Canlubang, Laguna; that EPPI is engaged in the business of manufacturing,
producing, assembling, processing, importing, exporting, wholesaling and marketing of electronics and
mechanical machinery products, parts, components and accessories therefor including precision
engineering and servicing of semi-conductor and hard disk drive components and peripherals; that on
April 11, 2000, EPPI and ETHB entered into a Management Services Contract whereby the latter is
engaged to perform certain management services and organizational direction, financial management,
marketing strategies and information technology advice to EPPI; that such contract shall be effective from
October 1, 1999 until December 2000, renewable upon mutual agreement of the parties herein; and that
EPPI agrees to pay ETHB a monthly Management Fee in an amount equivalent to one percent (1%) of
EPPI's total monthly sales volume plus a fixed fee of Two Thousand Six Hundred US Dollars
(USD2,600.00) per month for the period January 1, 2000 to December 31, 2000.
In reply, please be informed that Article 7 of the RP-Malaysia 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 thereof as is attributable to that permanent
establishment. HAICcD
Moreover, Article 5 of the above treaty provides as follows:
"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. ...
"3. ...
"4. ...
"5. ...
"6. ...
7. 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 State (whether through a permanent establishment or otherwise) shall not of
itself constitute either company a permanent establishment of the other."
In view of the foregoing, the existence of EPPI as a subsidiary of ETHB does not of itself constitute
a permanent establishment of ETHB. This was likewise held in BIR Ruling No. ITAD-92-00 dated August
1, 2000.
Such being the case, this Office hereby confirms your opinion that since ETHB has no permanent
establishment in the Philippines, the business profits it received from rendering corporate management
services to EPPI are not subject to Philippine income tax pursuant to Article 5 and 7 of the RP-Malaysia
Tax Treaty. (BIR Ruling No. ITAD-92-00)
This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation,
it will be disclosed that the facts are different, then this ruling shall be considered null and void.
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
RP-Germany Art. 11
BIR Ruling 042-91
Sozietat Wohlfarth
Wirtschaftsprufer-Steuerberater-Rechtsan
WeinBenfurger Str. 4 49076 Osnabruck
Germany
Attention: Mr. Thomas Wohlfarth
Gentlemen :
This refers to your letter dated September 1, 1999, regarding the application for tax refund of your
client, Mr. Karl-Friedrich Hensiek, a resident of Germany, for the overpayment of withholding tax on
interest invoking the preferential rate of 15% pursuant to the RP-Germany Tax Treaty.
It is represented that Mr. Karl-Friedrich Hensiek is a German resident with address at Barkhausener
Str. 70, D-49328 Melle-Buer, Germany as certified by the local federal tax authority of Germany dated
January 17, 2000; that Mr. Hensiek has various deposits and investments in Citibank NA Philippines for
the year 1998; that these various deposits and investments earned interest; and that Citibank withheld 20%
tax on the gross interest of the said deposits and investments. CDAHIT
In reply, please be informed that Article 11 paragraph 2(b) of the RP-Germany Tax Treaty states:
"Article 11
Interest
1. Interest arising in a Contracting State and paid to a resident of the other Contracting Stale
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 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
"5. The term "interest" as used in this Article means income from Government securities,
bonds or debentures whether securities, bonds or debentures, where or not secured by mortgage and
whether or not carrying a right to participate in the 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."
According to the Commentaries of the ORGANISATION FOR ECONOMIC CO-OPERATION

AND DEVELOPMENT (OECD) Committee on Fiscal Affairs on the Model Tax Convention [par. 3,
Commentary on Article 11 (Interest),  1998, p. 141], "the term 'debt-claims of every kind' obviously
embraces cash deposits and security in the form of money, as well as government securities, and bonds
and debentures, although the three latter are specially mentioned because of their importance and of
certain peculiarities that they may present." IAEcCa
In view of the aforequoted provision, the Philippines may tax the interest income derived therefrom
by a German resident on his bank deposits and investments with Citibank N.A., but the tax so charged
shall not exceed 15% of the gross amount of such interest. Accordingly, your opinion is hereby confirmed
that Mr. Hensiek is entitled to a preferential tax rate of 15% pursuant to Article 11 paragraph 2(b) of the
RP-Germany Tax Treaty. (BIR Ruling No. 042-91)
With respect to your application for refund, we shall be endorsing it to the Large Taxpayers Service
for processing. Relative thereto, please address your communication to the following:
The Assistant Commissioner
Large Taxpayers Service
3rd Floor, Rm. 301
National Office Building, Diliman,
Quezon City, Philippines
Tel. No. 920-75-08
Fax No. 920-75-10
void.
Very truly yours,
By:

Deputy Commissioner
Legal & Inspection Group
December 8, 2000
RP-US Article 12
ITAD 84-00
Bush Boake Allen Philippines, Inc.

10-B Reliance cor. Brixton Streets
1600 Pasig City
Attention: Nelia G. Corpuz

Accounting/Finance Manager
Gentlemen :
This refers to your application for relief from double taxation dated July 12, 2000, on behalf of
Bush Boake Allen Inc. (USA), to avail of the preferential tax rate of 15 per cent final withholding tax on
your interest remittances pursuant to the RP-US Tax Treaty.
It is represented that Bush Boake Allen Inc. (BESA USA) is a non-resident foreign corporation duly
organized and existing under the laws of the United States of America with principal address at 7
Mercedes Drive, Montvale, New Jersey; that it has no permanent establishment in the Philippines; that it is
not registered as a corporation/partnership licensed to do business in the Philippines as per certification
issued by the Securities and Exchange Commission dated June 28, 2000; that Bush Boake Allen
Philippines (BBA Phil) is a corporation duly organized and existing under Philippine Laws and engaged in
the manufacture of flavors, seasonings and fragrances; that on May 3, 2000, BBA Phil and BBA USA
entered into a loan agreement whereby former promised to pay, for value received, Twenty Million Pesos
(PHP20,000,000.00) to the latter, payable on August 10, 2000 together with interest on the unpaid
principal amount at the rate equal to the short term applicable interest of 6.753 per cent. DHITSc
In reply, please be informed that Article 12 paragraph 2 of the RP-US Tax Treaty which reads, viz:
"Article 12
"INTEREST
"1. Interest derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States. HaEcAC
other Contracting State shall not be taxed by the other Contracting State at a rate in excess of 15
percent of the gross amount of such interest. (emphasis supplied)
other Contracting State with respect to public issues of bonded indebtedness shall not be taxed by the
other Contracting State at a rate in excess of 10 percent of the gross amount of such interest. DaTISc
"xxx xxx xxx
"5. Paragraphs 2, 3, and 4 shall not apply if the recipient of interest from sources within one
of the Contracting States, being a resident of the other Contracting State, carries on business in the
first-mentioned Contracting State through a permanent establishment situated therein or performs in
that other 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 a case, the provisions of Article 8 (Business Profits) or Article 15 (Independent
Personal Services), as the case may be, shall apply.
"xxx xxx xxx"
"7. The term "interest" as used in this Convention 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 Contracting State in which
the income arises, including interest on deferred payment sales." TESICD
Based on the foregoing, interest payments to a recipient which does not have a permanent
establishment in the Philippines will be taxed at a preferential tax rate not exceeding ten per cent (10%) of
the gross amount of interest if with respect to public issues of bonded indebtedness; and a tax rate not
exceeding fifteen per cent (15%) of the gross amount of interest in all other cases.
Such being the case, and since BBA USA is not registered to engage in business in the Philippines
through a permanent establishment situated therein and the interest is not with respect to public issues of
bonded indebtedness, the interest payment to be remitted by Bush Boake Allen Philippines (BRA Phil) to
Bush Boake Allen Inc. (BBA USA) is subject to the preferential tax rate of 15 per cent pursuant to the
RP-US Tax Treaty. IHEaAc
Moreover, the loan agreement as evidenced by the Standard I/C Form of Note dated May 3, 2000 is
subject to the documentary stamp tax imposed under Section 180 of the National Internal Revenue Code
of 1997.
void.
Very truly yours,

By:

Deputy Commissioner
December 8, 2000
RP-US-Art. 13
RP-Russia-Art. 12
ITAD 121-00
Laya Mananghaya & Co.

22/F Antel 1000 Corporate Center
139 Valero Street, Salcedo Village
Makati City
Attention: Atty. Remegio A. Noval

Partner, Tax & Corporate Services
and
Atty. Carolina Francisca A. Racelis
Manager, Tax & Corporate Services
Gentlemen :
This refers to your letters dated August 23, 2000 and October 03, 2000 on behalf of your client,
CALIFORNIA MANUFACTURING COMPANY, INC. ("CMC"), requesting for tax treaty relief ruling
that royalties paid by CMC to CPC/AJI (ASIA) LTD. ("CPC") are subject to the fifteen per cent (15%)
preferential tax rate on royalties, pursuant to the most-favored-nation-clause ("MFN") under the RP-US
Tax Treaty in relation to the RP-Russia Tax Treaty. EDCTIa
It is represented that CPC is a non-resident foreign corporation duly organized and existing under
and by virtue of the laws of the State of Delaware; that as per certification dated June 28, 2000, issued by
the Securities and Exchange Commission, CPC was licensed to establish a regional or area headquarter in
the Philippines on December 19, 1990; that the said headquarter does not constitute a permanent
establishment; that CMC on the other hand is a corporation duly organized and existing under and by
virtue of the laws of the Philippines with office address at Km 18 South Superhighway, Parañaque; that
CPC and CMC entered into two agreements, namely: a) Technology License Agreement on June 01, 1997,
whereby CMC was provided with access to CPC and AJICO Technology for the sole purpose of applying
such technology to the manufacture and distribution of CMC's products, and b) Trademark License
Agreement on May 15, 1997, whereby CMCP grants CMC the exclusive right to use and CMC undertakes
to so use the Trademarks only in connection with the Products indicated in the Agreement; that both
Agreements were issued a Certificate of Compliance and Approval by the Intellectual Property Office
(IPO) dated August 01, 2000.
Based on the foregoing representations, it is your opinion that under Article 13 of the RP-US Tax
Treaty which 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) ...
(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 the 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)
"xxx xxx xxx"
and considering that the lowest rate given to a third State is 15% as provided in Article 12(2) of the
RP-Russia Tax Treaty which provides, viz:
"Article 12
"ROYALTIES
"1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
"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 royalties.
"3. The term "royalties" as used in this Article means payments of any kind received as a
including cinematograph films and films and tapes for television or radio broadcasting, any patent,
or scientific experience.
"xxx xxx xxx"
the royalty payments made by CMC to CPC under the Technology License Agreement and Trademark
License Agreement shall be subject to 15% preferential withholding tax rate pursuant to the "most favored
nation clause" under the RP-US Tax Treaty in relation to the RP-Russia Tax Treaty.
In reply, please be informed that under the above-quoted Article 13(2)(b)(iii) of the RP-US Tax
Treaty, otherwise known as the "most favored nation clause", the tax imposable on royalties derived by a
resident of the United States from 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.
Corollarily, the RP-US and RP-Russia Tax Treaties, particularly their provisions on the avoidance of
double taxation, show that there is a similarity on the manner of payment of taxes, that is the allowable
foreign tax credit on both treaties in the amount actually paid in the Philippines.
Such being the case, your opinion that royalties arising in the Philippines and payable to CPC/AJI
(ASIA) LTD. are subject to Philippine tax at the rate of 15% pursuant to the "most favored nation" clause
provision of the RP-US Tax Treaty in relation to the RP-Russia Tax Treaty is hereby confirmed. (BIR
Ruling No. ITAD 121-00)
Moreover, the payments to be made by CMC for the grant of right and license are subject to the ten
per cent (10%) value-added tax pursuant to Section 108 of the Tax Code of 1997, based on the contract
price agreed upon by the parties. Accordingly, CMC shall be responsible for the payment of VAT on such
royalties on behalf of CPC by filing a separate VAT declaration/return using BIR Form No. 1600. The said
VAT declaration/return can be used by CMC as evidence in claiming input tax credit. (Sec. 4.102-1(b),
Revenue Regulations No. 7-95) SEIcAD
This ruling is issued on the basis of the foregoing representations. However, if it will be disclosed
or discovered upon investigation that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,

By:
Deputy Commissioner
December 7, 2000
Joaquin Cunanan & Co.

14th Floor, Multinational
Bancorporation Centre
6805 Ayala Avenue
1226 Makati City
Attention: Mr. George J. Lavadia

Principal
Tax Services Department
Gentlemen :
This refers to your letter dated March 16, 2000 on behalf of Kawasho Corporation (Kawasho) and
Kasei Industry Co., Ltd. (Kasei), requesting for a ruling that K & K Molding, Inc.'s (K & K) dividend
payments to Kasei and Kawasho are subject to the preferential tax rate of ten percent (10%) pursuant to
the RP-Japan Tax Treaty.
It is represented that Kasei is a non-resident foreign corporation, duly organized and existing under
the laws of Japan with principal office address at 181-1 Kamigou, Ebina, Kamagawa, Japan; that it is not
registered as a corporation/partnership licensed to do business in the Philippines per certification dated
October 18, 1999 issued by the Securities and Exchange Commission; that Kawasho is a non-resident
foreign corporation, duly organized and existing under the laws of Japan with principal office address at
7-1 Olemachi 2-Chome, Chiyoda-Ku, Tokyo 100-8070 Japan; that Kawasho has a duly registered branch
in the Philippines, as per certification issued by Securities and Exchange Commission dated December 09,
1974, located at Villanueva, Misamis Oriental; that the branch had no participation in Kawasho's
investment in the capital stock of K & K as it is limited to engage in the construction of a sintering plant,
importing equipment, machineries and materials not locally available for the sintering plant, and exporting
the finished steel making materials produced by the sintering plant; that K & K is a domestic corporation
with business address at Lima Technology Center, Special Economic Zone, Malvar, Batangas; that Kasei
and Kawasho respectively own 51% and 49% of the outstanding capital stock of K & K; that on February
11, 2000, the Board of Directors of K & K passed and approved the declaration of cash dividends in the
total amount of Forty Four Million Pesos (P44,000,000.00) to its stockholders of record as of said date;
and that the said dividends shall be taken out of K & K 's unrestricted retained earnings as of December
31, 1999. ADHCSE
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 percent of the gross amount of the dividends in all other cases
The provisions of this paragraph shall not affect the taxation of 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.
"5. To be entitled to the application of the 10% preferential tax rate on dividend the recipient
who is the beneficial owner of the shares of stocks shall hold directly at least 25% of the voting shares
or the total shares issued by the company issuing the dividend and such shares must be held for the
period of at least six (6) months immediately preceding the date of payment of the dividend."
The 10% preferential tax rate on dividend applies whenever the beneficial owner/recipient of the
dividends owns at least 25% of the outstanding voting shares of the paying company and has been holding
the said shares for a period of at least six months immediately preceding the date of payment of the
dividends. ISCTcH
Since Kasei and Kawasho respectively own 51% and 49% of the total outstanding stocks of K & K
as of record date being the holder thereof from May 07, 1998 to February 11, 2000, the cash dividends
payable by K & K to Kasei and Kawasho are entitled to the 10% preferential tax rate under Article
10(2)(a) of the RP-Japan Tax Treaty.(BIR Ruling No. ITAD 49-00)
void.
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
NIRC-Sec. 170
BIR Ruling ITAD-17-00
Sampoena Asia Ltd. Pte.

350 Orchard road #19-04/06
Shaw House, Singapore 0923
Attention: Manolito B. Dagatan

Authorized Representative
Gentlemen :
This refers to your letter dated October 9, 2000 for confirmation that the sale by SAMPOERNA
ASIA LTD. PTE. (hereinafter referred to as Sampoerna Asia) of its shareholdings in STERLING
TOBACCO CORPORATION (hereinafter referred to as STC) to SAMPOERNA INTERNATIONAL
PTE. LTD. (hereinafter referred to as Sampoerna International) is not subject to capital gains tax pursuant
to RP-Singapore Tax Treaty.
It is represented that Sampoerna Asia is a corporation organized and existing under the laws of
Singapore with office address at 350 Orchard Road #19-08 Shaw House, Singapore 238868 and is not
licensed to do business in the Philippines as evidenced by the Certificate of Non-Registration issued by the
Securities and Exchange Commission dated October 2, 2000; that Sampoerna Asia owned the Nine
Hundred Ninety Six Thousand and Ninety Seven (996,097) shares of stocks which represents the 59% of
the entire outstanding capital stock of STC, a corporation organized and existing in the Philippines with
office address at 305-307 Jose Rizal Street, Mandaluyong City; and that on September 14, 2000,
Sampoerna Asia sold its shares of stocks to Sampoerna International, a corporation organized and existing
under the laws of Singapore, for and in consideration of the sum of Twelve Million and Three Hundred
Thousand US Dollars (US$12,300,000.00) for the following Stock Certificates:
Stock Certificate No. No. of Shares Total Par Value

272 675,320 P41,802,308.00
286 84,412 5,225,102.80
287 3 185.70
290 236,360 14,630,684.00
292 1 61.90
293 1 61.90
———— ——————
996,097 P61,658,404.30
In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty, provides:
"Article 13
"1. Gains from the alienation of immovable property may be taxed in the Contracting State
in which such property is situated. ESTDIA
"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 based 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 permanent establishment (alone or together with the whole enterprise) or of
such a fixed base may be taxed in the other State. However, gains derived by an enterprise of a
Contracting State from the alienation of ships or 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.
"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.
"4. Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2,
and 3 shall be taxable only in the Contracting State of which the alienator is a resident.
Paragraph 3 of the aforequoted Article grants the Philippines the right to tax gains derived from the
disposition of interest in a corporation if its assets consist principally of real property interest located in
the Philippines. Section 3 of Revenue Regulations No. 4-86 provides guidance on the meaning of
"consisting principally of real property interest".
"SEC. 2 Definitions. — For purposes of these Regulations, the following terms and
phrases shall be understood to mean —
"a) 'Real Property Interest' — interest on properties enumerated in Section 3 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: aASDTE
"b) 'Principally', "wholly or principally', 'directly principally' or 'attributable' — more

than 50% of the entire assets in terms of value
Verification of the interim financial statements as of August 10, 2000 of STC disclosed that its real
property interest located in the Philippines is only 45% of its total assets, thereby making the assets of
STC not principally consisted of real property interest located in the Philippines.
Accordingly, your opinion that the gains derived from the sale/transfer of the shares of stock by
Sampoerna Asia to Sampoerna International are not subject to Philippine tax, is hereby confirmed.
However, the Deed of Absolute Sale shall be subject to the documentary stamp tax imposed under Section
176 of the Tax Code of 1997. (BIR Ruling No. 007-96 dated January 18, 1996)
This ruling is issued based on 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 considered null and
void. TcEaAS
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
Article 11 RP-Denmark
ITAD 122-00

14th Floor Multinational
6805 Ayala Avenue, Makati City
Attention: Atty. George Lavadia

Principal
Gentlemen :
This refers to your letter dated May 26, 2000, requesting for a ruling to the effect that interest on
various loans extended by Danfoss A/S (DAS) to Danfoss Inc.(DI) shall be subjected to the preferential
tax treaty rate of 10% pursuant to the RP-Denmark Tax Treaty.
It is represented that DAS is a non-resident foreign corporation organized and existing under the
laws of Denmark with principal office address at Nordborgvej 81, 6430 Nordborg Denmark; that DAS is
not licensed to do business in the Philippines per certification dated July 26, 2000, issued by the Securities
and Exchange Commission; that DI is a corporation organized and existing under the laws of the
Philippines with principal office address at Km. 18 East Service Road, South Superhighway, Sucat,
Parañaque City, and is engaged in the business of assembling, manufacturing, servicing, selling on
wholesale, marketing, importing and exporting automatic controlled products, hydraulic products,
actuators and other related products; that during the period of 1997-1999, DAS and DI executed three loan
agreements covering the aggregate amount of US$ 1,050,000.00; that DAS is the beneficial owner of the
interest income which ranges from 6 to 6.5 per cent per annum.
In reply, please be informed that Article 11 of the RP-Denmark 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 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 State, but if the beneficial owner of the interest is a resident of the other
Contracting State the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
SDIaCT
The competent authorities of the Contracting Sales may by mutual agreement settle the mode
of application of this limitation.
"3. ...
"4. 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. Penalty charges for
late payment shall not be regarded as interest for the purpose of this Article
"xxx xxx xxx"
Based on the foregoing, interest arising in the Philippines and paid to a resident of Denmark may be
subject to Philippine tax at the rate not to exceed ten percent (10%) of the amount of the interest, if the
recipient is the beneficial owner of thereof. Therefore, the interest payment by DI to DAS, who is the
beneficial owner thereof, shall be subject to a tax of ten percent (10%) of the gross amount of the interest.
Moreover, the loan agreement executed by them is subject to documentary stamp tax pursuant to Section
180 of the Tax Code of 1997. (ITAD 122-00)
investigation, it will be disclosed that the facts are different, then this ruling shall be rendered null and
void.
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
Section 106 Section 108

ITAD No. 22-99
Embassy of the Argentine Republic

6th Floor ACT Tower
135 Sen. Gil Puyat Avenue
Salcedo Village, Makati City
Attention: Juan L. Garibaldi
Ambassador
Gentlemen :
This refers to your Note No. DAE/67/2000 dated August 22, 2000, which was referred to this
Office by the Department of Foreign Affairs (DFA), requesting for value-added tax (VAT) refund on the
purchase of furniture and other household belongings of the Embassy.
In reply, please be informed that pursuant to Article 34 of the Vienna Convention On Diplomatic
Relations, pertinent portions of which read:
"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 do not include exemption from
value-added tax (VAT) on their 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(A) and 108
of the National Internal Revenue Code of 1997.
However, under the principle of reciprocity, this Office may grant exemption to the Embassy of the
Argentine Republic on its local purchase of goods and/or services it appearing from the list submitted by
the DFA dated June 2, 2000 and the indorsement letter of the DFA Office of Protocol dated August 30,
2000 that your Government allows similar exemption to Philippine Embassy on its purchase of goods and
services in your country. (ITAD No. 22-99 dated August 26, 2000) cTaDHS
Hence, the Embassy of the Argentine Republic is exempt from value-added tax on its local
purchase of goods and/or services based on reciprocity and is entitled to claim VAT refund on the
purchase of furniture and other household belongings.
Very truly yours,

Deputy Commissioner
Legal and Enforcement Group
December 7, 2000
Sec. 28 105-92
Hunt-Universal Robina Corp.

CFC Building, E. Rodriguez Jr. Avenue
Bagong Ilog, Pasig City
Attention: Mr. Jorge Q. Concepcion

Managing Partner
Gentlemen :
This refers to your application for relief from double taxation dated June 6, 2000, on behalf Of
Hunt-Wesson Foods International, to avail of the preferential tax rate of 15 per cent final withholding tax
on your dividend remittances pursuant to the National Internal Revenue Code (NIRC) of 1997.
It is represented that Hunt-Wesson Foods International (Hunt USA) is a non-resident foreign

corporation duly organized and existing under the laws of the United States of America (USA) with
principal office address at 1645 West Valencia Drive, Fullerton California, USA; that it is not registered
as a corporation/partnership licensed to do business in the Philippines as per certification dated March 7,
2000 issued by the Securities and Exchange Commission; that Hunt-Universal Robina Corp. (Hunt Phil) is
a corporation duly organized and existing under Philippine Laws; that Hunt USA owns 1,400,000 shares
with a par value of PHP 10.00 per share representing 50 per cent of Hunt Phil's outstanding capital stock;
that on November 11, 1999, the Board of Directors of Hunt Phil declared cash dividends out of its retained
earnings in the amount of Forty Five Million Pesos (PHP 45,000,›00) to its stockholders of record as of
September 30, 1999; and that the said dividends are payable on or before March 31, 2000.
In reply, please be informed of Section 28 (B)(5)(b) of the National Internal Revenue Code which
reads, viz:
"Section 28. Rates of income tax on foreign corporations. —
"xxx xxx xxx
"(B) Tax on Nonresident Foreign Corporations. —
"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 (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 subparagraph; CSHcDT
"xxx xxx xxx"
Based on the foregoing, the regular income tax rate of thirty-two percent (32%) applicable to
dividend remittances to non-resident foreign corporate stockholders of a Philippine corporation, is reduced
to fifteen percent (15%) if the country of domicile of the foreign stockholder 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 Hunt USA for "taxes deemed paid in the Philippines" against its US taxes.
The Supreme Court in Commissioner of Internal Revenue vs. Procter and Gamble Philippine
Manufacturing Corp. (PNG) and Court of Tax Appeals (December 2, 1991), in ruling that the USA
domiciled stockholder 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 Hunt-Wesson Foods International (Hunt
USA) are subject to the preferential tax rate of 15 per cent pursuant to the provisions of the Tax Code of
1997 is hereby confirmed.
You are, however, 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 Hunt USA 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. DTIaCS
void.
Very truly yours,

By:
Deputy Commissioner
December 7, 2000
RP-Japan Article 11 BIR Ruling No. ITAD 16-00
Luzon Electronics Technology, Inc.

Special Export Processing Zone,
Gateway Business Park, Javalera,
Gen. Trias, Cavite
Attention: Mr. Junichi Kawaguchi

Assistant Comptroller
Gentlemen :
This refers to your letter dated March 23, 2000, on behalf of HITACHI METALS, LTD.
(HITACHI), requesting for a preferential tax treaty rate of ten percent (10%) to be withheld on interest
payments to LUZON ELECTRONICS TECHNOLOGY, INC. (LETI), pursuant to the RP-Japan Tax
Treaty. TESDcA
It is represented that HITACHI is a corporation duly organized and existing under the laws of
Japan, with principal office at 1-2, 2-Chome. Marunouchi, Chiyoda-Ku, Tokyo 105-8614, Japan; that it is
not registered as a corporation or partnership in the Philippines as per certification issued by the Securities
and Exchange Commission dated August 25, 1999; that LETI is a domestic corporation duly organized
and existing under the laws of the Philippines and duly registered with the Philippine Economic Zone
Authority with Certificate of Registration No. 95-121 dated November 14, 1995; and that the following
Loan Agreements were entered into by and between HITACHI and LETI:
LOAN 1 entered into on October 25, 1999, for the amount of One Billion Japanese Yen
(¥1,000,000,000.00) with an interest rate of zero decimal point four two five percent (0.425 %);
LOAN 2 entered into on December 21, 1999, for the amount of One Hundred Seventy Million Japanese
Yen (¥170,000,000.00) with an interest rate of zero decimal point four two five percent (0.425%);
and
LOAN 3 entered into on February 25, 2000, for the amount of Four Hundred and Fifty Million Japanese
Yen (¥450,000,000.00) with an interest rate of one decimal point seven zero three percent (1.703%).
Article 11
"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; cADSCT
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
incentive 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.
"4. ...
"5. The term "interest" as used in this Article means income from debt-claims of every kind
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"
Considering that LETI is not a Board of Investment (BOI) registered enterprise engaged in
preferred pioneer areas of investment and since the interest paid is not in respect of Government securities,
or bonds or debentures, your application for a preferential tax rate of ten per cent (10%) on the gross
amount of interest paid to HITACHI is hereby denied. Nevertheless, pursuant to Article 11(2)(b) of the
aforesaid tax treaty, the interest to be remitted by LETI to HITACHI relative to the aforementioned Loan
Agreements shall be subject to a final tax rate of 15% of the gross amount of interest.
In addition, the Loan Agreements shall be subject to documentary stamp tax imposed under Section
180 of the Tax Code.
void. cEHSTC
Very truly yours,

Deputy Commissioner
December 7, 2000
RP-UK Article 9
239-82
Bush Boake Allen Philippines, Inc.

10-B Reliance cor Brixton Streets
1600 Pasig City
Attention: Nelia G. Corpuz

Accounting/Finance Manager
Gentlemen :
This refers to your application for relief from double taxation dated July 12, 2000, on behalf of A
Boake Roberts and Co (Holding) Ltd, to avail of the preferential tax rate of 15 per cent final withholding
tax on your dividend remittances pursuant to the RP-UK Tax Treaty.
It is represented that A Boake Roberts and (Holding) Ltd. (Boake UK) is a non-resident foreign
corporation duly organized and existing under the laws of the United Kingdom (UK) with principal
address at Blackhorse Lane London E175QP England; that it is not registered as a corporation/partnership
in the Philippines as per certification dated May 12, 1999 issued by the Securities and Exchange
Commission; that it has no permanent establishment in the Phils; that it is a stockholder of Bush Boake
Allen Philippines (Boake Phil), a corporation duly organized and existing under Philippine Laws and
engaged in the manufacture of flavors, seasonings and fragrances; that on December 14, 1999, the Board
of Directors of Boake Phil declared cash dividends out of its retained earnings in the amount of Fifty
Million Pesos (PHP 50,000,000) to its stockholders of record as of December 20, 1999; that the said
dividends are payable on or before January 25, 2000; that at the time of the declaration of said dividends,
Boake UK owns 8,417,603 shares with a total par value of PHP8,417,603.00 representing more than 99
per cent of Boake Phil's outstanding capital stock; and that on January 25, 2000, Boake Phil paid dividends
to Boake UK. DCcAIS
In reply, please be informed that Article 9 paragraph 1 of the RP-UK Tax Treaty which reads, viz:
"Article 9
Dividends
"1. Dividends derived from a company which is a resident of the Philippines by a resident of
the United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in the
Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the
tax so charged shall not exceed:
(a) 15 per cent of the gross amount of the dividends if the beneficial owner is a
company which controls directly or indirectly at least 10 per cent of the voting power in the
company paying the dividends;
(b) in all other cases, 25 per cent of the gross amount of the dividends.
"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 corporate rights assimilated to
income from shares by the taxation law of the State of which the company making the distribution is a
resident and also includes any other item (other than interest relieved from tax under the provisions of
Article 10 of this Convention) which, under the law of the Contracting State of which the company
paying the dividend is a resident, is treated as a dividend or distribution of a company.
"5. The provisions of paragraphs 1, 2 and 3 of this Article shall not apply, if the beneficial
owner of the dividends, being a resident of a Contracting State, carries on a trade or 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 State professional 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 a case the provisions of Article 7 or 13, as
the case may be, shall apply. TEaADS
"xxx xxx xxx"
Based on the foregoing, dividend payments to a company which is a resident of UK and which does
not have a permanent establishment in the Philippines will be taxed at a preferential tax rate not exceeding
fifteen per cent (15%) of the gross amount of dividends if the said recipient is a company which owns at
least 10 per cent of the voting power in the company paying the dividends, and a tax rate not exceeding
twenty five per cent (25 %) of the gross amount of the dividends in all other cases.
Such being the case, since Boake UK owns more than 10 per cent of the issued capital stock of
Boake Phil and is not registered to engage in business in the Philippines through a permanent
establishment situated therein, the cash dividends remitted by Bush Boake Allen Philippines (Boake Phil)
to A. Boake Roberts and Co. (Holding) Ltd. (Boake UK) are subject to the preferential tax rate of 15 per
cent based on the gross amount of dividends, pursuant to the RP-UK Tax Treaty.
void.
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
RP-Japan Article 11, Article 4

BIR Ruling 142-95
ITAD Ruling 30-00
Philippine National Oil Company

PNOC Building VI, Energy Center
Merritt Road, Fort Bonifacio
Taguig, Metro Manila
Attention: Bernadette B. Jugan

Manager, Legal Department
This refers to your letter dated June 15, 2000 requesting confirmation of your opinion that the
interest paid on loan secured by PHILIPPINE NATIONAL OIL COMPANY (PNOC) from TOKAI
BANK LIMITED, SINGAPORE (TOKAI SINGAPORE) is subject to a 15% preferential tax treaty rate
pursuant to the RP-Japan Tax Treaty.
It is represented that TOKAI SINGAPORE is an offshore bank of the Tokai Bank Limited of Japan,
existing and organized under the laws of Japan, with address at 21-24, Nisiki 3-Chrome, Naka-ku, Nagoya,
Japan and its Singapore office is located at 80 Raffles Place, #1061 UBC Plaza I, Singapore; that per
certification dated June 14, 2000 issued by the Securities and Exchange Commission (SEC), TOKAI
SINGAPORE: was duly licensed to establish a regional office in the Philippines on March 26, 1982; that it
does not have a permanent establishment in the Philippines within the meaning of "permanent
establishment" under Article 5 of the RP-Japan Tax Treaty; that PNOC is a government owned and
controlled corporation established by virtue of Presidential Decree No. 334 (as amended) of the Republic
of the Philippines with business address at PNOC Building VI, Energy Center, Merritt Road, Fort
Bonifacio, Taguig, Metro Manila; that on March 27, 2000, a US$130,000,000.00 loan facility was made
available to PNOC as borrower by a group of banks on whose behalf Citibank, N.A. Manila Branch acted
as an agent; that one of the banks is TOKAI SINGAPORE which has a participation of US$12,000,000.00
with an interest rate on such loan as stated on the Facility Agreement.
In reply thereto, please be informed that Article 11 of the RP-Japan Tax Treaty states that:
"Article 11
"1. Interest arising in a Contracting State and paid to a resident of the other Contracting Stale
"2. However, such interest may also be taxed in the Contracting State in which it arises; and
according to the law of that Contracting State, but if the recipient is the beneficial owner of the
Government securities, or bonds or debentures; EcDTIH
b) 15 per cent of the gross amount of such interest in all other cases.
"3. ...
"4. ...
"5. The term "interest" as used in this Article means income from debt-claims of every kind,
including premiums or prizes attaching to such securities, bonds or debentures.
"xxx xxx xxx"
Corollary to the above-quoted provision is Article 4 of the same treaty which provides that:
"Article 4
"(1) For the purposes of this Convention the term "resident of a Contracting State" means
any person who, under the laws of that Contracting State is liable to tax therein by reason of his
domicile residence place of head or main office, place of incorporation or any other criterion of a
similar nature. But this term does not include any person who is liable to tax in that Contracting State
in respect only of income from sources therein." (Emphasis supplied)
It is a clear from the aforequoted provision that the term "resident of Japan" shall include any
person who is liable to tax in Japan by reason of its place of head or main office or place or incorporation.
In which case, the preferential tax rate under the RP-Japan tax treaty, which is 10 per cent of the gross
amount of interest if the interest is paid in respect of government securities or bonds, or debentures, and 15
per cent of the gross amount of such interest in all other cases, when the recipient of the interest is the
beneficial owner thereof, shall be applied. DICSaH
In the instant case, TOKAI SINGAPORE is a branch of Tokai Bank Limited of Japan which main
or head office is in Japan, thus, entitled to avail of the preferential tax rates under the RP-Japan Tax
Treaty. Accordingly, the applicable rate on the interest payment on the loan obtained by PNOC from
TOKAI SINGAPORE is 15% since TOKAI SINGAPORE is the recipient and also the beneficial owner of
such interest and considering further that the interest income was not generated from government
securities, bonds or debentures. (BIR Ruling 142-95; ITAD Ruling 30-00) Further, the loan agreement
executed by and between them shall be subject to documentary stamp tax imposed under Section 180 of
the Tax Code of 1997.
investigation it will be disclosed that the facts are different then this ruling shall be considered null and
void.
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
RP-Germany Interest
BIR Ruling 269-92
Philippine National Oil Company

PNOC Building VI, Energy Center
Merritt Road, Fort Bonifacio
Attention: Bernadette B. Jugan

Manager, Legal Department
This refers to your letter dated June 16, 2000 on behalf of BAYERISCHE LANDESBANK
GIROZENTRALE (BAYERISCH; SINGAPORE) requesting confirmation of your opinion that the
interest payments made by the PHILIPPINE NATIONAL OIL COMPANY (PNOC) to BAYERISCHE
SINGAPORE shall be exempt from Philippine tax pursuant to RP-Germany Tax Treaty.
It is represented that Bayerische Landesbank Girozentrale of Germany (BAYERISCHE

GERMANY) is located at Munich, Brienner Str. 20; that it has an existing branch in Singapore,
BAYERISCHE SINGAPORE, with office address at 300 Beach Road #37-01, The Concourse, Singapore;
that BAYERISCHE GERMANY does not have an office in the Philippines within the meaning of
"permanent establishment" under Article 5 of the RP-Germany Tax Treaty; that on October 28, 1996, the
Bureau of Internal Revenue has given Bayerische Landesbank Girozentrale a formal letter stating that it is
a governmental institution within the meaning of Article 11 of the RP-Germany Tax Treaty and is exempt
from withholding tax on interest income; that PNOC is government owned and controlled corporation
established by virtue of Presidential Decree No. 334 (as amended) of the Republic of the Philippines with
business address at PNOC Building VI, Energy Center, Merritt Road, Fort Bonifacio, Taguig, Metro
Manila; that on March 27, 2000, a US$130,000,000.00 loan facility was made available to PNOC as
borrower by a group of banks on whose behalf Citibank, N.A. Manila Branch acted as an agent; that one
of the banks is BAYERISCHE SINGAPORE which has a participation of USS12,000,000.00 with an
interest rate on such loan as stated on the Facility Agreement.
In reply thereto, please be informed that Article 11 of the RP-Germany Tax Treaty states that:
"Article 11
INTEREST
"2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the laws of that State, but the tax so charged shall not exceed: AIDcTE
"(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.
"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
wirtschfliche Zusammenarbeit (Entwicklungsgesellschaft) shall be exempt from Philippine tax. CTaSEI
"The competent authorities of the Contracting States shall determine by mutual agreement any
other governmental institution to which this paragraph shall apply.
"xxx xxx xxx"
Based on the foregoing, interest arising in the Philippines and paid to an entity which has been
determined by the competent authorities as a government institution to which tax exemption under Article
11 paragraph 3 of the RP-Germany Tax Treaty shall apply shall be exempt from Philippine tax.
Since BAYERISCHE; SINGAPORE is a branch of BAYERISCHE GERMANY, a governmental

instrumentality of the Government of the Federal Republic of Germany and acknowledged as such by this
Bureau in a letter dated October 28, 1996, interest payments made by PNOC to BAYERISCHE
SINGAPORE shall be exempt from Philippine income tax. (BIR Ruling 269-92) Further, the loan
agreement executed by and between them shall be subject to documentary stamp tax imposed under
void.
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
RR 7-82
ITAD 24-99 & 27-99
Alba Romeo & Co.

Certified Public Accountants
7th Floor, Don Chua Lamko Bldg.,
H.V. dela Costa St., Salcedo Village
Makati City
Gentlemen :
This refers to your letter dated May 9, 2000 requesting confirmation of your opinion that any gain
realized by Mssrs. Glenn Anthony Rodriguez and James Tan Jin Woo from the sale of its IDS Logistics,
Inc. (IDS) shares to LI and FUNG Distribution (Asia), Ltd. shall be taxable only in Singapore pursuant to
RR 7-82 dated August 11, 1982 Chapter IV Section 20(5) and Article 13 of the RP-Singapore Tax Treaty.
It is represented that Mssrs. Rodriguez and Tan are residents of Singapore with office address at
IDS Logistics Services Pte., Ltd., 58 Toh Guan Road, Singapore, 608829; that each of them own 24,999
IDS shares; that IDS is a corporation duly organized and existing under the Philippine laws, with principal
office at Bldg. 1033, Naval Supply Depot Compound, Subic Bay Freeport Zone, Subic, Zambales; that the
1998 and 1999 audited financial statement of IDS reported that its assets consist, among others, property
and equipment located in the Philippines valued at P4.5M and P2M or 7% and 6% of its total assets
amounting to P63.3M and P33.7M, respectively; that on April, 2000 they sold their IDS shares to LI &
FUNG Distribution (Asia), Ltd., a corporation registered under the laws of the British Virgin Islands.
In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty provides:
"Article 13
"1. Gains from the alienation of immovable property may be taxed in the Contracting State
in which such property is situated.
or of movable property pertaining to a fixed base available to a resident of a Contracting State in the
Contracting State 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. IDSETA
"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
of immovable property situated in a Contracting State may be taxed 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 Contracting State of which the alienator is a resident."
Any gain realized by Mssrs. Rodriguez and Tan from the sale of their IDS shares of stock to LI &
FUNG Distribution (Asia) Ltd. shall be taxable only in Singapore. However, under the aforequoted
provision of paragraph 3 supra, the Philippines may tax the gains derived from the disposition of interest
in a corporation if its interest in a corporation consist principally of real property interest located in the
Philippines. "Real Property Interest" means interest on 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 IDS disclosed that its net
property and equipment represent less than 50% of its entire assets thereby declaring the assets of IDS not
consisted principally of real property interest located in the Philippines.
Accordingly, your opinion that the sale of Mssrs. Rodriguez and Tan of their shares of stock in IDS
to LI & FUNG Distribution Ltd. is not subject to Philippine income tax is hereby confirmed. However,
such sale shall be subjected to the documentary stamp tax imposed under Section 176 of the Tax Code of
1997. (BIR Ruling No. 007-96/24-99 and 27-99)
void. DCHIAS
Very truly yours,

By:

Deputy Commissioner
December 7, 2000
Sec. 106 Sec. 108, Sec. 149

BIR Ruling No. ITAD-172-00
Embassy of the Republic of Korea

10TH Floor, The Pacific Star Building,
Makati Avenue, Makati City
Attention: Mr. Eun-sup NA

Consul
Gentlemen :
This refers to your Note No. KPH 2000-205 dated September 21, 2000, referred to this Office by
the Department of Foreign Affairs (DFA), requesting for an exemption from payment of value-added tax
(VAT) and ad valorem tax on a local purchase of one (1) unit Honda Accord 2.3 VTi for the personal use
of Mr. Eun-sup NA of the Embassy of the Republic of Korea specifically described as follows:
Make: Honda Accord 2.3 VTi-L A/T
(1,587 cc., 5-Sp Manual transmission, gasoline)
Model Year: 2000
Color: Taffeta White
Frame Number: PADCG5650YV200635
Engine Number: PAHPS-Y200648
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:
"ARTICLE 34
services DHcSIT
"xxx xxx xxx"
the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from
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 tax 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 Korea and 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. IcDCaT
Hence, the local purchase of one (1) Honda Accord 2.3 VTi-LA A/T Model 2000, for the personal
use of Mr. Eun-sup NA is exempt from VAT and ad valorem taxes based on reciprocity. (BIR Ruling No.
ITAD-172-00 dated November 10, 2000)
Very truly yours,

By:

Deputy Commissioner
December 6, 2000
RP-Singapore Arts. 5 & 7

6760 Ayala Avenue
1226 Makati City
Attention: Atty. Cirilo P. Noel

Tax Division
Gentlemen :
This refers to your letter dated November 15, 2000, on behalf of your client, Procter and Gamble
(P&G), requesting confirmation of the following 1) that P&G International Operations Pte. Ltd.
("PGIOPL") is not subject to Philippine income tax and consequently to the withholding tax of 32% under
the provisions of Section 28(B) of the Tax Code of 1997, pursuant to the RP-Singapore Tax Treaty; 2) that
since it will not have a permanent establishment in the Philippines, PGIOPL will not be subject to
Philippine income tax on the business profits or income derived on the sale of goods to customers in the
Philippines; 3) that PGIOPL and/or Newco (another Philippine subsidiary which P&G will incorporate to
act as a Commissionaire Agent in the Philippines) will not be subject to the creditable withholding tax on
the sale of goods to customers in the Philippines, and PGIOPL will also not be required to withhold the
same tax on payments to local suppliers of raw and packing materials under Section 57 of the said Tax
Code of 1997.
It is represented that P&G is a corporation organized under the laws of the Philippines; that
PGIOPL is a non-resident foreign corporation duly organized and existing under the laws of Singapore
with its required office at 150 Beach Road, #37-00 The Gateway West Singapore; that in September 1998,
P&G announced plans to implement changes to its organizational structure, work processes, culture and
reward structure with the end view of accelerating the company's sales and profit growth and the return to
shareholders by increasing the capability to create and build large, profitable leadership brands; that in the
ASEAN, India and Australia ("AAI") region, to align the legal structure of the P&G group of companies
with the organizational changes, it intends to incorporate a company to house the management teams for
all product categories; that existing manufacturing entities in the region will act as toll manufacturers or
this company; that also distributing entities (like a Commissionaire) to carry out the activities of the
market development organization will be created in the countries where P&G is or will be operating that
separate entities will be set up as shared service centers for Asia.
Furthermore, PGIOPL will act as the Regional Entrepreneur for the AAI region and will make all
key decisions regarding the business for the regional category management teams; that PGIOPL will be the
licensee of a package of intangibles (viz. marketing rights, trademarks, patents, copyrights, technical
know-how) from the parent company and will also be the legal owner of all imported and domestically
sourced raw and packing materials used in the production process and all imported and domestically
produced finished goods sold throughout the region; that for these purposes, the PGIOPL will assume the
risk, loss and profit derived from each activity as well as the operating control of these functions for the
countries in the AAI region; that in the Philippines, Procter & Gamble Philippines, Inc. (PGPI) will act as
a toll manufacturer for PGIOPL and will own the plant as well as the machinery and equipment to be used
in the production/processing of raw and packing materials into finished goods; that PGPI will process raw
and packing materials belonging to PGIOPL into finished goods; that for PGPI's services, PGIOPL will
pay service fees on an arm's length basis; that PGIOPL will retain ownership over these finished goods
until they are sold to the customers; that PGPI will have the sole discretion to make the day-to-day
decisions with respect to manufacturing processes, methods, and costs, subject to the standards of
manufacturing and quality required by PGIOPL in accordance with the intangible licensing agreement
with the parent company; that after production, PGPI will safekeep the finished products only for such
period of time necessary for PGPI to be able to conduct quality assurance (QA) and other measures
required by good manufacturing practices; that thereafter, the finished goods will be withdrawn by the
local market development organization, a new company ("Newco") from PGPI for delivery to customers.
SIcEHD
It is further represented that P&G will incorporate another Philippine subsidiary, Newco, a
corporation organized under the laws of the Philippines with its registered office at 6750 Ayala Avenue
Office Tower, Ayala Center, Makati City to act as a Commissionaire in the Philippines; that Newco will
be responsible for selling and distributing the products in the Philippines and will have the sole discretion
to determine its own strategies for the distribution of the products; that for Newco's services, PGIOPL will
pay service fees on an arm's length basis; that in addition to the foregoing, Newco will sell the goods in its
capacity as a consignee-independent agent and will invoice the customers in its own name; that Newco
will deal with the Philippine customers in its own name and hence, act as a principal in the transaction
covering the sale of goods to customers; that Newco will not have legal title over the goods of PGIOPL
which are sold to the customers; that Newco will not have the power to contractually bind PGIOPL in any
manner; that the Philippine customers will effectively transact with Newco and will have legal recourse to
Newco only and not to PGIOPL in respect of the goods that they purchase; that Newco will receive sales
revenue from the customers but will have to account for this revenue to PGIOPL and Newco will also be
entitled to sell products of other P&G affiliates or other unrelated companies, or to undertake any other
form of business activity for commercial reward; that Newco will be the importer/consignee of record,
either directly or via a third party, of all raw materials and finished goods into the Philippines for
processing and/or sale to customers, respectively; that as the importer/consignee of record, Newco will
settle all customs duties and VAT payable upon importation; that it will deliver all imported raw materials
to PGPI and the finished goods to the customers; that all negotiation and strategic decisions relating to the
purchase of raw and packing materials will remain with PGIOPL and that Newco will also be the exporter
of record, either directly or via a third party, of all finished goods destined for customers outside the
Philippines
In reply, please be informed that Article 5 (Permanent Establishment), paragraphs 4 and 5 of the
RP-Singapore Tax Treaty provides that —
"(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."
Moreover, Article 7 (Business Profits), paragraph 1 of the same treaty provides:
"Article 7
1) The profits of an enterprise of a Contracting State shall be taxable only in that State
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."
Under the aforequoted provisions, business profits of PGIOPL 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 PGPI nor Newco has the authority to conclude contracts in the name of PGIOPL. As a toll
manufacturer, PGPI will process raw and packing materials belonging to PGIOPL. However, it is PGIOPL
rather than PGPI, 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 Newco is its inability to contractually bind
PGIOPL. Newco 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, PGIOPL. Neither PGPI nor Newco,
both in the Philippines, habitually maintains a stock of goods or merchandise from which either PGPI or
Newco may regularly deliver goods or merchandise on behalf of PGIOPL pursuant to Article 5(4)(b). STaAcC
Furthermore, nothing in the foregoing facts as represented will show that PGIOPL 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 PGIOPL may be taxed in the Philippines but only so
much of them as are attributable to the permanent establishment. While PGIOPL will enter into an
agreement relating to the provision of toll processing and other services with PGPI and will also enter into
a commissionaire agreement with Newco, they will not constitute a permanent establishment since PGPI
and Newco will have a separate and distinct personality from PGIOPL and their activities will not be
devoted wholly or almost wholly to PGIOPL and will be done in the ordinary course of their business
under arm's length conditions.
For purposes of Article 5 (5), PGPI and Newco are not dependent agents of PGIOPL. Rather, they
are independent entities that merely provide services to PGIOPL in return for arm's length consideration,
acting in the ordinary course of their trades or businesses for which PGPI and Newco cannot be considered
as a permanent establishment of PGIOPL. PGPI has the freedom and autonomy to carry out its business
operations without any immediate interference or control from PGIOPL. Also, the processing arrangement
of PGPI with PGIOPL is non-exclusive. PGPI remains free to contract with other P&G affiliates and/or
unrelated parties as long as it does not transmit or use the technology, formulas, processes, standards or
know-how for the processing of goods owned by it (PGPI) or third parties. The same holds true for Newco
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 PGPI and Newco is likewise supported by the fact as represented that
their respective transactions with PGIOPL will be compensated on arm's length basis. With the payment of
arm's length service fees, PGPI and Newco cannot be considered a permanent establishment of PGIOPL.
For this purpose, P&G will commission dependent 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 PGIOPL will have no permanent establishment in the Philippines, then the business
profits to be derived by PGIOPL, in particular, the income from the sale of goods to customers in the
Philippines, 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 PGPI and Newco 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 PGIOPL 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 PGIOPL 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. (BIR Ruling No. DA-062-99 dated February 5, 1999;
136-98 dated September 24, 1998).
For the same reason that it does not have a permanent establishment in the Philippines, PGIOPL
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, Newco should not be subject to the creditable
withholding tax on the sale of goods belonging to PGIOPL because it merely sells as an independent
agent. SDHITE
In fine, your opinion that PGIOPL will not have a permanent establishment in the Philippines
pursuant to Arts. 5 and 7 of the RP-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 PGIOPL will not be subject to the 1% creditable withholding tax on the sale of goods to customers in
the Philippines, and PGIOPL will also not be required to withhold the same tax on payments to local
suppliers of raw and packing materials, is hereby confirmed.
This ruling is issued on the basis of the facts as represented. However, if upon investigation, it will
be disclosed that the facts are different, then this ruling shall be considered null and void.
Very truly yours,

Commissioner
December 4, 2000

Embassy of Panama
Rm. 501 Victoria Bldg.
429 United Nations Avenue
Ermita, Manila
Gentlemen :
This refers to your letter dated September 26, 2000, which was referred to this Office by the
Department of Foreign Affairs (DFA), relative to your request for a Certification of Value-Added (VAT)
Exemption on purchases of goods and services based on the principle of reciprocity.
Relations pertinent portion of which reads:
"ARTICLE 34
services DHcSIT
"xxx xxx xxx"
value-added tax (VAT) and ad valorem tax on their local purchases of goods and services. In other words,
Code of 1997.
However, under the principle of reciprocity, this Office may grant tax exemptions to your embassy
and its personnel on their local purchases of goods and/or services it appearing from the indorsement letter
of the Department of Foreign Affairs dated October 10, 2000 that, pursuant to Resolution No. 201-862 (2
March 1999) of the Ministry of Finance and Economy of Panama, your Government allows similar
exemption to Philippine Embassy personnel on their local purchase of goods and services in your country.
With respect to the purchase of vehicles, under Cabinet Decree 280 of August 10, 1970, foreign
diplomatic and consular agents duly accredited to Panama are also allowed to import or locally purchase
an auto vehicle every two years, with exemption from tax and customs duties, while the Head of the
Diplomatic Mission is allowed to import or purchase two cars, exempt from taxes and customs duties,
every two years. (BIR Ruling No. 206-93 dated May 11, 1993)
Hence, the Embassy of Panama and its personnel are entitled to VAT and ad valorem tax
exemptions on their purchase of local goods and/or services, subject to the above-mentioned limitations on
the purchase of auto vehicles.
Very truly yours,

By:

Deputy Commissioner
November 29, 2000
Sec. 106 Sec. 108, Sec 149

Embassy of the Russian Federation

1245 Acacia Road, Dasmariñas Village
Makati City
Attention: Ms. Galina N. Manteyfel

Second Secretary
Gentlemen :
This has reference to your letter dated September 19, 2000 referred to this Office by the
Department of Foreign Affairs (DFA) for the personal use of Ms. Galina N. Manteyfel of the Embassy of
the Russian Federation, requesting for a tax-free local purchase of one (1) unit Toyota Corolla GLi
specifically described as follows:
Make: Toyota Corolla GLi
(1,587 cc., 5-Sp Manual transmission, gasoline)
Model Year: 2000
Color: Regal Beige
Chassis Number: AE111-9700427
Engine Number: 4A-M549346
"ARTICLE 34
regional or municipal, except:
services
"xxx xxx xxx"
value added tax (VAT) and ad valorem taxes on their 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 (A) and 108, and ad valorem tax under Section 149, both of the National
Internal Revenue Code of 1997.
However, under the principle of reciprocity, this Office may grant tax exemption to the Embassy of
the Russian Federation or its personnel on their local purchases of goods and/or services it appearing from
Philippine Embassy personnel on their purchase of goods and services in your country.
Hence, the local purchase of one (1) Toyota Corolla GLi Model 2000, for the personal use of Ms.
Galina N. Manteyfel of the Embassy of the Russian Federation is exempt from VAT and ad valorem tax.
(BIR Ruling No. ITAD 34-00 dated February 3, 2000; BIR Ruling 333-92 dated October 27, 1992) ICTHDE
Very truly yours,

Deputy Commissioner
November 15, 2000
Art. 11 RP-Finland Tax Treaty
Quisumbing Torres
Attorneys at Law
11th Floor, Pacific Star Bldg.
Makati Ave. cor. Sen. Gil J. Puyat Ave.
Makati City
Attention: Atty. Jose R. Sandejas and

Atty. Dennis G. Dimagiba
Gentlemen :
This refers to your letters dated November 10, 1999 and February 11, 2000 requesting for a ruling
to the effect that the interest payments to be received by Leonia Corporate Bank plc (Leonia) from Smart
Communications, Inc. (Smart) shall be exempt from Philippine tax pursuant to RP-Finland Tax Treaty.
It is represented that Leonia is a non-resident foreign corporation duly organized and existing under
the laws of the Republic of Finland; that Leonia is formerly known as Suomen Vientiluotto Oy (in
English, Finnish Export Credit Ltd); that the company name Suomen Vientiluotto Oy, was subsequently
changed to Suomen Vientiluotto Oyj (in English, Finnish Export Credit plc) registered with the trade
register on December 15, 1997 and to Leonia Yrityspankki Oyj (in English, Leonia Corporate Bank plc),
and Leonia Corporate Bank Oyj (in English, Leonia Corporate Bank plc) registered with the trade register
on June 8, 1998 and December 29, 1998, respectively; that Leonia is not registered as
corporation/partnership in the Philippines per certification dated November 4, 1999 issued by the
Securities and Exchange Commission; that Smart is a corporation organized and existing under the laws of
the Philippines; that on November 5, 1999, a Loan Agreement was entered into by and between Leonia
and Smart whereby Leonia granted a loan to Smart in the amount of US$32,000,000 term facility; that the
purpose of the loan is to finance, among others, the design, procurement, installation, commissioning and
operation of approximately 260 based stations and related equipment for Smart's GSM digital cellular
telephone system ("Phase 1"); that the rate of interest applicable to the loan or the relevant part thereof for
each Interest Period shall be the rate per annum determined by the Lender to be (i) the aggregate of
London Interbank Offering Rate for the Interest Period and the Applicable Margin (defined variedly as
1.138%, 1.377% or 1.415% depending on the date of interest payment) or (ii) the aggregate of the CIRR
Fixed rate (5.18%) and the Applicable Margin; that Leonia and Smart will execute two other loan
agreements (i.e, phases 2 and 3 of the loan arrangement) which Leonia will extend similar credits to Smart
for the financing of the design, procurement, installation, commissioning and operation of additional base
stations and related equipment for Smart's GSM digital telephone system; that these two other loan
agreements between Leonia and Smart will adopt substantially the same terms and conditions as the loan
agreement executed by Leonia and Smart on November 5, 1999; that Phases 2 and 3 of the loan
arrangement will involve the same parties as that of phase 1 of the loan agreement;
In reply, please be informed that Article 11 of the RP-Finland Tax Treaty provides as follows:
INTEREST
1. Interest arising in a Contracting State and paid to a resident of the other Contracting 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 percent of the gross amount of the interest.
xxx xxx xxx
7. Notwithstanding the provisions of paragraph 2.
xxx xxx xxx"
b) interest arising in Contracting State and paid to a resident of the other Contracting State
shall be taxable only in that other Contracting State if it is paid in respect of a loan made, guaranteed
or insured, or a credit extended, guaranteed or insured by the Central Bank of the Philippines or the
Finnish Export Credit Limited." CASIEa
Such being the case, and since the Phase 1 term loan facility was extended (and the proposed
Phases 2 and 3 term loan facilities will be extended) by Leonia, formerly, Finnish Export Credit Ltd., to
Smart, the interest income to be remitted to Leonia relative to the aforementioned loan agreements shall be
exempt from Philippine tax pursuant to Article 11(7)(b) of the RP-Finland Tax Treaty. However, the Loan
Agreement executed by and between them shall be subjected to the documentary stamp tax imposed under
void. DHcTaE
Very truly yours,

Commissioner
November 14, 2000
RP-JAPAN Art. 12
ITAD 83-00
TS Tech Trim Philippines, Inc.

102 Technology Avenue, Laguna Technopark,
SEPZ, Biñan, Laguna
Attention: Mr. George S. Agustin

Finance Manager
Gentlemen :
This refers to your letter dated July 05, 2000 for confirmation that the applicable tax rate to be
withheld on your royalty payments to your mother company, TS TECH CO., LTD., JAPAN (TTJ), is
twenty-five percent (25%) of the gross amount of the royalties as set forth under Article 12(2)(b) of the
RP-Japan Tax Treaty.
It is represented that TTJ (formerly Tokyo Seat Co., Ltd.) is a non-resident foreign corporation duly
organized and existing under the laws of Japan; that it is not registered as a corporation/partnership
licensed to do business in the Philippines as per certification dated August 23, 2000 issued by the
Securities and Exchange Commission (SEC); that TS TECH TRIM PHILIPPINES, INC., (TTTP)
(formerly Tokyo Seat Philippines, Inc.), on the other hand, is a Philippine Economic Zone Authority
(PEZA)-registered 100% Japanese owned corporation operating in the Philippines primarily engaged in
the manufacture, sale, and export of car seats, trim covers and other goods including the export of
Philippine indigenous goods and materials; that on February 01, 1996, TTTP, desirous to obtain and
receive a license and technical assistance for the manufacture and sale of certain seats and interior parts
for automobiles, entered into a License and Technical Assistance Agreement with TTJ whereby TTJ will
grant to TTTP an indivisible and non-transferable non-exclusive right and license to manufacture,
assemble, and sell the Products, and manufacture, assemble and install Manufacturing Facilities within the
Territory under the Intellectual Property Rights and by using the Know-How; that in consideration for the
grant, TTTP shall pay to TTJ royalties corresponding to three one-hundredths (3%) times the cost
specified in the Agreement, for each Licensed Product manufactured and sold by TTJ during the same
royalty period.
"Article 12
State may be taxed in that other Contracting State.
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; SAEHaC
(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
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
including cinematograph films and films or tapes for radio or television broadcasting, any patent,
"xxx xxx xxx"
Based on the foregoing, the royalty payments will be taxed at the preferential tax rate of ten per
cent (10%) if the payor is a Board of Investments (BOI)-registered enterprise, fifteen per cent (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 per cent (25 %) of the gross amount of the
royalties.
Such being the case, since TTTP is not a BOI-registered enterprise, and the payments made by
TTTP to TTJ are not in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting, the herein payments qualifies as royalty payments under Article 12(2)(b)
of the RP-Japan Tax Treaty. CSIHDA
Hence, the royalty payments made by TS TECH TRIM PHILIPPINES, INC. to TS TECH CO.,
LTD., JAPAN shall be subject to the preferential tax rate of twenty five per cent (25 %) based on the gross
This ruling is being issued on the basis of the facts as represented. However, if upon investigation it
will be disclosed that the facts are different, then this ruling shall be considered null and void.
Very truly yours,

By:

Deputy Commissioner
November 14, 2000
RP-JAPAN Art. 12
ITAD 104-00
TS Tech Philippines, Inc.

111 East Science Avenue, Laguna Technopark,
Biñan, Laguna
Attention: Ms. Ana Marie A. Molano

Finance Manager
Gentlemen :
This refers to your letter dated July 05, 2000 asking for confirmation that the applicable tax rate to
be withheld on your royalty payments to your mother company, TS TECH CO., LTD., JAPAN (TTJ), is
twenty-five percent (25%) as set forth under Article 12(2)(b) of the RP-Japan Tax Treaty.
It is represented that TTJ (formerly Tokyo Seat Co., Ltd.) is a non-resident foreign corporation duly
organized and existing under the laws of Japan; that it is not registered as a corporation/partnership
licensed to do business in the Philippines as per certification dated August 23, 2000 issued by the
Securities and Exchange Commission (SEC); that TS TECH PHILIPPINES, INC., (TTP) on the other
hand, is a 100% Japanese owned corporation registered and operating under Philippine laws primarily
engaged in the manufacture, sale, and export of car seats, trim covers and other goods including the export
of Philippine indigenous goods and materials; that on March 28, 1996, TTP, desirous to obtain a license
and technical assistance for its manufacture and sale of certain seats and interior parts for automobiles,
entered into a License and Technical Assistance Agreement with TTJ whereby TTJ will grant to TTP an
indivisible and non-transferable non-exclusive right and license to manufacture, assemble, and sell the
Products, and manufacture, assemble and install Manufacturing Facilities within the Territory under the
Intellectual Property Rights and by using the Know-How; that in consideration for the grant, TTP shall pay
to TTJ royalties corresponding to three one-hundredths (3%) times the cost specified in the Agreement, for
each Licensed Product manufactured and sold by TTJ during the same royalty period.
In reply, please be informed that Article 12 of the RP-Japan Tax Treaty provides, viz:
"Article 12
broadcasting; SAEHaC
(b) 25 per cent of the gross amount of the royalties in all other cases. (Emphasis
supplied)
"xxx xxx xxx"
cent (10%) if the payor is a Board of Investments (BOI)-registered enterprise, fifteen per cent (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 per cent (25 %) of the gross amount of the
royalties.
Such being the case, since TTP is not a BOI-registered enterprise, and the payments made by TTP
to TTJ are not in respect of the use of or the right to use cinematograph films and films or tapes for radio
or television broadcasting, the herein payments qualifies as royalty payments under Article 12(2)(b) of the
Hence, the royalty payments of TS TECH PHILIPPINES, INC. to TS TECH CO., LTD., JAPAN
shall be subject to the preferential tax rate of twenty five per cent (25 %) based on the gross amount of
royalties.
Moreover, the payments to be made by TTP to TTJ for the grant of right and license are subject to
the ten percent (10%) value-added tax pursuant to Section 108 of the Tax Code of 1997, based on the
contract price agreed upon by the parties. Accordingly, TTP shall be responsible for the payment of VAT
on such royalties on behalf of TTJ by filing a separate VAT declaration/return using BIR Form No. 1600.
The said VAT declaration/return can be used by TTP as evidence in claiming input tax credit. (Sec.
4.102-1(b), Revenue Regulations No. 7-95) TDCaSE
Very truly yours,

By:

Deputy Commissioner
November 14, 2000
RP-US Article 13
RP-Denmark Article 12

14TH Floor, Multinational Bancorporation Centre
Attention: Atty. Alexander B. Cabrera

Partner, Tax Services
Gentlemen :
This refers to your letter dated July 14, 200 requesting confirmation of your opinion that the royalty
payments to a foreign licensor which is a resident of the United States are subject to the preferential tax
rate of 15% pursuant to Article 13(2)(b)(iii) of the RP-US Tax Treaty in relation to Article 12(2) of the
RP-Denmark Tax Treaty. CEASaT
It is represented that Columbia Tri-Star Film Distributors International, Inc. (hereinafter referred to
as Columbia Tri-Star) is a non-resident foreign corporation organized and existing under the laws of the
State of California, United States of America; that Columbia Tri-Star is not registered as a corporation or
partnership licensed to do business in the Philippines as per Certification of Non-Registration of
Corporation/Partnership issued by the Securities and Exchange Commission dated May 24, 2000; that
Columbia Pictures Industries, Inc. (hereinafter referred to as Columbia Pictures) is a Philippine branch of
Columbia Pictures Industries, Inc., a corporation organized under the laws of Delaware, United States of
America, with principal office address at 10202 West Washington Blvd., Culver City, California, U.S.A.
with branch office at 7/F, Times Plaza Bldg., UN Avenue corner Taft Avenue, Manila; that on January 3,
2000, Columbia Pictures entered into a Distribution Agreement with the Columbia Tri-Star; that on June
21, 2000 and June 23, 2000 Columbia Pictures and Columbia Tri-Star signed a Supplemental Agreement
as an integral part of the Distribution Agreement; that under the Distribution Agreement, Columbia
Pictures granted the license to distribute locally theatrical and television products such as films, pictures
and videotapes; and that in consideration for the grant of license to distribute; Columbia Pictures shall pay
Columbia Tri-Star a royalty/rental fee equivalent to sixty six per cent (66%) of the proceeds from
exhibitors, which is net of leasing cost.
In reply, please be informed that Article 13 of the RP-US Tax Treaty provides as follows:
"Article 13
Royalties
"1. Royalties derived by a resident of one of the Contracting States from sources within the
"2. However, the tax imposed by that other Contracting State shall not exceed —
"a) In the case of the United States, 15 per cent 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
"(iii) the lowest rate of the Philippine tax that may be imposed on royalties of
the same kind paid under similar circumstances to a resident of a third State,
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 or any such right or property
which are contingent on the productivity use, or disposition thereof.
"xxx xxx xxx"
Corollary, Article 12 (2) of the RP-Denmark Tax Treaty states:
"Article 12
Royalties
"xxx xxx xxx
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. DISEaC
"xxx xxx xxx"
Based on the foregoing, royalties paid by a Philippine corporation to a resident of United States
may be taxed at the lowest rate of the Philippine tax that may be imposed on royalties of the same kind
paid under similar circumstances to a resident of a third State. Article 12 of the RP-Denmark Tax Treaty
provides that royalties paid by Philippine resident to resident of Denmark for the use of or the right to use
cinematographic films and films and tapes for television locally are subject to the rate of 15 per cent of the
gross amount of royalties, the lowest of the same kind and paid under similar circumstances among
Philippine tax treaties.
Such being the case and since Columbia Pictures is not registered with the Philippine Board of
Investments and engaged in preferred areas of activities in the Philippines, royalties arising in the
Philippines and payable to Columbia Tri-Star are subject to Philippine tax at the rate of 15% of the gross
amount of royalties pursuant to Article (2)(b)(iii) of the RP-US Tax Treaty in relation to Article 12(2) of
the RP-Denmark Tax Treaty.
Moreover, the said royalties shall be subject to 10% value-added tax (VAT) pursuant to Sec. 108 of
the Tax Code and that Columbia Pictures, shall, before making payments of royalties to Columbia
Tri-Star, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate VAT
return for and in behalf of Columbia Tri-Star using BIR Form 1600. The duly validated VAT
declaration/return is sufficient evidence for Columbia Pictures in claiming input tax credit (Sec. 4.110-3(b)
of the Revenue Regulations No. 7-95).
This ruling is being issued based on the foregoing representations. However, if upon investigation,
it will be disclosed or discovered that the facts are different, then this ruling shall be considered null and
void. TaCEHA
Very truly yours,

By:

Deputy Commissioner
November 14, 2000
Sec. 25 (b) (5) (B) of the 1993 Tax Code

BIR Ruling Nos. 275-88 & 080-92

14th Floor, Multinational
6805 Ayala Avenue
1226 Makati City
Attention: Ms. Tomasa H. Lipana

Managing Partner
Tax and Corporate Services
Gentlemen :
This refers to your letter dated January 5, 1998 requesting for a ruling to the effect that the
dividends paid and remitted by Warner Lambert Philippines (WL-Phil) to Warner Lambert Company,
USA, (WL-US) are subject only to the 15% withholding tax pursuant to Section 25(b)(5)(B) of the Tax
Code, as amended [now Section 28(B)(5)(b) of the Tax Code of 1997].
It is represented that WL-Phil is a corporation organized and existing under the laws of the
Philippines and is engaged in the manufacture and distribution of pharmaceutical and confectionery
products in the Philippines; that as of December 1, 1997, the Stock and Transfer book of WL-Phil shows
that 99.99% of its shares of stocks are owned by WL-US, a company organized and existing under the
laws of the United States; that on December 1, 1997, WL-Phil declared dividends amounting to One
Hundred Fifty Million (P150,000,000.00) Pesos payable to its stockholders of record as of said date; that
the dividend amounting to One Hundred Million (P100,000,000.00) Pesos was paid and remitted to
WL-US on December 4, 1997; that the balance of the dividend amounting to Fifty Million Pesos
(P50,000,000.00) Pesos was paid and remitted on December 29, 1997; and that the dividends remitted and
paid to WL-US are subject to final withholding tax at the rate of 15% only pursuant to then Section
25(b)(5)(B) of the 1993 Tax Code.
In reply, please be informed that Section 25(b)(5)(B) of the 1993 Tax Code (now Section
28(B)(5)(b) of the 1997 Tax Code) provides as follows:
"Section 25. Rates of tax on foreign corporation. —
xxx xxx xxx
"(b) Non-resident foreign corporations. — . . .
(5) Tax on certain incomes received by non-resident foreign corporation. —
xxx xxx xxx
(B) On dividends received from a domestic corporation liable to tax under this Chapter, the
tax shall be 15% of the dividends received, which shall be collected and paid as provided in Section
50 (a) of the National Internal Revenue Code, as amended subject to the condition that the country in
which the non-resident foreign corporation is domiciled shall allow a credit against the tax due from
the non-resident foreign corporation, taxes deemed to have been paid in the Philippines equivalent to
20% which represents the difference between the regular tax (35%) on corporations and the tax (15%)
on dividends as provided under this paragraph." ADSTCI
The Supreme Court, in the case of Procter and Gamble Philippines Manufacturing Corp. vs. Comm.
of Internal Revenue (G.R. No. 66838) has confirmed that Section 901 of the United States Internal
Revenue Code meets the 20% deemed tax credit requirement provided under then Section 25(b)(5)(B) of
the 1993 Tax Code.
The corresponding IRS Form 1118 of WL-US for the calendar year 1997 shows that a deemed tax
credit of more than 20% was granted to the aforementioned foreign corporation.
Moreover, the imposition of the 15% final withholding tax rate pursuant to then Section
25(b)(5)(B) of the Tax Code is within the 20% maximum tax rate imposed on dividends paid by a
domestic corporation to a United States resident stockholder as provided under Article 11(2)(b) of the
RP-US Tax Treaty. (BIR Ruling Nos. 275-88 dated June 28, 1988 and 080-92 dated March 17, 1992)
Accordingly, since all conditions for availment of the reduced tax rate of 15% provided under
Section 25(b)(5)(B) of the 1993 Tax Code [now Section 28(B)(5)(b) of the 1997 Tax Code] have been
complied with in the present case, we hereby confirm your opinion that the dividend of P150,000,000.00
remitted by WL-Phil to WL-US last December 1997 is subject to 15% final withholding tax.
investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,

By:

Deputy Commissioner
November 14, 2000
RP-US Tax Treaty Art. 12

33-00
52-98
Bacnotan Consolidated Industries, Inc.

4th Floor, PHINMA Building
166 Salcedo Street, Legaspi Village
Makati City
Attention: Mr. Eduardo Sahagun

Sr. Vice Pres.-Asst. Treasurer
Gentlemen :
This refers to your letter dated July 4, 2000, requesting confirmation that the interest paid by
Bacnotan Consolidated Industries, Inc. (BCII) on its long-term convertible bonds to United States
residents is subject to 10% preferential tax rate pursuant to the RP-US Tax Treaty.
It is represented that BCII is a corporation duly organized and existing under the laws of the
Philippines; that BCII entered into an "Indenture" with The Bank of New York, a foreign corporation duly
organized and existing under the laws of the State of New York, dated June 21, 1994, with the latter as
trustee and issued a 5½% convertible bonds due year 2004 in the amount of US$55,000,000.00; that as
certified by the Bank of New York, the participants and beneficial holders of the bonds are the following
institutions: (a) Boston Safe Deposits and Trust Company; (b) Chase Manhattan Bank; (c) Brown Brothers
Harriman & Co.; (d) Salomon Smith Barney, Inc.; and (e) Citibank N.A. (referred to herein as the Primary
Participants); that all of the Primary Participants are considered residents of the United States as certified
by the Department of Treasury, Internal Revenue Service Philadelphia; that all of the Primary Participants,
except for Citibank N.A. and Chase Manhattan Bank, are not registered to do business in the Philippines
as evidenced by the Securities and Exchange Commission dated May 31, 2000; and that the interests
derived by Citibank N.A. and Chase Manhattan Bank from the participation of the bonds are not
effectively connected with their Philippine Branch.
"Article 12
"INTEREST
other Contracting State may be taxed by both Contracting States. HaEcAC
percent of the gross amount of such interest.
other Contracting State with respect to public issues of bonded indebtedness shall not be taxed by the
other Contracting State at a rate in excess of 10 percent of the gross amount of such interest.
"4. Notwithstanding paragraphs 1, 2 and 3, interest derived by —
"a) One of the Contracting States, or an instrumentality thereof (including the Central
Bank of the Philippines, the Federal Reserve Banks of the United States, the Export-Import
Bank of the United States, the Overseas Private Investment Corporation of the United States
and such other institutions of either Contracting States as the competent authorities of both
Contracting States may determine by mutual agreement), or
"b) A resident of one of the Contracting States with respect to debt obligations
guaranteed or insured by that Contracting State or an instrumentality thereof,
shall be exempt from tax by the other Contracting State.
"5. Paragraphs 2, 3, and 4 shall not apply if the recipient of interest from sources within one
of the Contracting States, being a resident of the other Contracting State, carries on business in the
first-mentioned Contracting State through a permanent establishment situated therein or performs in
that other 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
xxx xxx xxx
"7. The term "interest" as used in this Convention 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
the income arises, including interest on deferred payment sales." TESICD
Based on the foregoing paragraphs, interest income derived by US residents in the Philippines may
be taxed by both United States and Philippines. However, the Philippines may tax the interest payments on
the convertible bonds issued by a Philippine company to a US company at the rate not exceeding 10% of
the gross amount of such interest. If the US company carries on business through a permanent
establishment situated in the Philippines, the interest paid thereto must not be effectively connected with
such permanent establishment to be entitled to the preferential tax rate.
Such being the case, your opinion is hereby confirmed that the interest payments on the convertible
bonds issued by Bacnotan Consolidated Industries, Inc. in favor of the Primary Participants namely:
Boston Safe Deposits and Trust Company, Chase Manhattan Bank, Brown Brothers Harriman & Co.,
Salomon Smith Barney, Inc., and Citibank N.A., shall be subject to the preferential tax rate of 10% of the
gross amount of such interest. Furthermore, the bonds shall be subject to the documentary stamp tax
pursuant to Section 180 of the Tax Code, as amended.
void.
Very truly yours,

By:

Deputy Commissioner
November 14, 2000
Tes Philippines Inc.

Edsa MRT Depot
North Avenue cor. Edsa
Quezon City
Attention: Tetsugo Kanemura, President
Gentlemen :
This refers to your letter dated 25 July 2000, applying for 15% tax treaty rate on interest based on
the Loan Agreement entered into by your office with Ryoju Transportation Equipment Engineering &
Service Ltd., Japan (RYOJU) pursuant to Article 11(1) & (2) of the RP-Japan Tax Treaties.
It is represented that TES Philippines, Inc. (TES) is a corporation duly organized and existing under
the laws of the Philippines with office address at EDSA MRT Depot, North Avenue corner EDSA,
Quezon City; that it is organized for the purpose of maintaining Metro Rail Transit (MRT); that TES
entered into a loan agreement with RYOJU to finance its working capital requirements; the RYOJU is a
corporation organized and existing under the law of Japan with head office located at Kawasaki-ku,
Kawasaki, Kinagawa Prefecture, Japan; that according to the loan agreement entered into by TES and
RYOJU, the latter grants to the former a loan amounting to JPY70,000,000 on August 25, 1999 and
JPY370,000,000 on October 25, 1999, and that the interest will be 2.35% per year net of withholding tax
which payment date shall be the same date as that of the principal.
"Article 11
"2. However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of the Contracting State, but if the recipient is the beneficial owner of the
Government securities, or bonds or debentures;
b) 15 per cent of the gross amount of the interest in all other cases. HSaCcE
"3. ...
"4. ...
including premiums and prizes attaching to such securities, bonds or debentures."
Based on the foregoing, interest arising in the Philippines and paid to a resident of Japan may be
subject to Philippine tax at the rate not to exceed 15 per cent (15%) of the gross amount of the interest, if
the recipient is the beneficial owner of the interest and that the said income was not generated from
Government Securities, bonds or debentures. Therefore, the interest paid by TES to RYOJU who is the
beneficial owner thereof, shall be subject to a 15 per cent (15%) of the gross amount of the interest
pursuant to the RP-Japan Tax Treaty. However, this Agreement shall be subjected to documentary stamp
tax pursuant to Section 180 of the 1997 Tax Code. (ITAD 19-00)
This ruling is issued based on the foregoing facts as represented. If upon investigation, it will be
disclosed that the said facts are different, then this ruling shall be considered null and void. DHcTaE
Very truly yours,

Deputy Commissioner
November 10, 2000
Sec. 106, Sec. 108 & Sec. 149

BIR Ruling No. ITAD 72-00

10TH Floor, The Pacific Star Building
Attention: Ms. Yeun-sil Park

Administrative Staff
Gentlemen :
This refers to your Note No. KPH 2000-166 dated August 23, 2000 which was referred to this
Office by the Department of Foreign Affairs (DFA), requesting for an exemption from payment of
value-added tax (VAT) and ad valorem tax on a local purchase of one (1) unit Honda CRV 2.0 A.T Model
2000, Chassis No. PADRD 1830YV20693, Engine No. PEWD7-Y306281, heather mist silver, for the
personal use of Ms. Yeun-sil PARK, Administrative Staff of the Embassy of the Republic of Korea. AIHTEa
"ARTICLE 34
"A diplomatic agent shall be exempt on all dues and taxes, personal or real, national, regional
or municipal, except:
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) and ad valorem taxes on its local purchases of goods and services. In other words,
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
Hence, the local purchase of one (1) Honda CRV 2.0 A/T Model 2000, for the personal use of Mr.
Yeun-sil PARK is exempt from VAT and ad valorem taxes based on reciprocity.(BIR Ruling No.
ITAD-72-00 dated May 18, 1994.)
Very truly yours,

Deputy Commissioner
November 7, 2000
Articles 5 & 7, RP-Malaysia Tax Treaty

Section 22 (H) (1), NIRC of 1997
Agustin Chiong Agustin

Suite 317, Third Floor, Calvo Building
Escolta Street, Binondo
Manila
Attention: Atty. Ira Carlota Chiong Agustin

Gentlemen :
This refers to your letter dated April 17, 1999, requesting for a ruling regarding, and or behalf of
your client, ISC Technology Sdn Bhd (hereinafter referred to as "ISC").
It is represented that ISC is a foreign corporation based in the Republic of Malaysia and is engaged
in selling computer application which includes hardware, software and maintenance services; that it
maintains a representative office in the Philippines and has been issued a License To Transact Business
dated October 1, 1998 by the Securities and Exchange Commission under SEC License No. A199814939;
that ISC plans to sell computer applications in the Philippines; and that such sale of computer application
shall be in two parts, to wit: ISC will sell the hardware and software part while the maintenance service
shall be performed by the representative office as allowed under the SEC license.
Under the said License, the representative office is established for the purpose of conducting
marketing research, post sales functions without earning income, information dissemination, promotion,
and advertisements of the products of ISC.
Based on the foregoing, you are now requesting for a ruling on the following queries:
"1. What is the status of ISC Technology Sdn Bhd? Is it a resident or non-resident foreign
corporation?
"2. What is the status of representative office of ISC Technology Sdn Bhd? Is it liable for
taxes even if no income shall be derived within the Philippines considering that all operational
expenses shall be handled by the headquarter in Malaysia? CaDSHE
"3. As to the income payment for ISC Technology Sdn Bhd-Malaysia for the hardware
which shall be delivered and paid here in the country, how should it be treated?
"4. If the representative office charges service fees for the maintenance services, how should
the same fees be treated?
"5. Can the provisions of the RP-Malaysia Tax Treaty apply to ISC Technology Sdn Bhd,
especially on the elimination of double taxation (re query nos. 3 & 4 apply)?"
In reply, please be informed as follows:
1. Under Section 79 of the National Internal Revenue Code of 1997:
"xxx xxx xxx
(H) The term 'resident foreign corporation' applies to foreign corporation engaged in trade or
business within the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in
trade of business within the Philippines. cTIESa
xxx xxx xxx"
There is no criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each
case must be judged in the light of its peculiar circumstances. The term implies continuity of commercial
dealings and arrangements, and contemplates to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive prosecution of, commercial gain
or for the purpose and object of the business organization. In order that a foreign corporation may be
regarded as doing business within the State, there must be continuity of conduct and intention to establish
a continuous business, such as the appointment of a local agent, and not one of a temporary character.
(Commissioner of Internal Revenue v. British Overseas Airways Corporation and Court of Tax Appeals
Nos. L-65773-74, April 30, 1987, 149 SCRA 395) A casual business activity in the Philippines by a foreign
corporation does not amount to engaging in trade or business in the Philippines for income tax purposes.
(N.V. Reederij "Amsterdam" and Royal Interocean Lines v. Commissioner of Internal Revenue, No.
L-46029, June 23, 1988, 162 SCRA 487)
Thus, since the intention of ISC is to sell computer applications here in the Philippines, ISC is to be
regarded as a resident foreign corporation once it commences such activity. Until such commencement,
ISC remains a nonresident foreign corporation.
2. The representative office of ISC is deemed a resident foreign corporation. Under the License,
said representative office is tasked to perform certain activities the exercise of which are
normally incident to, and are in progressive pursuit of, the purpose and object of ISC. Hence,
such representative office is considered doing or engaged in trade or business within the
Philippines.
The representative office, therefore, is subject to income tax as a resident foreign

corporation on its income from sources within the Philippines.
3. The income payment to ISC from the sale of its hardware, which shall be delivered and paid in
the Philippines, should be treated as income from sources within the Philippines as this is a
sale of personal property pursuant to Section 42 (A)(6) of the Tax Code of 1997.
The tax base will depend on whether ISC is deemed a resident foreign corporation or a
nonresident foreign corporation, as defined above. If ISC qualities as a resident foreign
corporation, it shall pay a tax equal to 33% of the taxable income derived for taxable year
1999 from all sources within the Philippines, and effective January 1, 2000 and thereafter, the
tax rate shall be 32%. On the other hand, if it is considered as a nonresident foreign
corporation, ISC shall be subject to the same rates but based on the gross income received
from all sources within the Philippines.
However, Article 5 of the RP-Malaysia Tax Treaty provides:
"Article 5
PERMANENT ESTABLISHMENT
1. For the purpose of this Agreement the term 'permanent establishment' means a fixed
2. The term 'permanent establishment' shall include especially:
(a) a place of management; DSEIcT
(b) a branch;
(c) an office;
xxx xxx xxx"
Further, Article 7 of the same Treaty provides:
"Article 7
BUSINESS PROFITS
1. The profits of an enterprise of a contracting State shall be taxable only in that State
enterprise may be taxed in the other State but only on so much thereof as is attributable to that
permanent establishment.
2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State

carries on business in the other Contracting State through a permanent establishment situated therein,
there shall in each Contracting State be attributed to that permanent establishment the profits which it
might be expected to make if it were a distinct and separate enterprise engaged in the same or similar
activities under the same or similar conditions and dealing wholly independently with the enterprise
of which is a permanent establishment. CHcESa
3. In determining the profits of a permanent establishment, there shall be allowed as

deductions all expenses including executive and general administrative expenses, which would be
deductible if the permanent establishment were an independent enterprise, insofar as they are
reasonably allocable to the permanent establishment, whether incurred in the State in which the
permanent establishment is situated or elsewhere."
In view of the foregoing, ISC is deemed to have a permanent establishment in the

Philippines. Such being the case, the income which are or may be derived by ISC may be taxed
in the Philippines but only so much thereof as is attributable to the representative office.
4. The fees should be treated as gross income from sources within the Philippines, as these are
compensation for labor or personal services performed in the Philippines, pursuant to Section
42 (A)(3) of the Tax Code of 1997. Thus, the representative office, being a resident foreign
corporation, is subject to income tax equivalent to 33% of its taxable income derived for
taxable year 1999 from all sources within the Philippines, and effective January 1, 2000 and
thereafter, the tax rate shall be 32%, pursuant to the Tax Code of 1997 and the RP-Malaysia
Tax Treaty.
In addition to income tax, such representative office is also subject to the value-added
tax (VAT) of 10% if it is a VAT-registered enterprise, otherwise it is subject to the percentage
tax of 3%.
5. The RP-Malaysia Tax Treaty is applicable (Please refer to nos. 3 & 4 above.)
Please be guided accordingly.
Very truly yours,
Commissioner
October 30, 2000
Art. 14 & Reservation Clause, RP-US

135-94

6760 Ayala Avenue
1226 Makati City
Attention: Atty. C.P. Noel

Tax Division
Gentlemen :
This refers to your application for tax treaty relied on behalf of American Cyanamid Company
(ACCO), requesting confirmation of your opinion that the gains to be realized by ACCO from the sale of
its stockholdings in Cyanamid Agricultural Products Phils. Inc. (CAPPI) to BASF Aktiengesellschaft
(BASF) are exempt from capital gains tax by virtue of the RP-US Tax Treaty.
It is represented that ACCO is a nonresident foreign corporation organized and existing under the
laws of the State of Maine, United States of America with principal office located at Five Giralda Farms,
Madison, New Jersey 07940, USA; that BASF is also a nonresident foreign corporation organized and
existing under the laws of the Federal Republic of Germany; that CAPRI is a domestic corporation, a
wholly-owned subsidiary of ACCO, organized and existing under Philippines laws; that ACCO owns
2,130,400 shares in CAPRI as of June 29. 2000; that Ricardo J. Romulo, Wilma M. Valdemoro-Cua, Lee
Chong Seong, Yvette Marie G. Rodriguez and Marissa Mariano-Castulo are all nominees of one share
each in CAPPI and the beneficial owner is ACCO; that ACCO sold its CAPPI shares to BASF effective as
of midnight of June 30, 2000; that CAPPI has not real property interest located in the Philippines.
In reply, please be informed that Article 14 of the RP-US Tax Treaty provides:
"Article 14
CAPITAL GAINS
1. Gains from the alienation of tangible personal (movable) property forming part of the business
property of a permanent establishment which a resident of a Contracting State has in the other
Contracting State or of tangible personal (movable) property pertaining to a fixed base
available to a resident of Contracting State for the purpose of performing independent personal
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 derived by a resident of Contracting State from the alienation of ships, aircraft
or containers operated by such resident in international traffic shall be taxable only in that
State, and gains described in Article 13 (Royalties) shall be taxable only in accordance with
the provisions of Article 13. IESDCH
2. Gains from the alienation of any property other than those mentioned in paragraph 1 or in
Article 7 (Income from Real Property) shall be taxable only in the Contracting State of which
the alienator is a resident.
The above-quoted provision must be applied in relation with the Reservation Clause of the same
treaty, to wit:
"1. reservation that, notwithstanding the provisions of Article 14 relating to capital gains, both the
United States and the Philippines may tax gain from the disposition of an interest in a
corporation of its assets consist principally of a real property interest located in that country.
Likewise, both countries may tax gain from the disposition of an interest in a partnership, trust
or estate to the extent the gain is attributable to a real property interest in one of the countries.
The term "real property interest" is to have the meaning it has under the law of the country in
which the underlying real property is located;"
The above-quoted Reservation Clause allows the Philippines to tax the gains from sale, exchange or
other disposition of shares or interest in a domestic corporation if the assets of that corporation consist
principally of real property located in the Philippines. It must be noted that the term "principally" means,
under Sec. 2 of Revenue Regulations No. 4-86, more than fifty percent (50%) of the entire assets in terms
of value.
Considering that CAPPI has no real property interest located in the Philippines (as shown in its
Detailed Schedule of Fixed Assets with corresponding explanation dated September 7, 2000) and
considering further that CAPPI is a wholly owned subsidiary of ACCO whose outstanding capital stock of
more than 40% is owned by a foreign national and, as such, is not allowed to own land in the Philippines
under the Constitution and other pertinent laws, your opinion that the gains derived by ACCO from the
sale of its stockholdings in CAPPI to BASF are exempt from capital gains tax pursuant to the RP-US Tax
Treaty is hereby confirmed. (BIR Ruling No. 135-94)
Furthermore, the transfer of shares in CAPPI held By Romulo, Valdemoro-Cua, Lee,

Mariano-Castulo and Rodriguez, as nominee shareholders (the beneficial owner of such shares being
ACCO) to BASF is likewise exempt from capital gains tax pursuant to the same treaty.
However, the said transaction shall be subject to documentary stamp tax in accordance with Section
176 of the Tax Code of 1997.
This ruling is being issued on the basis of the foregoing facts as represented. However, if it will be
disclosed or discovered upon investigation that the facts are different, then this ruling shall be considered
null and void. DHcTaE
Very truly yours,

By:

Deputy Commissioner
October 30, 2000
NIRC Sec. 173 Vienna Convention 91-97 77-95
Embassy of the Republic of Singapore

6th Floor ODC International Plaza Building
1229 Makati City
Attention: Ms. Angeline Thangaperakasam

Third Secretary
Gentlemen :
This refers to your Note No. MNL/LTR/036/2000 dated February 21, 2000 requesting clarification
as to whether the Embassy of the Republic of Singapore is liable from paying the following:
1) Capital Gains Tax
2) Documentary Stamp Tax
3) Transfer Tax (Local Government Tax)
4) Real Estate Tax; and
5) Registration Fee
It is represented that in 1981, the Embassy of the Republic of Singapore purchased from Lebran
Realty Properties two (2) units (14A and 7B) of their condominium project, LPL Mansions; that it was
only last year when you realized that you are not yet in possession of the title deed for unit 14A; and that
you got in touch with the Municipal Council of Makati City and were informed that the reason the
Embassy of the Republic of Singapore has not been issued the title deed was that the above taxes with
respect to the transfer of ownership of the property has not been paid.
Relations adopted on April 18, 1961 (Vol. IV, 445-460, Phil. Tax Treaty Series) pertinent portion of which
reads:
"ARTICLE 23
"1. The sending state and the head of 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.
"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 the person contracting with the sending state or
the head of the mission." cEAHSC
It is clear from the aforequoted provision of the Convention that the Embassy of the Republic of
Singapore is exempt from payment of internal revenue taxes for which it is directly liable, i.e.. capital
gains and documentary stamp taxes. (BIR Ruling No. 91-97 dated March 7, 1997). However, the seller
(Lebran Realty Properties) and not you, the buyer (Embassy of the Republic of Singapore), is the party
liable for the capital gains tax on the gain derived by it from the sale to you of its property pursuant to
Section 2 of the Revenue Regulations No. 13-85.
Finally, Section 173 of the Tax Code of 1997, provides, among others, that whenever one party to
the taxable document enjoys exemption from the tax therein imposed, the other party thereto who is not
exempt shall be the one directly liable to the tax, hence, Lebran Realty Properties (seller) shall be the party
directly liable for the payment of documentary stamp tax considering that the Embassy (buyer) is
tax-exempt. (BIR Ruling No 7,-95 dated April 24, 1995)
It is not within the jurisdiction of this Office to rule on the exemption of the Embassy with respect
to transfer tax (local government tax), real estate tax and registration fee. You may address your query to
the Department of Interior and Local Government-Finance, which has the jurisdiction on the said matter.
Very truly yours,

By:
Deputy Commissioner
October 30, 2000
RP- Japan Article 12

BIR Ruling 7-86;
ITAD Ruling 21-00

14 Floor, Multinational Bancorporation Center

Principal, Tax & Corporate Services Department
Gentlemen :
This refers to your letter dated June 15, 1998 requesting confirmation that royalty payments made
by SONY PHILIPPINES, INC. (SPI) to your client, SONY CORPORATION (SC) are subject to a
preferential tax rate of 25% pursuant to the RP-Japan Tax Treaty.
It is represented that SC is a non-resident foreign corporation duly organized and existing under the
laws of Japan with principal office at 7-35, Kitashinagawa 6-chome, Shinagawa-ku, Tokyo, Japan; that SC
is not registered as a corporation or a partnership licensed to do business herein the Philippines as per
certification dated April 13, 2000 issued by the Securities and Exchange Commission; that SPI is a
domestic corporation with office address at Solid House, 2285 Lumbang Street Corner Pasong Tamo
Extension, Makati City; that on October 1, 1997, SC and SPI entered into a Manufacturing License
Agreement duly registered with the Technology Transfer Agreement Registry of the Bureau of Patents,
Trademarks and Technology Transfer with Certificate of Registration No. 2099, valid for two (2) years
from October 1, 1997 to September 30, 1999; that pursuant to the Manufacturing License Agreement, SC
granted SPI a non-exclusive license to manufacture and sell, lease or otherwise dispose various electronic
products bearing the trademark of "Sony"; and that in consideration of the said agreement, SPI shall pay
SC a royalty of 3% of its net sales payable in Japanese Yen or US Dollars.
"Article 12
"(a) 15 per cent of the gross amount of the royalties if the royalties are paid in respect
broadcasting;
"(b) 25 per cent of the gross amount of the royalties in all other cases. cISAHT
"(3) . . .
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
"xxx xxx xxx"
Based on the foregoing, royalty payments by a Philippine corporation to a resident of Japan may be
taxed at the rate of 25 per cent of the gross amount of royalty. In view thereof, this Office confirms your
opinion that royalty payments by SPI to SC are subject to 25 per cent tax rate pursuant to the RP-Japan
Tax Treaty. (BIR Ruling 7-86; ITAD Ruling 21-00)
Finally, the said royalties shall be subject to 10% value-added tax (VAT) pursuant to Sec. 108 of
the Tax Code of 1997 and that SPI shall, before making payments of royalties to SC, withhold and remit to
this Bureau the said 10% VAT due thereon, by filing a separate VAT return for and on behalf of CS using
BIR Form 1600. The duly validated VAT declaration/return is sufficient evidence for SPI in claiming
input tax credit (Sec. 4.110-3(b) of the Revenue Regulations No. 7-95). HAICTD
it will be disclosed or discovered that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,

By:
Deputy Commissioner
October 30, 2000
RP-UK-Arts. 5-7 NIRC-Sec. 108 218-91
P.M. Communications Ltd.

South Audley St, London, WlA 5DH
Attention: Mr. Martin H. Howse

Financial Manager
and
Ms. Denise Estrada
Company Supervisor
Gentlemen :
This refers to your request dated July 15, 1999, for tax exemption of the income derived from the
advertising contract of P.M. Communications Ltd. (P.M Com.) with the Department of Tourism (DOT)
and the Philippine Tourism Authority (PTA) pursuant to the RP-UK Tax Treaty.
It is represented that P.M. Com. is a nonresident foreign corporation organized and existing under
the laws of the United Kingdom of Great Britain and Northern Ireland; that it has no permanent
establishment in the Philippines; and that P.M Com entered into two separate Advertising Contracts,
whereby P.M.Com offered publication services, with the following:
Agency Date Amount

Department of Tourism (DOT) November 05, 1998 US$ 65,600.00
Philippine Tourism Authority (PTA) March 16, 1999 US$ 28,000.00
In reply, please be informed that Article 7(1) of the RP-UK Tax Treaty provides,
"Article 7
Business Profits
enterprise may be taxed in the other State but only so much of them as is directly or indirectly
attributable to that permanent establishment."
Relative thereto, Article 5 of the same 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. TCaSAH
"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, 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"
Under the aforequoted provisions, it is clear that if a resident corporation of UK carries on business
in the Philippines through a permanent establishment situated in the latter, the profits of the said
corporation attributable to such permanent establishment shall be subject to Philippine income tax.
Considering that P.M.Com. does not have a permanent establishment in the Philippines to which its
business profits could be attributable the income derived by P.M.Com. from its advertising contract with
the DOT and the PTA is exempt from Philippine income tax. DAHaTc
This ruling is being issued on the basis of the foregoing representations. However if upon
investigation it will be disclosed or discovered that the facts are different then this ruling shall be
considered null and void.
Very truly yours,

By:

Deputy Commissioner
October 30, 2000
Art 14 and Reservation Clause, RP-United States Tax

Treaty Secs. 28 (B) (5) (c) & 176 NIRC 466-88
Sycip Salazar Hernandez & Gatmaitan

Sycip Law-All Asia Capital Center
105 Paseo de Roxas, Makati
Attention: Atty. Ricardo Ma. P.G. Ongkiko

Atty. Ernesto S. Taiño, Jr.
Atty. Jhoanna Jasmine M. Javier
Gentlemen :
This refers to your letter dated September 14, 1999, requesting on behalf of your clients, A.H.
Robins (Philippines) Company, Inc. (A.H. Robins-Philippines), A.H. Robins Company, Inc. (A.H.
Robins-USA) and American Home Products Corporation (AHPC), confirmation of your opinion that the
transfer of shares in A.H. Robins-Philippines from A.H. Robins-USA to AHPC, pursuant to a merger of
A.H. Robins-USA into AHPC, is a tax-exempt transaction.
It is represented that A.H. Robins-USA is a non-resident foreign corporation duly organized and
existing under the laws of the United States of America with principal address at No. 5 Giralda Farms,
Madison, New Jersey, United States; that AHPC is also a non-resident foreign corporation duly organized
and existing under the laws of the United States with principal address at 1013 Centre Road, Wilmington
City, New Castle, Delaware, United States; that A.H. Robins-Philippines is a corporation duly organized
and existing under the laws of the Philippines with principal address at 2236 Chino Roces Avenue, Makati
City; that A.H. Robins-USA owns 2,007,620 shares of stock in A.H. Robins-Philippines with a par value
of P10.00 each; that AHPC owns all the outstanding shares of stock of A.H. Robins-USA; that under the
General Corporation Law (Law) of the State of Delaware, in any case in which at least 90 percent of the
outstanding shares of each class of stock of a corporation is owned by another corporation, and one of the
corporations is a corporation of the state of Delaware, the corporation having such stock ownership may
either (1) merge the other corporation into itself, or (2) merge itself into the other corporation; that,
pursuant to the first-mentioned option of the said Law, on July 23, 1998, the Board of Directors of AHPC
adopted a resolution authorizing the merger of A.H. Robins-USA into AHPC whereby all the assets and
liabilities of A.H. Robins-USA were transferred to AHPC; that, as a result of the merger, all the 2,007,620
shares of stock in A.H. Robins-Philippines owned by A.H. Robins-USA were transferred to AHPC. CEDScA
In reply thereto please be informed that on the basis of the facts as herein represented no sale
exchange or disposition of stock took place between A.H. Robins USA and AHPC because there is no
effective transfer of beneficial ownership of A.H. Robins-USA's shares of stock in A.H.
Robins-Philippines to AHPC. In a merger the absorbing corporation (AHPC) succeeds to the rights and
liabilities of the absorbed corporation (A.H. Robins-USA) and merely carries on the identity of the latter
(A H. Robins-USA) (BIR Ruling No. 466-88 dated September 29, 1988). Consequently no gain was
realized by A.H. Robins-USA.
Moreover, assuming that "gain" was realized in the merger the same is exempt from capital gains
tax imposed under Section 28(B)(5)(c) of the National Internal Revenue Code of 1997 in accordance with
Article 14 (Capital Gains) of the Philippines-United States Tax Treaty in relation to its Reservation Clause
quoted as follows:
"Article 14
CAPITAL GAINS
"1. Gains from the alienation of tangible personal (movable) property forming part of the
business property of a permanent establishment which a resident of a Contracting State has in the
other Contracting State or of tangible personal (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
independent persona! 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 derived by a resident of a Contracting State from the alienation of ships,
aircraft or contractors operated by such resident in international traffic shall be taxable only in that
State, and gains described in Article 13 (Royalties) shall be taxable only in accordance with the
provisions of Article 13.
"2. Gains from the alienation of any property other than those mentioned in paragraph 1 or
in Article 7 (Income from Real Property) shall be taxable only in the Contracting State of which the
alienator is a resident."
(RESERVATION CLAUSE)
". . . notwithstanding the provisions of Article 14 relating to capital gains both the United
States and the Philippines may tax gain from the disposition of an interest in a corporation if its assets
consist principally of a real property interest located in that country. Likewise, both countries may tax
gain from the disposition of an interest in a partnership trust or estate to the extent the gain is
attributable to a real property interest in one of the countries. The term 'real property interest' is to
have the meaning it has under the law of the country in which the underlying real property is located."
The aforequoted Clause permits the Philippines 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. Section
2 of Revenue Regulations No. 4-86 provides guidance on the meaning of "consisting principally of real
property interest":
"SEC. 2. Definitions. — For purposes of these Regulations, the following terms and
a) 'Real Property Interest' — interest on properties enumerated in Section 3 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;
b) 'Principally', 'wholly or principally', 'directly principally' or 'attributable' — more than 50

% of the entire assets in terms of value;
xxx xxx xxx"
Based on A.H. Robins-Philippines' audited financial statements ending November 30, 1997 and
November 30, 1998, none of its assets constitute immovable property. This is because on November 30,
1990, A.H. Robins-Philippines sold all its substantial assets to Wyeth Philippines and, consequently, on
the same date, the first-mentioned company ceased normal operations and terminated all its employees.
Hence, this Office confirms your opinion as it hereby holds that any gain assumed to have been realized by
A.H. Robins-USA on the transfer of its shares of stock in A.H. Robins-Philippines to AHPC, pursuant to a
merger of A.H. Robins-USA into AHPC, is not subject to Philippine income tax. CHIEDS
Although exempt, the said merger, however, is subject to .the documentary stamp tax imposed
under Section 176 of the National Internal Revenue Code of 1997.
In fine, while any gain that may be realized by A.H. Robins-USA in its merger into AHPC is not
subject to Philippine income tax, the same merger, however, is subject to the documentary stamp tax.
investigation, it shall be disclosed that the facts are different, then this ruling shall be rendered null and
void.
Very truly yours,
Deputy Commissioner
October 30, 2000
Article 12 RP-UK Article 13-RP-Singapore; RP-Canada;

RP-Indonesia; RP-Japan: RP-Malaysia Article 14-RP-USA;
RP-Thailand 17-99

6760 Ayala Avenue
Makati City
Attention: Atty. M.F.A. Balili

Tax Division
Gentlemen :
This refers to your letter dated October 14, 1999 requesting, on behalf of your client, Ionics EMS,
Inc. (IEI), confirmation of your opinion that the sale of shares of stock of a Philippine company that are
listed and traded in the Stock Exchange of Singapore (SES) by shareholders who are residents of
Singapore, Malaysia, Indonesia, Thailand, Japan, United Kingdom, United States of America and Canada,
is exempt from the capital gains tax (CGT).
As represented, IEI is a corporation duly organized and existing under and by virtue of the laws of
the Philippines, the primary purpose of which is to engage in the business of manufacturing electronic
products and parts, component and accessories; that it has an authorized capital stock of Two Billion
Pesos (P2,000,000,000.00) divided into one billion (1,000,000,000) shares with a par value of Two Pesos
(P2.00) per share; that of the authorized capital stock, two hundred sixty-five million (265,000,000)
shares, with a total par value of Five Hundred Thirty Million Pesos (P530,000,000.00) has been subscribed
and paid upon incorporation; that IEI intends to have its shares of stock listed with the SES for trading
therein; that since trading in Singapore of SES-listed shares is made on the scripless settlement system,
trading is conducted with ease and convenience since the delivery or collection of share certificates is no
longer necessary, and the risk of lost or forged certificates is minimized since investors need not deliver
the physical certificates; that under the scripless settlement system SES-listed shares are first
"immobilized" and "lodged" with the Central Depository of Singapore (Pte) Ltd. (CDP); that the CDP is a
subsidiary of the SES which provides depository, clearing and computerized book-entry settlement for
trades in the SES; that as depository for the SES-listed shares, the documents evidencing title in respect of
the SES-listed shares (e.g. the share certificates) are deposited with the CDP and are registered in its name
as depository; that as a result of the immobilizing and lodging of the shares of IEI in the CDP for purposes
of trading, the stockholder of record in the books of IEI is the CDP; that transfers of such immobilized
SES-listed shares are then effected electronically whereby the CDP system debits or credits the investor's
securities accounts through a computerized book-entry system; that in Singapore, the prospective buyers of
the IEI shares being traded in the SES will include non-resident foreign persons who are residents of the
following countries: Singapore, Malaysia, Indonesia, Thailand, Japan, United Kingdom, United States of
America, and Canada; and that not more than 50% of the entire assets of IEI, in terms of value, consist of
real property located in the Philippines.
In reply, please be informed of the following provisions of the pertinent tax treaties entered into by
the Government of the Republic of the Philippines. to wit:
Article 13, paragraph 3 of the RP-Singapore Tax Treaty, RP-Malaysia Tax Treaty and Canada Tax
Treaty; paragraph 4 of the RP-Indonesia Tax Treaty, and RP-Japan Tax Treaty, provides:
"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. . . ."
Likewise, Article 14, paragraph 9 of the RP-US Tax Treaty provides:
"Gains from the alienation of any property other than those mentioned in paragraph (1)
[tangible personal property forming part of the business property of a permanent establishment] or in
Article 7 (Income from Real Property) shall be taxable only in the Contracting State of which the
alienator is a resident." SDTIaE
The Protocol of the RP-US Tax Treaty also provides:
". . . notwithstanding the provisions of Article 14 relating to capital gains, both the United
consist principally of a real property interest located in the country. . . ."
Article 14, paragraphs 4 and 7 of the RP-Thailand Tax Treaty likewise provides:
principally of immovable property situated in a Contracting State, may be taxed in that State. . . ."
"7. Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2,
3, 4, and 5 shall be taxable only in the Contracting State of which the alienator is a resident. Nothing
in this paragraph shall prevent either Contracting State from taxing the gains or income from the sale
or transfer of shares or other securities."
The last sentence herein provides a saving clause for paragraph 4 in an instance where the
alienation of shares of a company is taxable in the other State.
Finally, Article 19, paragraph 4 of the RP-UK Tax Treaty provides:
"Capital gains from the alienation of any property other than those mentioned in paragraphs
(1) [ie, immovable property], (2) [movable property forming part of the business property of a
permanent establishment], and (3) [ships and aircraft in international traffic] of this Article shall be
taxable only in the Contracting State of which the alienator is a resident."
As gleaned from the foregoing provisions of the tax treaties the gains to be derived by the
shareholders of IEI shares, who are residents of Singapore, Malaysia, Thailand, Japan, United Kingdom,
United States of America and Canada, shall be taxable only in the country where the alienator is a
resident.
However, the Philippines may tax the gains derived from the disposition of interest in a corporation
if its assets consist principally of real property interest located in the Philippines. "Real Property Interest"
however, exclusive of others that are originally situated. As used in the treaties and in the Regulations, it
"Principally" means more than 50% of the entire assets in terms of value [Sec. 2 (a) and (b), Revenue
Regulations No. 4-86]. HCDAac
Since as represented, the entire assets of IEI do not consist of more than 50% real properties or real
property interests located in the Philippines, the sale of shares of stocks by the shareholders of IEI who are
residents of the aforementioned countries is within the contemplation of the tax exemption provisions of
the subject tax treaties.
Moreover, the aforementioned tax treaties contains substantially similar provision under Article 2
(Taxes Covered) of the said treaties which provides as follows:
"The Agreement (Convention) shall also apply to any identical or substantially similar taxes
which are subsequently imposed in addition to, or in place of, the existing taxes."
Considering the foregoing, the reclassification of the tax on sale, barter or exchange of shares of
stock listed and traded through the stock exchange from Title II (Tax on Income) to Title V (Other
Percentage Taxes) of the Tax Code, does not remove the same from the coverage of the provisions of the
above-mentioned tax treaties.
Article 2 (Taxes Covered) of the RP-Denmark and RP-Hungary Tax Treaties likewise provides, as
follows:
". . . the income tax imposed under the Title II and the stock transaction tax in accordance with
Section 124-A[Sec. 127 (A) under the Tax Code of 1997] of the National Internal Revenue Code of
the Republic of the Philippines . . ."
Accordingly, your opinion is hereby confirmed. The sale, barter or exchange of shares of stock
listed and traded through the local stock exchange by residents of Singapore, Malaysia, Thailand, Japan,
Canada, United States of America and United Kingdom is exempt from stock transaction tax under
Section 127 (A) of the Tax Code of 1997. (BIR Ruling No. ITAD 17-99)
However. the said sale of shares of stocks is subject to documentary stamp tax in accordance with
Please be reminded that each non-resident corporation/individual still needs to apply for tax treaty
relief in order to avail of the benefit of the tax treaty provisions. Attached herewith is a copy of Revenue
Memorandum Order No. 1-2000 for your guidance. ADaEIH
Very truly yours,

Deputy Commissioner
October 30, 2000
Article 11, RP-Singapore Tax Treaty

Section 39, NIRC of 1997
Sycip Salazar Hernandez & Gatmaitan

Attorneys-At-Law
Syciplaw-All Asia Capital Center
105 Paseo de Roxas, City of Makati
1226 Metro Manila
Attention: Atty. Ernesto S. Taiño, Jr.
Gentlemen :
This refers to your application for relief from double taxation dated September 22, 1999, on behalf
of your client, VICKERS CAPITAL LIMITED (Vickers), requesting for a ruling on whether the interest
payments made to Vickers on the Secured Floating Notes Due 2000 issued by Lapanday Holdings
Corporation (Lapanday) are subject to the preferential tax rate of 15%, and the "Upside Share" paid upon
retirement of the said Notes is considered a capital gain, pursuant to the RP-Singapore Tax Treaty.
It is represented that Vickers held Secured Floating Notes Due 2000 (Notes) issued by Lapanday, a
corporation organized and existing under the laws of the Philippines; that Vickers is a corporation
organized and existing under the laws of the Singapore with no permanent establishment in the
Philippines, as per certification dated September 8, 1999 issued by the Securities and Exchange
Commission; that the principal amount of the Notes was US$6,000,000; that said Notes were issued in
registered form in amounts of US$100,000 or an integral multiple of US$100,000; that the rate of interest
applicable to the Notes was the aggregate of one percent plus the Singapore Inter-Bank Offered Rate; that
the said interest was payable every six months from the date of issue of the Notes; that Lapanday may
retire and redeem the Notes on an interest payment date but not later than the interest payment date falling
due in December 2000; that if the Notes are retired, Vickers will receive, in addition to the principal and
the interest accrued up to the retirement date, an amount (referred to as "Upside Share") calculated on the
basis of a notional or hypothetical transaction — as if Vickers had exercised an option to purchase from
Lapanday a number of shares of Macondray & Co., Inc. (Macondray), a subsidiary of Lapanday, at a
specified price; that the said notional transaction never actually happened — no shares of Macondray are
ever transferred to Vickers or to Lapanday.
Based on the documents submitted, it was ascertained that the said Notes were retired on August
31, 1999 and that Vickers received P4,275,048.20 representing interest before deducting tax and
P48,992,006.80 as Upside Share. Based on the provisions of the RP-Singapore Tax Treaty, the tax on the
interest income was withheld by Lapanday at 15% and remitted to the government upon filing of the
corresponding return. No tax was withheld on the Upside Share as it is your stand that such an amount
received by Vickers upon retirement of the Notes is a capital gain derived from the exchange thereof and
therefore exempt from Philippine income tax pursuant to Article 13(4) of the RP-Singapore Tax Treaty in
relation to Section 39(E) of the National Internal Revenue Code (Tax Code) of 1997.
In reply, please be informed that Article 11 of the RP-Singapore Tax Treaty provides, viz:
"Article 11
INTEREST
charged shall not exceed 15 per cent of the gross amount of the interest. The competent authorities of
the Contracting States shall be mutual agreement settle the mode of application of this limitation. IHSTDE
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. (Emphasis supplied)
xxx xxx xxx"
Applying the foregoing provisions, the preferential tax rate to be withheld by Lapanday on its
interest payment to Vickers shall be fifteen percent (15%).
The interpretation of tax treaties is governed by customary international law, as embodied in the
Vienna Convention on the Law of Treaties. Article 31(1) of the latter provides that a treaty shall be
interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in
their context and in light of its object and purpose.
The tax treaty defines "interest" to include "income from bonds or debentures, including premiums
and prizes attaching to such bonds or debentures." Thus, it may refer to any amount that the issuer of the
bond or debenture pays, at redemption or at issue, that is over and above the amount paid by the
subscriber. This interpretation is founded on the Commentaries of the ORGANISATION FOR
ECONOMIC COOPERATION AND DEVELOPMENT (OECD) Committee on Fiscal Affairs on the
Model Tax Convention, thus:
"As regards, more particularly, government securities and bonds and debentures, the text
specifies that premiums or prizes attaching thereto constitute interest. Generally speaking what
constitutes interest yielded by a loan security, and may properly be taxed as such in the State of
source, is all that the institution issuing the loan pays over and above the amount paid by the
subscriber, that is to say, the interest accruing plus any premium paid at redemption or at issue . . .
1(1) (Emphasis supplied)
Accordingly, the Upside Share remitted to Vickers should also be subject to the preferential tax rate
of 15% as it is in the nature of interest pursuant to the RP-Singapore Tax Treaty.
It is true that Section 39 of the Tax Code of 1997 provides:
"SEC. 39. Capital Gains and Losses. —
"xxx xxx xxx
"(E) Retirement of Bonds, Etc. — For purposes of this Title, amounts received by the holder
upon the retirement of bonds, debentures, notes or certificates or other evidences of indebtedness
issued by any corporation (including those issued by a government or political subdivision thereof)
with interest coupons or in registered form, shall be considered as amounts received in exchange
therefor.
"xxx xxx xxx"
This Section regards the retirement of the Notes held by Vickers as a capital asset transaction and
any gain derived therefrom is considered a capital gain from exchange of the note. However, the
aforequoted provisions of the Tax Code will only apply if no tax treaty exists between the governments of
the Philippines and Singapore, and the term "interest" is not defined so as to include premiums paid by the
debtor upon retirement of an obligation. In case of conflict between a tax treaty and the Tax Code, the
former shall prevail.
This is so because a tax treaty is in the nature of a special law, i.e., a law which relates to particular
persons or things of a class or to a particular portion or section of the State, which, in the case of the
RP-Singapore Tax Treaty, the residents of Singapore insofar as the Philippines is concerned. On the other
hand, the provisions of the Tax Code are in the nature of a general law or that which applied to all of the
people of the State or to all of a particular class or persons in the State with equal force. TCHcAE
It is a rule in statutory construction that a general law and a special law on the same subject should
be read together and harmonized, if possible, with a view to giving effect to both. In case of conflict
between the two, the special law shall prevail. The fact that one law is special and the other general,
creates a presumption that the special law is to be considered as remaining an exception of the general law,
one as a general law of the land and the other as the law of a particular case.
Furthermore, this Office adopts the commentary of the OECD in not referring to the Tax Code in
interpreting paragraph 3 of Article 11 (Interest) of the said Model Convention, viz:
". . ., the definition of interest in the first sentence of paragraph 3 is, in principle, exhaustive. It
has seemed preferable not to include a subsidiary reference to domestic laws in the text; this is
justified by the following considerations:
a.) the definition covers practically all the kinds of income which are regarded as interest in
the various laws;
b.) the formula employed offers greater security from the legal point of view and ensures
that conventions would be unaffected by future changes in any country's domestic laws;
c. in the Model Convention references to domestic laws should as far as possible be

avoided. 2 (2)
xxx xxx xxx"
In view of all the foregoing, this Office hereby, holds that the preferential tax rate of 15% shall be
applied on the interest and the Upside Share payments of Lapanday to Vickers pursuant to the
RP-Singapore Tax Treaty.
void. DHcTaE
Very truly yours,

Commissioner
Footnotes
1. Paragraph 20, p. 141, Commentaries on Article 11 (Interest), Model Tax Convention on Income and on
Capital, June 1998 Condensed Version.
2. Paragraph 21, p. 142, supra; REFER also to The UNITED NATIONS Model Double Taxation Convention
between Developed and Developing Countries [New York, 1980], p. 131.
October 30, 2000
RP-Indonesia Article 12
Joaquin Cunanan and Co.

6805 Ayala Avenue
1226 Makati City

Partner, Tax Services Department
Gentlemen :
This refers to your letter dated May 11, 1999 on behalf of Lepanto Consolidated Mining Co.
(Lepanto) requesting for confirmation of your opinion that the service fees paid by Lepanto in connection
with the Consultancy Agreement with PT Murray & Roberts Indonesia (PT Murray) is not subject to
Philippine income tax pursuant to Article 5 (Permanent Establishment) and Article 7 (Business Profits) of
the RP-Indonesia Tax Treaty.
It is represented that Lepanto is a corporation organized under the laws of the Philippines; that
Lepanto entered into a Consultancy Agreement with PT Murray, an entity organized under the laws of
Indonesia whereby the latter is to provide consulting services to the former; that PT Murray has no
permanent establishment in the Philippines as evidenced by a Certificate of Non-Registration issued by the
Securities Exchange Commission dated April 27, 1999; that the services rendered by PT Murray to
Lepanto under the aforementioned Consultancy Agreement consists of providing consultancy and
supervisory services for the Drilling, Charge-up and Blast, Spoil Mucking, Support-Rockbolt, Shotcreting
for normal ground, Ventilation, Dumping, Installation of Services, Roadways stages of the execution of
Phase II of the Nayak Internal Shaft Project and Nayak Decline Project; that the services will be rendered
for an aggregate period of not exceeding 6 months by not more than 4 personnel of PT Murray who will be
sent to the Philippines; that in consideration for the said services, Lepanto will pay PT Murray
US$305,067.93.
In reply, please be informed that Article 12 of the RP-Indonesia Tax Treaty provides, viz:
"Article 12
ROYALTIES
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 laws of that State. However, the tax so charged shall not exceed:
(a) in the case of the Philippines; DIECTc
(i) 15 percent 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 as determined by the said Board; and
(ii) in all other cases, 25 percent of the gross amount of the royalties;
(b) in the case of Indonesia;
15 percent of the gross amount of the royalties.
"(3) . . .
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 video-tapes for use in connection with television or tapes for the use of
radio broadcasting. (emphasis supplied)
(5) . . ."
Contrary to your opinion that the applicable provisions are Article 5 and Article 7 of the
RP-Indonesia Tax Treaty, the case at hand falls squarely within the coverage of Article 12 (Royalties).
This is for the reason that the tax on royalties under Article 12 is a specific tax on the gross amount paid,
the imposition of which is not dependent on the existence of a permanent establishment in the Philippines.
The consultancy and supervisory services provided by PT Murray to Lepanto constitute the use of
information concerning industrial experience as contemplated under the provisions of paragraph (4)
Article 12 of the RP-Indonesia Tax Treaty, as aforequoted. In which case, the consideration paid therefor
is royalty within the above-mentioned provision of the RP-Indonesia Tax Treaty. aATHIE
Furthermore, the said Consultancy Agreement is considered a technology transfer agreement under
Section 4.2, Part I of the Intellectual Property Code (IP Code), as confirmed by the Documentation,
Information and Technology Transfer Bureau of the Intellectual Property Office in their letter dated
September 20, 1999 Re: Consultancy Agreement (For the Nayak Declines and of Phase II of the Internal
Shaft Project) between Lepanto Consolidated Mining Co. and PT Murray & Roberts Indonesia.
Accordingly, the payment for services performed by PT Murray shall be considered as royalties
subject to the twenty five percent (25%) withholding tax pursuant to Article 12 of the RP-Indonesia Tax
Treaty.
Finally, the fees paid by Lepanto to PT Murray for the services rendered in the Philippines are
subject to the 10% value-added tax pursuant to Sec. 108 of the Tax Code. Accordingly, Lepanto shall be
responsible for the payment of VAT on said services in behalf of PT Murray by filing a separate VAT
declaration/return using BIR Form 1600 and the said VAT declaration/return can be used by Lepanto, as
evidence in claiming input tax credit. (Sec. 4.102-1(b), Revenue Regulations No. 7-95)
void.
Very truly yours,

Commissioner
October 23, 2000
Article 11 RP-Japan ITAD 19-00
Kito Philippines, Inc.

128 North Science Avenue Extension
Special Economic Processing Zone
Laguna Technopark, Biñan, Laguna
Attention: Mr. Nobuyuki Watanabe

VP-General Manager
Gentlemen :
This refers to your letter dated July 16, 1999 applying for tax treaty relief on the loan of Kito
Philippines, Inc. (Kito Phils.) in the amount of Japanese Yen Two Hundred Million (JPY200,000,000)
with its mother company, Kito Corporation (Kito Corp.) under the RP-Japan Tax Treaty.
It is represented that Kito Corp. is a non-resident foreign corporation organized and existing under
and by virtue of the laws of Japan with business address at 2000 Tsuiji-arai, Showa-cho, Nakakoma-gun,
Yamanshi, Japan; that it is not registered as a corporation or a partnership in the Philippines as per
certification issued by the Securities and Exchange Commission dated June 14, 1999; that Kito Corp. is
the mother company of Kito Phils., a company duly incorporated under the laws of the Philippines and
having an office at Laguna Technopark, Biñan, Laguna, Philippines; that Kito Phils. Inc. is a
PEZA-registered Ecozone Enterprise with Registration Certificate No. 96-062; that Kito Corp. and Kito
Phils. entered into a Loan Agreement dated August 7, 1997 covering a loan in the amount of Japanese Yen
Two Hundred Million (JPY200,000,000) with an interest rate of 1.92% per annum payable annually.
"Article 11
a) 10 per cent of the gross amount of the interest is paid in respect of Government
securities, or bonds or debentures;
"3. ...
"4. ...
including premiums and prizes attaching to such securities, bonds or debentures.
"xxx xxx xxx"
Such being the case, interest payments to be made by Kito Phils. to Kito Corp. shall be subject to
15% income tax based on the gross amount of the interest pursuant to Article 11(2)(b) of the RP-Japan
Tax Treaty. In addition, said payments shall be subject to documentary stamp tax under Section 180 of the
National Internal Revenue Code of 1997.
void. DHcTaE
Very truly yours,

By:

Deputy Commissioner
October 23, 2000


VP-General Manager
Gentlemen :
This refers to your letter dated July 16, 1999 applying for tax treaty relief on the loan of Kito
Philippines, Inc. (Kito Phils.) in the amount of Japanese Yen Two Hundred Seventy Nine Million Three
Hundred Twenty One Thousand Five Hundred Seventy-Five (JPY279,321,575) with its mother company,
Kito Corporation (Kito Corp.) under the RP-Japan Tax Treaty.
PEZA-registered Ecozone Enterprise with Registration Certificate No. 96-062; that Kito Corp. and Kito
Phils. entered into a Loan Agreement dated October 17, 1997 covering a loan in the amount of Japanese
Yen Two Hundred Seventy Nine Million Three Hundred Twenty One Thousand Five Hundred
Seventy-Five (JPY279,321,575) with an interest rate of 1.92% per annum payable annually; that the loan
was used to offset Kito Phils.' payables from Kito Corp. for the machinery, tools and supplementary for
production.
"Article 11
"3. ...
"4. ...
"xxx xxx xxx"
void. DHcTaE
Very truly yours,

By:

Deputy Commissioner
October 23, 2000


VP-General Manager
Gentlemen :
This refers to your letter dated November 17, 1999 applying for tax treaty relief on the loan of Kito
Philippines, Inc. (Kito Phils.) in the amount of Japanese Yen Two Hundred Four Million Seven Hundred
Five Thousand and Three (JPY204,705,003) with its mother company, Kito Corporation (Kito Corp.)
under the RP-Japan Tax Treaty.
PEZA-registered Ecozone Enterprise with Registration Certificate No. 96-062; that Kito Corp and Kito
Phils. entered into a Loan Agreement dated July 27, 1999 covering a loan in the amount of Japanese Yen
Two Hundred Four Million Seven Hundred Five Thousand and Three (JPY204,705,003) with an interest
rate of 2.00% per annum payable annually; that the loan was used to offset Kito Phils.' payables from Kito
Corp. for the machinery, tools and supplementary for production.
"Article 11
"3. ...
"4. ...
"xxx xxx xxx"
void. DHcTaE
Very truly yours,

By:

Deputy Commissioner
October 23, 2000
RP-Thailand Art. 5 (2) (k) & Art. 7
ITAD 42-00
PNOC Petrochemical Development Corporation

11/F, BA Lepanto Building
8747 Paseo de Roxas, 1227 Makati
Metro Manila
Attention: Ms. Dionisia L. Mascardo
Gentlemen :
This refers to your letter dated May 18, 2000, on behalf of Chem Systems East Asia Limited (Chem
Systems), requesting confirmation of your opinion that the consultancy services to be paid by PNOC
Petrochemical Development Corporation (PNOC) to Chem Systems are not subject to Philippine
income/withholding/value-added tax (VAT) pursuant to Articles 5(2)(k) and 7 of the RP-Thailand Tax
Treaty.
It is represented that PNOC is a corporation duly organized and existing under Philippine laws with
principal office at 11/F, BA Lepanto Bldg., 8747 Paseo de Roxas, Makati City, Philippines; that PNOC
was mandated to take the lead role in organizing a consortium that will put up the first Naptha Cracker in
the Philippines known as the Bataan Naptha Cracker Project (BNC Project); that Chem Systems is a
corporation organized and existing under the laws of the State of Delaware, United States of America,
having its business operation in Thailand under the protection granted by the 1968 United States/Thailand
Treaty of Amity & Economic Relation; that there is a need to fast tract the integration and implementation
of the Bataan Naptha Cracker Project; that PNOC engaged the services of Chem Services as consultant for
a total period of seventeen (17) weeks starting March 6, 2000; that Chem Systems shall provide personnel
with adequate qualifications and experiences and of such number as may be required for the best
fulfillment of the service; that PNOC shall pay Chem Systems the amount of $100,000.00 payable in four
equal payments on the following dates: April 20, 2000, May 20, 2000, June 20, 2000, and the last and final
payment shall be upon final acceptance of the work by PNOC; and that PNOC agrees to pay Chem
Systems for reimbursable expenses up to a maximum of $15,000.00.
In reply, please be informed that Article 7(l) in relation to Article 5(2)(k) of the RP-Thailand tax
treaty provides:
"Article 7
Business Profits
1. The profits of an enterprise of a Contracting State shall be taxable only in that State
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the
that permanent establishment.
"Article 5
xxx xxx xxx
2. The term "permanent establishment" includes especially:
xxx xxx xxx
(k) 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"
While Chem Systems earns business profits from the consultancy services it renders to PNOC, such
services shall be rendered in the Philippines for a period not exceeding 183 days during the entire duration
of the contract (the consultancy period will only involve 17 weeks from March 6, 2000 ending June 30,
2000). Thus, Chem Systems is deemed not to have a permanent establishment in the Philippines wherein
business profits can be attributed.
Such being the case, this Office hereby confirms that the service fees paid by PNOC to Chem
Systems are not subject to income tax and withholding tax under the above-mentioned provisions.
Further, such fees are considered ordinary and necessary/expenses on the part of PNOC considering
the nature of the services rendered pursuant to the provision of Chapter VII, Section 34(A)(1) of the 1997
Tax Code of the Philippines which reads as follows:
"CHAPTER VII
Allowable Deductions
Sec. 34. Deduction from Gross Income — Except for taxpayers earning compensation
income arising from personal services rendered under an employer-employee relationship where no
deductions shall be allowed under this Section other than Subsection (M) hereof, in computing
taxable income subject to income tax under Sections 24(A); 25(A); 26; 27(A, (B) and (c); and
28(A)(1), there shall be allowed the following deductions from gross income:
(A) Expenses
(1) Ordinary and Necessary Trade, Business or Professional Expenses
(a) In general — There shall be allowed as deduction from gross income all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on or which are directly
attributable to the development, management, operation and/or conduct of trade, business or exercise
of profession.
xxx xxx xxx"
However, the fees paid by PNOC to Chem Systems for the services rendered in the Philippines are
subject to the 10% value-added tax pursuant to Section 108 of the Tax Code. Accordingly, PNOC shall be
responsible for the payment of VAT on behalf of Chem Systems by filing a separate VAT
declaration/return using BIR Form 1600 and the said VAT declaration/return can be used by PNOC, as
evidence in claiming input tax credit for the consultancy services rendered under the Bataan Naptha
Cracker Project. (Sec. 4.102-1(b); Revenue Regulations No. 7-95).
This ruling is being issued on the basis of the foregoing facts as presented. However, if upon
void. DHcTaE
Very truly yours,

By:

Deputy Commissioner
October 23, 2000
RP-Japan Protocol par. 5

138-99
Fernandez, Santos & Lopez

8th Floor, Philbank Building
6778 Ayala Avenue
Makati City 1226
Attention: Mr. Eliseo A. Fernandez
Gentlemen :
This refers to your letter dated June 29, 1998 requesting for the application of the preferential tax
rate of 10% on profits remitted by NEC Manila Project Office (NEC MPO) to NEC Corporation (NEC
Corp.), pursuant to the provisions of the RP-Japan Tax Treaty.
It is represented that NEC Corp. is a Japanese corporation with address at 7-1 Shiba 5-Chome,
Minato-ku, Tokyo, Japan; that the Philippine Branch was registered and licensed by the Securities and
Exchange Commission (SEC) dated April 7, 1995, as the NEC MPO; that NEC MPO shall act as
management consultant in implementing the local works in accordance with the agreement for
rehabilitation and expansion of the public switch telephone network (PSTN) for the province of
Pangasinan and environs and expansion of the transmission backbone network; that the license was
amended on July 26, 1996 to reflect the change in purpose to act as management consultant in
implementing the local works contracted for the telecommunications industry in the Republic of the
Philippines; that as of the end of its fiscal year ended March 31, 1998 the Philippine Branch has
accumulated earnings of P71,588,683.00 to be remitted to its head office in Japan. TAIcaD
In reply, please be informed that paragraph 5 of the Protocol which forms an integral part of the
RP-Japan Tax Treaty provides as follows:
"5. Nothing in the Convention shall be construed as preventing the Republic of the
Philippines from imposing in 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 the company being a resident of the Republic of the Philippines,
provided that any additional tax so imposed shall not exceed 10% percent 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 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."
Under Article 5, paragraph (2) of the RP-Japan Tax Treaty, the term "permanent establishment"
includes a branch. Accordingly, under the above-cited provision of the tax treaty, the profit to be remitted
by NEC MPO to NEC Corp. in Japan is subject to a tax of 10% of the profit remitted abroad. The 15%
rate prescribed by Section 28(A)(5) of the Tax Code of 1997 imposed on profits remitted by a branch to its
head office abroad does not, therefore, apply in this particular instance. (BIR Ruling No. 138-89 dated July
11, 1989)
void. DHcTaE
Very truly yours,

By:

Deputy Commissioner
October 23, 2000
Article 11 RP-Japan ITAD 43-99/30-99/23-99/19-99
Creative Diecast Philippine Corporation

Blk. 7, Lot 5, Complex Avenue, CCIE Compound
BO. Maduya, Carmona, Cavite, 4116
Philippines
Attention: Ms. Divina Mapanoo

Finance Manager
Gentlemen :
This refers to your letter dated May 12, 2000, requesting for the application of the preferential tax
rate of 15% on the interest payments arising from the Japanese Yen Loan obtained by Creative Diecast
Philippine Corporation (CDPC) formerly Haneda Corporation, from Creative Diecast Corporation (CDC)
formerly Haneda Diecast Co., Ltd., pursuant to Article 11(2) of the RP-Japan Tax Treaty.
It is represented that CDC is a non-resident foreign corporation organized and existing under the
laws of Japan with office address at 3677-4 Ohata, Tsuru City, Yamanashi, Japan; that it is not registered
to engage in business in the Philippines per certification issued by the Securities and Exchange
Commission dated June 9, 2000; that on January 5, 1999, CDC extended a long term loan to CDPC to pay
its operating fund loan from various local creditor banks amounting to J¥818,792,000.00; that CDCP is a
corporation organized and existing under the laws of the Philippines with office address at Blk 7, Lot 5,
People's Technology Complex, Maduya, Carmona, Cavite; that it is engaged in the manufacturing of
aluminum and zinc alloy diecast products, machine parts and other related products and/or merchandise
such as, but not limited to, electric appliances, communication and office automation equipment; that
CDCP shall repay CDC in eighteen (18) consecutive semi-annual installment after an initial one (1) year
grace period which shall start on the last day of June, 2000; and that the interest payment rate shall be the
long term prime rate in Japan on the interest payment date payable in arrears on the last day of March,
June, September and December of each year during the term of the Loan, with the first interest payment
date being March 31, 1999, and the last interest payment date being the maturity date.
In reply, please be informed that Article 11 paragraph 2 of the RP-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
"(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 exceed 10% percent 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
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." EcIDaA
Under Article 5, paragraph (2) of the RP-Japan Tax Treaty, the term "permanent establishment"
includes a branch. Accordingly, under the above-cited provision of the tax treaty, the profit to be remitted
by NEC MPO to NEC Corp. in Japan is subject to a tax of 10% of the profit remitted abroad. The 15%
rate prescribed by Section 28(A)(5) of the Tax Code of 1997 imposed on profits remitted by a branch to its
head office abroad does not, therefore, apply in this particular instance. (BIR Ruling 138-89 dated July 11,
1989)
void.
Very truly yours,

By:

Deputy Commissioner
October 23, 2000
RP-Japan Art. 10 8-99
Sakamoto Orient Chemicals Corporation

Unit 5D, Palaza Royal
120 Alfaro St., Salcedo Village
Makati City
Attention: Mr. Cesar F . Cabañas

Accounting Manager
Gentlemen :
This refers to your letter dated March 28, 2000 on behalf of Sakamoto Orient Chemicals
Corporation (Sakamoto), applying for a tax treaty relief on its dividend payments to Sakamoto Yakuhin
Kogyo Co., Ltd. (SYKCL) and Tomen Corporation (Tomen) pursuant to the RP-Japan Tax Treaty.
It is represented that Sakamoto is a corporation organized and existing under the laws of the
Philippines, and is registered with the Board of Investment as per Certification of Registration No. EP
88-872 dated December 27, 1988; that SYKCL and Tomen, both based in Japan, respectively hold 75%
and 25% of the outstanding shares of Sakamoto; that per Securities and Exchange Commission's certificate
dated April 10, 2000, SYKCL and Tomen are not licensed to do business in the Philippines; and that in the
annual meeting of Sakamoto's Board of Directors held on December 14, 1999, it was resolved that out of
its unrestricted retained earnings, a cash dividend of P0.52 per share is declared to all stockholders of
record as of November 15, 1999. cIHDaE
"Article 10

"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
paying the dividends or of the shares issued by the 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. . . ."
Based on the above, the Philippines may tax the dividends paid by a Philippine economy to a
Japanese company at a rate not exceeding 25% 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 months immediately preceding the date of
payment of the dividends.
Considering that SYKCL and Tomen own at least 25% of the stocks of the Sakamoto, the dividend
remittances of Sakamoto to SYKCL and Tomen are subject to the 10% final withholding tax. (BIR Ruling
No. ITAD 8-99)
void. IHCSET
Very truly yours,

By:

Deputy Commissioner
October 23, 2000
RP-Japan Art. 10 ITAD 55-00
Precision Springs Manila, Inc.

LISP 2, Bo. Real, Calamba, Laguna
Attention: Ms. Era M. Dela Cerna

Accounting Manager
Gentlemen :
This refers to your tax treaty application dated June 29, 2000 on relief from double taxation on
dividend payment pursuant to Article 10 of the RP-Japan Tax Treaty.
It is represented that Precision Springs Co., Ltd. (Precision Japan) is a non-resident foreign
corporation organized and existing under the laws of Japan, with head office address at 15, 3-Chome,
Shiohama, Ichikawa City, Chiba Prefecture, Japan; that Precision Springs Manila, Inc. (Precision Manila)
is a non-pioneer PEZA-registered enterprise operating in Bo. Real, Calamba, Laguna; that as of March 31,
1999 to-date, Precision Japan owns 57,999,995 shares of stock (with a par value of P1.00 per share)
which represents approximately 99.99% of the total capital stock of Precision Manila; that on May 18,
2000, Precision Manila's Board of Directors declared cash dividends amounting to Twenty Million Pesos
(Php20,000,000.00) from the Corporation's retained earnings as of March 31, 2000 as evidenced by
Secretary's Certificate dated June 22, 2000.
In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides:
"Article 10
Dividends
"1. Dividends paid by a company which is a resident of Contracting State to a resident of the
other Contracting State may be taxed in that other Contracting State.
months immediately preceding the date of payment of the dividends; TaDAHE
b) 25 percent 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
"3. ...
"4. The term "dividends" as used in this Article means income from shares or other rights
making the distribution is a resident.
xxx xxx xxx"
In view of the foregoing, and since Precision Japan owns 99.99% of the total outstanding stocks of
Precision Manila as of record date, the cash dividends payable by Precision Manila to Precision Japan are
subject to the 10% preferential withholding tax under Article 10 (2)(a) of the RP-Japan Tax Treaty. (BIR
Ruling No. ITAD 55-00)
This ruling is being issued on the basis of the foregoing facts as represented and will be considered
null and void if upon investigation it will be disclosed that the facts are different.
Very truly yours,

By:

Deputy Commissioner
October 23, 2000
R.S. Bernaldo & Associates

Unit 1810 Cityland Condominium 10 Tower 1
6815 Ayala Avenue cor. H.V. dela Costa Ext.
1220 Makati City
Attention: Perfecto E. Mirador, Jr.

Partner
Gentlemen :
This refers to your letter dated March 8, 2000 requesting confirmation of your opinion that the
interest payments of Tottori Sanyo Electric (Philippines) Corporation (TSP) to Tottori Sanyo Electric Co.
Ltd. (TORISAN) are subject to Philippine final withholding tax of 15 per cent pursuant to the RP-Japan
Tax Treaty.
It is represented that TORISAN is a non-resident foreign corporation duly organized and existing
under the laws of Japan with principal office at 5-318 Tachikawa-cho, Tottori City, 680 Japan; that it is
not registered as a corporation/partnership in the Philippines as per Securities and Exchange Commission
certification issued May 4, 2000; that TSP is a corporation duly organized and existing under Philippine
Laws; that on May 26, 1997, a Loan Agreement was entered into by and between TORISAN and TSP; that
under the Loan Agreement, TORISAN agrees to lend TSP in United States Dollars an amount equivalent
to 1,400 Million in Japanese Yen payable within a period of ten (10) years at an interest rate of five and
one half percent (5.5%) per annum; and that the proceeds of the loan shall be used by TSP in building a
factory at Lot 1A, Phase 2, Gateway Business Park, General Trias, Cavite, Philippines.
"Article 11
1. Interest arising in a Contracting State and paid to a resident of the other Contracting Stale
"2. However, such interest may also be taxed in the Contracting State in which it arises; and
Government securities, or bonds or debentures; EcDTIH
b) 15 per cent of the gross amount of the interest in all other cases. (emphasis
supplied)
"xxx xxx xxx
"xxx xxx xxx"
Based on the foregoing, the interest payments will be taxed at the preferential tax rate not
exceeding ten per cent (10%) of the gross amount of the interest paid in respect of Government securities,
or bonds or debentures, and in all other cases, fifteen per cent (15 %) of the gross amount of interest.
Such being the case, your opinion is hereby confirmed. The interest payments of Tottori Sanyo
Electric (Philippines) Corporation (TSP) to Tottori Sanyo Electric Co. Ltd. (TORISAN) is subject to
Philippine final withholding tax of 15 per cent of the gross amount of interest pursuant to the RP-Japan
Tax Treaty.
Moreover, the Loan Agreement entered into by and between TORISAN and TSP dated May 26,
1997 is subject to the documentary stamp tax imposed under Section 180 of the National Internal Revenue
Code of 1997.
void.
Very truly yours,
Deputy Commissioner
October 25, 2000
RP-Spain Article 13
Sec. 176 38-00
Abello Concepcion Regala & Cruz

ACCRA Building, 122 Gamboa Street.
Attention: Atty. Aleli Angela G. Quirino

Atty. Ruby Rose J. Yusi
Atty. Ana Maria G.E. Javelosa
Gentlemen :
This refers to your letter dated May 31, 2000 requesting confirmation of your opinion to the effect
that the assignment and transfer by your client, Union Fenosa Desarrollo Y Accion Exterior, S.A.
(UFACEX) to Internacional Servicios Professionales, S.L. (Soluziona) of its shares in Iberpacific, Inc.
(Iberpacific) is not subject to capital gains tax pursuant to the RP-Spain Tax Treaty.
It is represented that UFACEX is a non-resident foreign corporation duly organized and existing
under the laws of Spain; that it is not engaged in trade or business in the Philippines although it maintains
a representative office therein; that UFACEX registered with the SEC under License No. A199910665 a
representative office in the Philippines as per Certificate of Corporate Filing/Information dated June 6,
2000 issued by the Securities and Exchange Commission; that the said representative office was
established in the Philippines to engage in the gathering and dissemination of information and promotion
of the products and services of UFACEX and is prohibited under its license to derive any income in the
Philippines; that Iberpacific is a corporation duly organized and existing under the laws of the Philippines;
that Soluziona is a corporation duly organized under the laws of Spain; that UFACEX is the stockholder of
record and owns forty nine and 99/100 percent (49.99%) of the issued and outstanding capital stock of
Iberpacific, equivalent to Sixty Five Thousand Nine Hundred Ninety Five (65,995) shares of stock, with a
par value of One Hundred Pesos (P100.00) per share, or an aggregate par value of Six Million Five
Hundred Ninety-Nine Thousand Five Hundred Pesos (P6,599,500); and that on May 3, 2000, by virtue of
the Deed of Assignment of Shares of Stock executed by UFACEX and Soluziona, UFACEX transferred,
assigned and conveyed to Soluziona the aforementioned shares in Iberpacific. HTCaAD
In reply, please be informed that Article 13 of the RP-Spain Tax Treaty, provides as follows:
"Article 13
Capital Gains
"(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
the alienation of such a permanent establishment (alone or together with the whole enterprise) or of
State.
"(3) Gains from the alienation of shares of a company, the property of which consists
from the alienation of interest in a partnership or 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 other than those mentioned in paragraphs 1, 2
and 3 shall be taxable only in the Contracting State of which the alienator is a resident." (emphasis
supplied) EcIDaA
The gains which will be realized by UFACEX from the transfer of its shares of stock in Iberpacific
to Soluziona shall be taxable only in Spain. However, under paragraph 3 of the aforequoted provision, the
Philippines may tax the gains derived from the disposition of interest in a corporation if its entire assets
consist principally of real property interest located in the Philippines. "Real Property Interest" means
interest on 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 1999 Audited Financial Statements of Iberpacific disclosed that its real property
interest located in the Philippines is only 25.89% of its total assets, thereby making the assets of
Iberpacific not principally consisted of real property interest located in the Philippines.
Accordingly, your opinion that the assignment and transfer by Union Fenosa Desarrollo y Accion
Exterior, S.A. (UFACEX) to Soluziona Internacional Servicios Profesionales, S.L. (Soluziona) of its
shares in Iberpacific, Inc. (Iberpacific) is not subject to capital gains tax is hereby confirmed. (ITAD
Ruling No. 38-00 dated February 4, 2000)
However, the Deed of Assignment of Shares of Stock shall be subject to the documentary stamp tax
imposed under Section 176 of the Tax Code of 1997.
This ruling is being issued on the basis of the facts as represented. However, if upon investigation,
Very truly yours,

By:

Deputy Commissioner
October 30, 2000
RP-Netherlands-Art. 12
NIRC-Sec. 108
077-96

14TH Floor, Multinational Bancorporation Center
6805 Ayala Avenue
1226 Makati City, Manila
Attention: Mary Assumption S. Bautista-Villareal

Principal, Tax Services Department
Gentlemen :
This refers to your letter dated October 22, 1998, requesting confirmation of your opinion that the
service fees paid by your client, UNILEVER PHILIPPINES, INC. (UPI) to UNILEVER N. V. (NV) are
subject to the preferential tax rate of ten per cent (10%) pursuant to Article 12(2)[a] of the RP-Netherlands
Tax Treaty.
It is represented that NV is a non-resident foreign corporation duly organized and existing under the
laws of Netherlands, with office address at Weena 455, 3031 AL Rotterdam, Netherlands; that it is not
registered as a corporation/partnership in the Philippines as per certification dated October 05, 1998 issued
by the Securities and Exchange Commission; that UPI, on the other hand, is a Board of Investment (BOI)
registered domestic corporation duly organized and existing under the laws of the Philippines primarily
engaged in the manufacture of various consumer products; that for the purpose of securing the availability
of NV's international experience in assisting UPI in the development of its business, UPI entered into a
Service Agreement with NV whereby NV will provide UPI services which include but are not limited to
training, research, trademark, patents, financial and accounting matter, internal audit, etc.; that in
consideration for the aforementioned services, UPI will pay NV service fees equivalent to three percent
(3%) of its total net sales value and a bonus royalty equivalent to two percent (2%) of the net foreign
exchange earnings; that the original Agreement was effective from January 01, 1993 to December 31,
1997; that upon the expiration of the original Agreement on December 31, 1997, the parties renewed the
same for ten (10) years effective January 01, 1998 to December 31, 2007; that the new Agreement
contains the same terms and conditions of the original Agreement except for Section 1(a) which provides
for an increase in the service fees to five percent (5%) of the third party net sales value of all Agreement
products during the quarter; that the new Agreement complies with the provisions of the Intellectual
Property Code as evidenced by the Certificate of Compliance No. 5-1998-00003 dated June 03, 1998,
issued by the Intellectual Property Office.
Invoking BIR Ruling dated June 16, 1995, which enunciated that the service fees paid under the old
Agreement constitute royalties in accordance with Article 12 of the RP-Netherlands Tax Treaty and as
such are subject to the preferential tax rate of 10%, it is now your contention that pursuant to the same tax
treaty, the service fees under the new Agreement is also subject to the 10% preferential tax rate. ACTEHI
In reply, please be informed that Article 12 of the RP-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.
xxx xxx xxx
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, the royalty payments will be taxed at rate not to exceed 10% if the payor is
an enterprise registered, and engaged in preferred areas of activities and, in all other cases, fifteen percent
(15%) of the gross amount of the royalties. DSETcC
Inasmuch as the BOI certifies that UPI is a preferred non-pioneer enterprise in the manufacture of
its products as per Certificate of Registration No. 85-1031, dated November 29, 1985, the herein service
fees which are paid for the use/right to use trademark, patents, financial and accounting matter, internal
audit, etc., and information concerning industrial, commercial or scientific experience, qualify under
Article 12(2)[a] of the RP-Netherlands Tax Treaty as royalty payments subject to the 10% tax rate.
In view thereof, this Office hereby confirms your opinion. Hence, the service fees of UPI to NV are
subject to the preferential tax rate of 10% based on gross.
Moreover, the said payments are subject to the 10% value-added tax (VAT) pursuant to Section
108(A)(1) and (3) of the Tax Code and that UPI shall, before paying to NV, withhold and remit to this
Bureau the said 10% VAT due thereon, by filing a separate VAT return for and on behalf of NV. The duly
validated VAT declaration/return is sufficient evidence for UPI in claiming input tax credit. (Sec.
4.102-1(b) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 6-97)
This confirmation shall be valid for all fees payable by UNILEVER PHILIPPINES, INC. to
UNILEVER N. V. under similar circumstances from January 01, 1998 to December 31, 2007, unless
otherwise earlier revoked by this Office.
void.
Very truly yours,

Deputy Commissioner
October 23, 2000
Art. 13. RP-US

Art. 12, RP-Netherlands
ITAD 54 00
Colgate-Palmolive Philippines, Inc.

1049 Jose Rizal Avenue
0701 Makati City
Attention: Aniceto Y. Dideles

Legal Director & Corporate Secretary
Gentlemen :
This refers to your letter dated July 6, 2000 requesting to avail of the preferential tax rate of 15%
final withholding tax on your royalty payments due to your parent company, Colgate-Palmolive Company,
pursuant to the RP-USA Tax Treaty.
It is represented that Colgate-Palmolive Company (Colgate USA) is a non-resident foreign

corporation duly organized and existing under the laws of the United States of America with principal
office at 300 Park Avenue, New York, New York; that it is not registered as a corporation/partnership
licensed to do business in the Philippines as per certification issued by the Securities and Exchange
Commission dated May 4, 2000; that Colgate-Palmolive Philippines, Inc. (Colgate Phil) is a corporation
duly organized and existing under Philippine Laws; that Colgate Phil. is a wholly owned subsidiary of
Colgate USA; that on several dates, Colgate USA and Colgate Phil. executed the following royalty
agreements, all with a uniform ten-year term and duly registered with the Intellectual Property Office
(IPO):
Certificate of Registration (COR) No./
Certificate of Compliance (COC) No. Effective Until
COR No. 1472 March 15, 2003
COR No. 1593 May 14, 2004
COR No. 1813 April 1, 2006
COR No. 1919 December 31, 2006
COR No. 1962 April 30, 2007
COC No. 5-1999-00010 December 31, 2008
COC No. 5-2000-00021 December 31, 2009
Moreover, it is also represented that your Office will remit to Colgate USA the amount of
P20,628,512.00 as royalties based on a percentage of net sales; and that you are subjecting the same to a
preferential tax rate of 15 per cent pursuant to the "most favored nation" clause of the RP-US Tax Treaty
in relation to the RP-Netherlands Tax Treaty.
In reply, please be informed that the "most favored nation" clause provision of the RP-US Tax
Treaty, found in Article 13 (2)(b)(iii) thereof, reads, viz:
"Article 13
ROYALTIES
"(l) 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. cSCTID
(a) ...
(b) In the case of the Philippines, the least of:
(i) 25 percent of the gross amount of the royalties,
(iii) the lowest rate of the 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)
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"
On the other hand, Article 12 (2)(b) of the RP-Netherlands Tax Treaty provides:
"Article 12
ROYALTIES
"1. Royalties arising in one of the Contracting States and paid to a resident of the other State
may be taxed in that other State. ECaScD
2. However, such royalties may also be taxed in the State in which they arise, and according
shall not exceed:
(a) 10 per cent of the gross amount of the royalties where the royalties are paid by an
(b) 15 per cent of the gross amount of royalties in all other cases.
xxx xxx xxx"
Based on the foregoing, 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. The royalties arising from
the Philippines and paid to a resident of the Netherlands may also be taxed in the Philippines but the tax so
charged shall not exceed 15 per cent of the gross amount of royalties in cases other than royalties paid by
an enterprise registered in preferred areas of activities in the Philippines. The term "royalties" as used in
this Article means any payment of any kind received as a consideration for the use of, or right to use, any
patent, trademark, design or model, secret formula or process, or for the use of, or the right to use of,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial or
scientific experience.
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 RP-US Tax Treaty must be interpreted not only in relation to Article 12 of
the RP-Netherlands Tax Treaty but also in connection with the provisions on the elimination of double
taxation of both the RP-US Tax Treaty and RP-Netherlands Tax Treaty.
A perusal of the RP-US and RP-Netherlands Tax Treaties, particularly their provisions on the
avoidance of double taxation, show that there is a similarity on the manner of payment of taxes, that is, the
allowable foreign tax credit on both treaties is the amount actually paid in the Philippines.
Such being the case and since Colgate Phil. is not registered and engaged in preferred areas of
activities in the Philippines, your application is hereby approved. The royalties paid by Colgate-Palmolive
Philippines (Colgate Phil) to Colgate-Palmolive Company (Colgate USA) is subject to the preferential tax
rate not to exceed 15% of the gross amount of royalties pursuant to the "most favored nation" provision of
the RP-US Tax Treaty in relation to RP-Netherlands Treaty. (ITAD Ruling No. 54-00 dated March 7,
2000) DSATCI
Finally, the said royalties based on the net sales shall be subject to 10 percent value added tax
(VAT) pursuant to Section 108(A)(1) and (3) of the Tax Code of 1997. Colgate Phil, shall, before making
payment of royalties to Colgate USA, withhold and remit to this Bureau the said 10 percent VAT due
thereon by filing a separate VAT return for and on behalf of Colgate USA using BIR Form No. 1600. The
duly validated VAT declaration/return is sufficient evidence in claiming input tax credit. (Section
4.110-3(b) of Revenue Regulations No. 7-95)
void.
Very truly yours,
By:

Deputy Commissioner
October 23, 2000
RP-Australia Article 11
BIR Ruling DA-534-11-26-98;
UN-234-6-28-95


Gentlemen :
This refers to your letter dated December 23, 1998 requesting confirmation of your opinion that the
interest paid by your client, LEPANTO CONSOLIDATED MINING CO. (LEPANTO) to N.M.
ROTHSCHILD AND SONS (AUSTRALIA) LIMITED (ROTHSCHILD) and DRESDNER BANK AG
(DRESDNER) is subject to the final income tax at the preferential rate of 15% of the gross amount of
interest payments pursuant to the RP-Australia Tax Treaty. caHASI
It is represented that both ROTHSCHILD and DRESDNER are foreign corporations organized and
existing under the laws of Australia with office address at Level 16, 1 O' Connel Street, Sydney New
South Wales, Australia and Level 20, 2 Market Street, Sydney, New South Wales, Australia respectively;
that LEPANTO is a domestic corporation with office address at the Bank of America-Lepanto Building,
8747 Paseo de Roxas, Makati City; that on December 28, 1998, LEPANTO entered into an Omnibus
Agreement, Volume 2 of which is a Loan and Hedging Facility Agreement with ROTHSCHILD and
DRESDNER for the amount of Thirty Million Dollars (US$30,000,000.00); that LEPANTO must repay
the loan according to the following schedule:
Repayment Date US$, Principal
Repayment Amount
30 June 2000 US$ 3,750,000.00
30 December 2000 3,750,000.00
30 June 2001 7,500,000.00
30 December 2001 7,500,000.00
30 June 2002 3,750,000.00
30 December 2002 3,750,000.00
and that the rate of interest for each Interest Period is the rate of interest per annum equal to the sum of
London Interbank Offering Rate for the Interest Period and the Margin.
In reply, please be informed that Article 11 of the RP-Australia Tax Treaty states:
"Article 11
Interest
"1. Interest arising in one of the Contracting States, being interest to which a resident of the
other Contracting State is beneficially entitled, may be taxed in that other State. DIcTEC
"2. 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 15 per cent of the gross amount of the
interest.
"3. The term "interest" in this Article includes interest from Government securities or from
bonds or debentures and interest from any other form of indebtedness (whether or not secured by
mortgage and whether or not carrying a right to participate in profits) as well as all other income
assimilated to interest by the taxation law of the Contracting State in which the income arises.
"xxx xxx xxx"
Based on the foregoing, interest arising in the Philippines may be subject to Philippine tax at a rate
not to exceed 15 per cent of the gross amount of the interest.
Such being the case, your opinion that the interest payments made by LEPANTO to ROTHSCHILD
and DRESDNER shall be subject to the preferential tax rate of 15% of the gross amount of interest is
hereby confirmed. (BIR Ruling DA-531-11-96-98; UN-234-6-28-95) Further, the loan agreement executed
by and between them shall be subject to documentary stamp tax imposed under Section 180 of the Tax
Code of 1997.
This ruling is being issued based on 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
Very truly yours,

By:
Deputy Commissioner
October 23, 2000
RP-Japan-Art. 12
NIRC-Sec. 28 (B) (4) & Sec. 108
078-97
UN 296-94

14/F Multinational Bancorporation Centre

Principal, Tax and Corporate Services
Gentlemen :
This refers to your letter dated February 12, 1998 on behalf of your client, Kanepackage
Philippines, Inc. (KPI), requesting confirmation of your opinion that rental payments to be made by KPI to
Kanepackage Co. Ltd. (KCL) are exempt from Philippine income tax pursuant to Article 7 in relation to
Article 5 of the RP-Japan Tax Treaty.
It is represented that KCL is a non-resident foreign corporation organized and existing under the
laws of Japan; that it is not registered to do business in the Philippines as per certification issued by the
Securities and Exchange Commission dated February 10, 1998; and that on January 29, 1996 KCL entered
into an Equipment Lease Agreement with KPI, a domestic corporation, for the lease of certain equipment
to be used by KPI for its manufacturing operations for which KPI will pay a monthly rental to KCL as
stipulated in the Contract of Equipment Lease.
"Article 12
"(a) 15 per cent of the gross amount of the royalties if the royalties are paid in respect
broadcasting;
"(b) 25 per cent of the gross amount of the royalties in all other cases. cISAHT
"(3) Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the royalties,
industrial commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience." (Emphasis supplied)
"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
gross amount of royalties. However, Section 28(B)(4) of the Tax Code of as provides, viz:
"SEC. 28. Rates of Income Tax on Foreign Corporations. —
"xxx xxx xxx
"(B) Tax on Nonresident Foreign Corporations. —
"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." (Emphasis supplied)
In view thereof, this Office hereby rules that the rental payments to be made by Kanepackage
Philippines, Inc. to Kanepackage Co., Ltd., are subject to seven and one-half percent (7½%) tax rate on
gross rentals, the same not having exceeded the 25% rate imposed on the gross amount of royalties under
the RP-Japan Tax Treaty, contrary to your opinion that said rental payments are exempt from Philippine
income tax pursuant to Article 7 in relation to Art. 5 of the RP-Japan Tax Treaty. (UN 296-94, BIR Ruling
No. 078-97)
Moreover, the said rental payments to be made by KPI to KCL for the lease of equipment shall be
subject to the 10% value-added tax imposed under Section 108 of the Tax Code of 1997, based on the
contract price agreed upon by the parties. Your client, KPI, being the licensee shall be responsible for the
payment of VAT on such rentals on behalf of KCL by filing a separate VAT declaration/return using BIR
Form No. 1600. The said VAT declaration/return can be used by KPI as evidence in claiming input tax
credit. (Sec. 4.102-1(b), Revenue Regulations No. 7-95)
void.
Very truly yours,

Deputy Commissioner
October 20, 2000
VAT 143-90
World Health Organization

P.O. Box 2932, UN Avenue
1000 Manila
Attention: Mr. Peter R. King

Supply & Administrative Officer
Gentlemen :
This refers to your letter dated August 29, 2000 endorsed to this Office by the Department of
Finance (DOF), with favorable recommendation from the Department of Foreign Affairs (DFA),
requesting for exemption from the payment of value-added tax (VAT) and ad valorem tax on the purchase
of a locally produced 1999 Express Black Toyota Camry GX with chassis no. 53SK20-07000456, and
engine no. 5S-4343023, for the official use of your Regional Office in Manila.
In reply, please be informed that Article IV, Section 12 of the Host Agreement between the
Republic of the Philippines and the World Health Organization (WHO) provides, viz:
"Section 12
While the Organization will not, as a general rule, in the case of minor purchases, claim
exemption from excise duties, and from taxes on the movable and immovable property which form
part of the price to be paid, nevertheless, when the Organization is making important purchases for
official use of property on which such duties and taxes have been charges or are chargeable, the
Government of the Republic of the Philippines shall make appropriate administrative arrangements
for the remission or return of the amount of duty or tax.
Moreover, the WHO, being one of the specialized agencies of the United Nations (UN), shall enjoy
the privileges and immunities contained in the Convention on the Privileges and Immunities of the
Specialized Agencies of the United Nations adopted by the General Assembly on November 21, 1947 to
which the Philippines is a member. Such privileges and immunities also include the exemption from
taxation. (Article III Sections 9 & 10, Convention on the Privileges and Immunities of the United Nations)
Such being the case, your request is hereby granted. The World Health Organization is entitled to
exemption from VAT and ad valorem tax on the purchase of a 1999 Express Black Toyota Camry GX
with chassis no. 53SK20-07000456, and engine no. 5S-4343023, for official use of its Regional Office in
Manila. This tax exemption privilege is granted in lieu of the remission or return of the amount of tax due.
EaCDAT
It is hereby understood that this exemption applies only to vehicles purchased under the name of the
World Health Organization.
Very truly yours,

By:

Deputy Commissioner
October 19, 2000
RP-Singapore, Art. 13
NIRC Sec. 28 (b) (5) (c)
ITAD 40-00
Romulo, Mabanta, Buenaventura

Sayoc & De Los Angeles
30th Floor, Citibank Plaza
8741 Paseo de Roxas, Makati
Attention: Priscilla B. Valer

Jayson L. Fernandez
Gentlemen :
This refers to your tax treaty relief application dated May, 26, 2000, on behalf of IONA
Investments, Pte Ltd (IONA), requesting confirmation of your opinion that the sale by IONA of its shares
of stock in Macondray & Co. Inc. to MCI Inc. (MCI) is exempt from capital gains tax imposed under
Section 28(b)(5)(C) of the Tax Code of 1997 pursuant to Article 13 of the RP-Singapore Tax Treaty. DHaECI
It is represented that IONA is a nonresident foreign corporation duly organized and existing under
the laws of Singapore with principal address at 250 North Bridge Road, #38-00 Raffles City Tower,
Singapore; that it is not registered as a corporation or partnership and is not licensed to do business in the
Philippine as per certification dated May 22, 2000 issued by the Securities and Exchange Commission;
that MCI is a nonresident foreign corporation organized and existing under the Laws of the British Virgin
Islands with registered office address at Tropic Isle Building, P.O. Box 438, Road Town Tortola, British
Island; that Macondray & Co. is a domestic corporation duly organized and existing under Philippine
laws; that IONA is the stockholder of record of Eighty one million five hundred thirty five thousand five
hundred thirty (81,535,530) shares of stock with a par value of P1.00 per share and
subscription/acquisition price of P11.77 per share of Macondray & Co. (the "subject shares"); that on May
28, 1999, IONA agreed to sell its 81,535,530 shares of stock to MCI with the "subject shares" at a price of
P14.5754 per share with an aggregate total amount of P1,188,412,963.96.
In reply, please be informed that Article 13(3) of the RP-Singapore Tax Treaty provides that:
"Article 13
"xxx xxx xxx
from the alienation of an interest in partnership or a trust, the property of which consists principally of
immovable property situated in a Contracting State, may be taxed in that State.
xxx xxx xxx"
In the instant case, the gains which shall be realized by IONA from the transfer of its shares of
stock in Macondray & Co. Inc. to MCI shall be taxable only in Singapore. However, under the aforequoted
provision, the Philippines may tax the gains derived from the disposition of interest in a corporation if its
entire assets consist principally of real property interest located in the Philippines. "Real Property Interest"
however, exclusive of others that are similarly situated. As used in the treaties and in the Regulations, it
"Principally" means more than 50% of the entire assets in terms of value. (Sec. (a) and (b), Revenue
Verification of the Audited Financial Statement of Macondray & Co., disclosed that its net property
and equipment located in the Philippine are valued at P3.892M in 1999 and P6.632M in 1998,
representing less than fifty percent (50%) of its total assets of P6.331B and P3.229B, respectively, thereby
making the assets of Macondray & Co. not consisted principally of real property interest located in the
Philippines. Hence, the gain from sale of 81,535,530 shares of stock of IONA to MCI not taxable in the
Philippines. (BIR Ruling No. ITAD 40-00) HDacIT
Accordingly, the sale by IONA of its shares of stock in Macondray & Co. Inc. to MCI is exempt
from capital gains tax imposed under Section 28(b)(5)(C) of the Tax Code of 1997 pursuant to Article
13(3) of the RP-Singapore Tax Treaty. However, the Deed of Assignment of Shares shall be subject to the
documentary stamp tax imposed under Section 176 of the Tax Code of 1997.
This ruling is being issued on the basis of the foregoing representations. However, if upon
investigation it will be disclosed or discovered that the facts are different, then this ruling shall be
considered null and void. DHcTaE
Very truly yours,

By:

Deputy Commissioner
October 19, 2000
RP-UK Article 12
NIRC Sec. 127
139-98
ITAD 17-99

6760 Ayala Avenue
1226 Makati City
Attention: J . A. Osana
Tax Division
Gentlemen :
This refers to your letter dated September 1, 2000 requesting confirmation of your opinion that the
sale of shares of stock of Pilipinas Shell Petroleum Corporation (PSPC) by Shell Petroleum Corporation
(SPCO) is exempt from the stock transaction tax imposed under Section 127 (A) of the Tax Code. DHacTC
It is represented that SPCO is a corporation duly organized and existing under the laws of United
Kingdom, with office address at Shell Center London, SEI 7NA; that it is not registered as a corporation or
partnership licensed to do business in the Philippines, as per certification dated May 31, 2000 issued by
the Securities and Exchange Commission; that PSPC is a corporation duly organized and existing under
the laws of the Philippines; that SPCO was the registered owner of Four Hundred Sixty Three Million
Nine Hundred Eighty Eight Thousand Nine Hundred Ninety Eight (463,988,998) shares in PSPC,
including seven (7) shares in the name of nominees, with a par value of P1.00 per share, with an aggregate
value of Four Hundred Sixty Three Million Nine Hundred Eighty Eight Thousand Nine Hundred Ninety
Eight pesos (P463,988,998); that PSPC is required to offer at least ten percent (10%) of its common stock
to the public by virtue of the Republic Act No. 8479, Section 22, otherwise known as the Downstream Oil
Industry Deregulation Act. of 1998; and that in compliance thereof, PSPC is planning to sell its common
shares of stocks with a par value of P1.00 per share, either, by primary offering (involving unissued
common shares of stock) or by secondary offering (involving outstanding common shares of stock).
In BIR Ruling No. ITAD-113-00, it was held that the gains derived by SPCO, which is a resident of
the United Kingdom (UK), from the assignment of its shares of stock in PSPC are not subject to the capital
gains tax imposed under Section 28 (B)(5)(c) of the Tax Code of 1997, but are subject to tax only in UK
based on the provision of Article 12(4) of the RP-UK tax treaty. In your September 1, 2000 letter, you are
seeking amendment of BIR Ruling No. ITAD-113-00 to further include your position that the sale of PSPC
shares of stock by SPCO is exempt from the ½ of 1% stock transaction tax imposed under Section 127 (A)
of the Tax Code of 1997.
In reply, please be informed of the following pertinent provisions:
Article 12(4) of the RP-United Kingdom Tax Treaty provides as follows:
"Article 12
xxx xxx xxx
paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the
alienator is a resident.
xxx xxx xxx"
Moreover, Section 127(A) of the 1997 Tax Code provides as follows:
"Section 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded
through the Local Stock Exchange or through Initial Public Offering.
(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local
Stock Exchange. — There shall be levied, assessed and collected on every sale, barter, exchange or
other disposition of shares of stock listed and traded through the local stock exchange other than the
sale by a dealer in securities, a tax at the rate of one-half of one percent (½ of 1%) of the gross selling
price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed
which shall be paid by the seller or transferor. HTCaAD
(B) . . ."
Such being the case, your opinion is hereby confirmed. Notwithstanding the re-classification of the
tax on the sale, barter or exchange of shares of stock listed and traded through the local stock exchange
from Title II (Tax on Income) to Title V of the 1997 Tax Code, income therefrom is still covered by the
provisions of tax treaties which grant to residents of treaty countries tax exemption on capital gains from
the sale of shares of stock in domestic corporation (BIR Ruling No. 139-98). Thus, the reclassification of
the tax on the sale, barter or exchange of shares of stock listed and traded through the stock exchange as
percentage tax under Section 127(A) of the Tax Code of 1997 does not remove the sale, barter or
exchange from the coverage of the provisions of Article 2 paragraph 2 of the RP-United Kingdom tax
treaty, which provides as follows:
"2. This Convention shall also apply to any identical or substantially similar taxes which are
imposed by either Contracting State after the date of signature of this Convention in addition to, or in
place of, the existing taxes. The Contracting States shall notify each other of the changes which have
been made to their respective taxation laws."
Accordingly, aside from the gains derived by SPCO, a resident of UK, from the assignment of its
shares of stock in PSPC which are not subject to the capital gains tax imposed under Section 28(B)(5)(c)
of the 1997 Tax Code but are subject to tax only in UK, the sale of PSPC shares of stock by SPCO is
likewise exempt from the ½ of 1% stock transaction tax imposed under Section 127(A) of the Tax Code of
1997. (BIR Ruling No. 139-98 dated September 28, 1998 and ITAD 17-99 dated August 10, 1999)
Moreover, notwithstanding this exemption, the sale of shares of stock is subject to the documentary
stamp tax in accordance with Section 176 of the Tax Code of 1997.
it will be disclosed that the facts are different, then this ruling shall be rendered null and void.
Very truly yours,

By:

Deputy Commissioner
October 17, 2000
Article 12, RP-UK Tax Treaty

Section 176, Tax Code of 1997
44-00 BIR Ruling No. ITAD-145-00
Cable and Wireless plc

Telecoms Plaza
316 Sen. Gil J. Puyat Avenue
Attention: Mr. Brian Holbutt
Gentlemen :
This refers to your tax treaty relief application dated June 30, 2000 requesting confirmation that the
gain derived by Cable and Wireless plc-UK (C&W UK) from its sale of shares of stocks in Eastern
Telecommunication Philippines, Inc. (ETPI) to a domestic company are exempt from Philippine income
tax pursuant to the RP-UK Tax Treaty.
It is represented that C&W UK is a corporation duly organized and existing under the laws of
United Kingdom, with office address at 124 Theobalds Road, London, United Kingdom; that C&W UK
has a Philippine branch Cable and Wireless plc-Philippines (C&W Phil) which was organized on June 26,
1978 as per Certificate issued by the Securities and Exchange Commission to engage in providing
technological, operational and management assistance-to Philippine entities in which C&W UK or any of
its subsidiaries has an equity investment; that C&W UK was the registered owner of Ten Million Four
Hundred Thousand (10,400,000) shares of the capital stock issued by ETPI; that C&W UK intends to sell
such shares to a domestic company; that ETPI is a corporation duly organized and existing under the laws
of the Philippines with office address at 7th Floor, Telecoms Plaza, 316 Gil Puyat Avenue, Makati City;
that notwithstanding the existence of the C&W Phil, C&W UK invested in the shares of stocks of ETPI
independently of the branch and that the branch did not have any participation in the transaction.
In reply, please be informed that Article 12 of the RP-UK Tax Treaty provides as follows:
"Article 12
Gain from the Alienation of Property
1. Capital 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. DHECac
2. Capital 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 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) of this Article, capital gains derived by a
resident of a Contracting State from the alienation of ships and aircraft operated in international
traffic and movable property pertaining to the operation of such ships and aircraft shall be taxable
only in that Contracting State.
xxx xxx xxx"
The situation of a parent company entering into a transaction without the participation of its branch
was recognized by the Supreme Court in the case of Marubeni Corporation vs. Court of Tax Appeals
(G.R. No. 76573 dated September 14, 1989). In said case, the Supreme Court ruled that:
"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)
Similarly, when C&W UK sells the ETPI shares of stock in its own name and independently of its
Philippine branch, such transaction is that of C&W UK and should not be attributed to its branch C&W
Phil but to C&W UK alone.
Applying the foregoing provision, the capital gains from the alienation of any property other than
those mentioned in paragraphs 1, 2 and 3 of Article 12 shall be taxable only in the State where the
alienator is a resident. Therefore, the gains derived by C&W UK, a resident of the United Kingdom (UK),
from its sale of shares of stock in ETPI are not subject to the capital gains tax imposed under Section 28
(B)(5)(c) of the 1997 Tax Code. (ITAD Ruling 44-00)
However, Section 176 of the National Internal Revenue Code of 1997 (Tax Code) provides that the
corresponding documentary stamp taxes shall be levied, collected and paid, for and in respect of the
transactions so had or accomplished, by the person making, signing, issuing, accepting, or transferring the
document, instrument or paper wherever the same is made, signed, issued, accepted or transferred when
the obligation or right arises from Philippine sources or the property is situated in the Philippines. Thus,
the burden of paying the documentary stamp tax is placed upon the parties to the contract and leaves the
tax to be paid indifferently by either party, and accordingly, the party assuming payment of said tax under
the contract becomes directly liable therefor. Should the said tax is not paid, both parties to the contract
may be made liable to the tax.
Moreover, a certificate of authority to register the said transaction in the books of ETPI must be
secured. Thus, C&W UK, being a nonresident foreign corporation, is required to file, although not
required to pay the capital gains tax, a Capital Gains Tax Return (BIR Form No. 1707) accompanied by
copies of the Deed of Assignment and this ruling, with Revenue District Office No. 39 - South Quezon
City (RDO 39), so that the latter may issue a Certificate Authorizing Registration (CAR) of the said shares
of stock in favor of the domestic company.
Upon presentment of proof of payment of the documentary stamp tax, the Corporate Secretary of
ETPI can register in the Stock and Transfer Book the shares bought by the domestic company from the
C&W UK.
it will be disclosed that the facts are different, then this ruling shall be considered null and void. aEcDTC
Very truly yours,
By:

Deputy Commissioner
September 28, 2000
RP-Singapore Article 5 & 7

ITAD No. 100-00
BIR Ruling No. ITAD 144-00
Luxasia Incorporated
16th Floor PCIB Tower 2
Attention: Mr. Jose F . Montana

Finance & Administration Manager
Gentlemen :
This refers to your letter dated July 21, 2000 requesting confirmation of your opinion that the
management and consultancy service by Singabell Pte. Ltd. (Singabell) to Luxasia Inc. (Luxasia) is
exempt from Philippine income tax pursuant to the RP-Singapore Tax Treaty.
It is represented that Singabell is a non-resident corporation duly organized under the laws of
Singapore with official address at 13 Tai Seeing Drive, Singapore; that it is not registered as a corporation
or partnership licensed to do business in the Philippines as per certification dated June 13, 2000 issued by
the Securities and Exchange Commission; that on the 2nd day of December 1998, Singabell, as
represented by Mr. Patrick Chong, entered into a Management Service Agreement with Luxasia, a
corporation organized and existing under the laws of the Philippines with office address at 16th Floor
PCIB Tower 2, Makati Avenue, Makati City which is engaged in selling imported products such as Calvin
Klein, Davidoff, Issey Miyake, Jean Paul Gaultier, Bvlgari, Salvatore Ferragamo, Moschino, Dolce &
Gabbana and Tiffany; that Luxasia shall pay Singabell management fee in the amount of 12.5% of net
sales less VAT; and that as per Luxasia's certification, Mr. Patrick Chong of Singabell rendered said
management and consultancy services for a period of nine (9) days during the taxable year 1999.
In reply, please be informed that Article 7(1) in relation to Article 5(1) and (2)(j) of the
RP-Singapore tax treaty provides:
"Article 7
"Business Profits
profits on the enterprise may be taxed in the other State but only so much of them is attributable to
Moreover, paragraphs (1) and (2)(j) of Article 5 of the aforesaid treaty provide, viz:
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 the enterprise is wholly or partly carried on. TAacIE
(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 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 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, the management and consultancy services rendered by Singabell in the
Philippines through its representative, Mr. Patrick Chiong, cannot qualify to constitute a permanent
establishment for Singabell, the same not having exceeded the aggregate period of 183 days provided in
the RP-Singapore tax treaty. Thus, the management and consultancy fees paid by Luxasia to Singabell
under their Management Service Agreement are not subject to Philippine income tax.
However, the fees paid by Luxasia to Singabell for the management and consultancy service
rendered in the Philippines are subject to the 10% value-added tax pursuant to Sec. 108 of the Tax Code.
Accordingly, Luxasia shall be responsible for the payment of VAT on the said services on behalf of
Singabell by filing a separate VAT declaration/return using BIR Form 1600 and the said VAT
declaration/return can be used by Luxasia as evidence in claiming input tax credit. (Sec. 4.102-1 (b).
Revenue Regulations No. 7-95 [ITAD Ruling 100-00].
void.
Very truly yours,

By:

Deputy Commissioner
September 28, 2000
RP-Japan Article 10 ITAD 90-0 BIR Ruling No. ITAD

143-00
Precision Springs Cebu, Inc.

PEZA-Mactan, Pusok, Lapu-Lapu City
Mactan Island, Cebu Philippines
Attention: Edna L. Flores

Accounting Manager
Gentlemen :
This refers to your application for relief from double taxation dated June 27, 2000 on dividend
payment pursuant to Article 10 of the RP-Japan Tax Treaty.
It is represented that Precision Spring Co., Ltd. (Precision Japan), is a non-resident foreign
corporation organized and existing under the laws of Japan, with head office at Ichikawa City, Chiba
Prefecture, Japan; that it is not licensed to do business in the Philippines as per certification dated May 25,
1999 issued by the Securities and Exchange Commission; that Precision Springs Cebu, Inc. (Precision
Cebu) is a non-pioneer PEZA-registered enterprise operating in Mactan, Lapu-Lapu City, Cebu; that as of
March 31, 1999 to March 31, 2000 Precision Japan owns 99.99% of the shares of Precision Cebu
amounting to Twenty Three Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Five
Pesos (23,999,995.00); that on March 20, 2000 Precision Cebu's Board of Directors declared cash
dividends to be taken from retained earning as of March 31, 1999 amounting to Thirteen Million Pesos
(PhP13,000,000.00) as evidenced by the Secretary's Certificate dated June 26, 2000 and Board Resolution
dated March 21, 2000.
"ARTICLE 10
"Dividends

b) 25 per cent of the gross amount of the dividends in all other cases.
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,
making the distribution is a resident. TcSCEa
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 Japan at a rate not exceeding 10 percent if the last-mentioned
company holds directly at least 25 percent either of the voting shares or of the total shares of the
first-mentioned company for a period of six months immediately preceding the date of payment of the
dividends.
In view of the foregoing, since Precision Japan owns more than 25% of the stocks of Precision
Cebu, the cash dividends payable by Precision Cebu to Precision Japan are subject to 10% withholding
tax. (BIR Ruling No. ITAD 90-00)
Very truly yours,

By:

Deputy Commissioner
September 21, 2000
RP-US Art. 13,

RP-Japan Art. 12 & Art. 23
Balane, Tamase Alampay Law Office

12th Floor, PDCP Bank Centre,
corner Herrera and Alfaro Streets
Salcedo Village, 1277
City of Makati
Attention: Atty. Jose Maria A. Ochave

Tax Division
Gentlemen :
This refers to your letter dated June 2, 1999 applying on behalf of your client, CENTER FOR
LEADERSHIP AND CHANGE, INC., the local licensee and withholding agent of FRANKLIN COVEY
CO. (then known as the Covey Leadership Center, Inc.), for a preferential tax treaty rate on royalties
pursuant to Article 13 of the RP-US Tax Treaty in relation to the 10% rate on royalties provided for under
the RP-Japan Tax Treaty.
It is represented that Franklin Covey Co. is a non-resident foreign corporation organized and
existing under and by virtue of the laws of the State of Utah, U.S.A.; that it has no permanent
establishment in the Philippines as evidenced by the certificate issued by the Securities and Exchange
Commission dated July 26, 1999; that under the Exclusive International License and Distribution
Agreement between your client and Franklin Covey Co., your client was granted the right to use, promote
and market several Covey programs and products in the Philippines; that foremost among these programs
are The Seven Habits Training Program and the First Things First Training Program, which are video
assisted programs developed by Covey for use in providing leadership, management and effectiveness
training to interested persons; that to enable your client to conduct these training programs, Franklin
Covey Co. authorized your client to distribute training manuals and resource guides for facilitators and
participants thereof; that in exchange for the license, your client agreed to pay Franklin Covey Co.,
royalties equivalent to Fifteen percent (15%) of all gross revenues resulting from the marketing of the
Covey programs by your client.
In reply thereto, please be informed that Article 13 of the RP-US Treaty provides as follows:
"Article 13
"(1) Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting States may be taxed by both Contracting States.
(a) In the case of the United States, 15 percent of the gross amount of the royalties,
and
(b) In case of the Philippines, the least of:
(i) 25 percent of the gross amount of the royalties,
(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
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. (emphasis ours)
"(4) . . .
"(5) . . ."
On the other hand, Article 12 of the RP-Japan Tax Treaty provides, viz:
"Article 12
broadcasting;
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the royalties,
"(4) . . .
"(5) . . .
"(6) . . .
"(7) . . ."
The most favored nation clause provided for under paragraph (2)(b) subparagraph (iii) of Article 13
of the RP-US Treaty in relation to Article 12 paragraph 3 of the RP-Japan Tax Treaty providing for a 10%
withholding tax on royalties paid to a resident of Japan by a Philippine BOI registered pioneer enterprise is
not applicable. Clearly, the rate of 10% under the RP-Japan Tax Treaty applies only to those registered
with the Board of Investments and engaged in pioneer areas of investment under the investment laws of
the Philippines. Your client is not registered with the Board of Investments. Further, such rate is applicable
only for royalties "paid under similar circumstances" (Commissioner of Internal Revenue vs. S.C. Johnson
and Son Inc., and Court of Appeals, G.R. No. 127105). Under the RP-Japan Tax Treaty (Article 23,
paragraph 3), there is a matching credit of 15% of the gross amount of the royalties while under the RP-US
Tax Treaty there is no similar credit. aDHCcE
Article 23 paragraph 1 and 3 of the RP-Japan Tax Treaty provides:
"(1) Subject to the laws of Japan regarding the allowance as a credit against Japanese tax of
tax payable in any country other than Japan, Philippine tax payable in respect of income derived from
the Philippines shall be allowed as a credit against Japanese tax payable in respect of that income.
Where such income is a dividend paid by a company which is a resident of the Philippines to a
company which is a resident of Japan and which owns not less than 25 per cent either of the voting
shares of the company paying the dividend or of the total shares issued by that company, the credit
shall take into account Philippine tax payable by the company paying the dividend in respect of its
income.
"(2) . . .
"(3) For the purposes of the credit referred to in the first sentence of paragraph (1),
Philippines tax shall always be considered as having been paid at the rate of 20 peer cent in the case
of dividends to which the provisions of paragraph (3) of Article 19 apply, and at the rate of 15 per
cent in the case on interest to which the provisions of paragraph (2)(a) or (3) of Article 11 apply, and
in the case of royalties to which the provisions of paragraph (3) of Article 12 apply."
Hence, based on the provisions of Article 13(2)(i) of the RP-US Tax Treaty, the royalty fee of 15%
on all gross revenues paid by CENTER FOR LEADERSHIP AND CHANGE, INC. to FRANKLIN
COVEY under their Exclusive International License and Distribution Agreement dated June 17, 1997 and
the Merger-Related Addendum to International License and Distribution Agreement dated January 1, 1998
is subject to withholding tax at the rate of 25%. STaIHc
However, inasmuch as you wish to avail of a preferential rate on royalties paid by your client by
virtue of the most favored nation clause of the RP-US Tax Treaty, please be informed that you may avail
of lower tax rates in other tax treaties which are more appropriate under the circumstances.
In addition to the foregoing, please note that the royalty payments remitted by your client to
Franklin Covey is subject to the ten percent (10%) value-added tax (VAT) pursuant to Section 108(A)(1)
and (3) of the Tax Code and that your client, Center For Leadership And Change, Inc., shall, before
making payment of royalties to Franklin Covey, withhold and remit to this Bureau the said 10% VAT due
thereon, by filing a separate VAT return using BIR Form 1600. The duly validated VAT declaration/return
is sufficient evidence for your client in claiming input tax credit.(Section 4.110-3(b) of Revenue
Regulations No. 7-95);
Very truly yours,

Commissioner
September 19, 2000
Arts. 12 & 15 UP-Netherlands

Secs. 25 (A) & 1080 (A) (3) NIRC
45-99 38-97

14th Floor, Multinational Bancorporation Centre

Gentlemen :
This refers to your letter dated June 29, 2000 requesting confirmation of your opinion that fees to
be paid by Robinsons Savings Bank (RSB) to Silverlake Netherlands B.V. (Silverlake) under a licensing
agreement are royalties subject to the preferential tax rate of fifteen percent (15%) pursuant to Article
12(2)(b) (Royalties) of the RP-Netherlands Tax Treaty.
It is represented that Silverlake is a company organized and existing under the laws of the
Netherlands with principal office at Officia I, De Boelelaan 7, 1083 HJ Amsterdam, 1008 DE Amsterdam,
the Netherlands; that it is not registered as a corporation or partnership in the Philippines as per
certification issued by the Securities and Exchange Commission dated May 11, 2000; that RSB is a
company organized and existing under the laws of the Philippines with principal office at Level 3,
Expansion Mall, Robinsons Galleria, Edsa corner Ortigas Avenue, Quezon City, Philippines; that on
August 18, 1999, a Software License Agreement (the Agreement) was entered into by and between RSB
and Silverlake; that the Agreement complies with the provisions of the Intellectual Property Code
(Republic Act No. 8293) on Voluntary Licensing as per Intellectual Property Office Certificate of
Compliance No. 5-2000-00046 dated June 26, 2000; that, under the Agreement, RSB agrees to obtain from
Silverlake the Banking Software Package (the Product) (together with manuals, specifications or other
documentation in any printed, machine readable or other form including but not limited to listings,
manuals and magnetic media) and Silverlake agrees to supply RSB the same; that, consequently, Silverlake
grants RSB a non-exclusive, non-transferable, perpetual license to use the Product solely in the
Philippines; that the Product, specifically, comprises the following software modules:
1. Silverlake Integrated Banking System (SIBS) Modules
a. Customer Information System
b. Demand Deposit System
c. Fixed Deposit System
d. Loans System
e. Remittance System
f. General Ledger System
2. Silverlake Branch Teller System (available up to branches including Head Office)
that, in addition to the Product, Silverlake agrees to deliver to RSB the following:
a. Year 2000 Compliance Letter specifying that the Product is Y2K Compliant, and that
the Product shall be replaced in case it is not Y2K Compliant; TECIaH
b. Testing scripts and a representative to assist RSS in checking the capability of the
Product to handle special dates and the transition from year 1999 to 2000 and beyond;
and
c. Board Resolution authorizing the execution and issuance of the documents referred to
in item (1) and indicating the authorized signatories with specimen signatures;
that, in consideration of the Product to be provided by Silverlake to RSB, RSB agrees to pay to Silverlake
the total sum of One Hundred and Ten Thousand United States Dollars (US$110,000.00) which shall be
inclusive of value-added tax (VAT); that payments shall be made by RSB to Silverlake as follows:
Every quarter for four (4) quarters US$21,390.00 per quarter
(April 5, 1999, July 5, 1999,
October 5, 1999, and January 5, 2000)
When RSB's assets hit 1.5 Billion Pesos US$12,220.00
When RSB's assets hit 2.0 Billion Pesos US$12,220.00
Based on the foregoing, it is your opinion that the license fees to be paid by RSB to Silverlake are
royalties and as such are subject to the preferential tax rate of 15 percent pursuant to Article 12(2)(b)
(Royalties) of the RP-Netherlands Tax Treaty, and that in addition thereto, the said royalties shall be
subject to the 10 percent VAT to be paid by RSB to the Bureau of Internal Revenue on behalf of
Silverlake.
In reply, please be informed that Article 12 Of the RP-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
shall not exceed:
a) 10 per cent of the gross amount of the royalties where the royalties are paid by an
b) 15 per cent 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
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 Netherlands
may be subject to Philippine income tax at a rate not to exceed 10 percent of the gross amount of the
royalties where such 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, where the recipient is the beneficial owner
of the royalties. TAacIE
Therefore, since the license fees to be paid by RSB to Silverlake 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, your opinion that the same are subject to the preferential tax rate of 15 percent of the gross amount
of royalties is hereby confirmed. (BIR Ruling Nos. 45-99 and 38-97)
Moreover, paragraph 2, Article 15 (Dependent Personal Services) of the same 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 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.
"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"
Thus, the salaries, wages or similar remuneration which a representative of Silverlake may derive in
rendering technical assistance to RSB in checking the capability of the Product to handle special dates and
transitions from year 1999 to 2000 and beyond, may be exempt from Philippine income tax if all the
conditions set forth in the foregoing Article are satisfied. Otherwise, the said income shall be subject to the
rate of tax provided for under Section 25(A) of the National Internal Revenue Code of 1997 on a
nonresident alien engaged in trade or business within the Philippines. (BIR Ruling Nos. 44-97 and 69-96)
Finally, the royalty payments of RSB to Silverlake are subject to 10 percent (10%) VAT imposed
under Section 108(A)(3) of the same Code based on the contract price. RSB shall be responsible for the
payment of VAT on the royalties on behalf of Silverlake by filing a separate VAT declaration/return using
BIR Form 1600. The duly validated VAT declaration/return is sufficient evidence in claiming input tax
credit. (Section 4.102-1(b) of Revenue Regulations No. 7-95)
void. EaISTD
Very truly yours,

By:

Deputy Commissioner
September 19, 2000
Articles 5 & 8, RP-Singapore Tax Treaty

Section 34 (A) (1) (a), Tax Code of 1997
110-90

6805 Ayala Avenue 1226 Makati City
Attention: Mary Assumption S. Bautista

Principal
Gentlemen :
This refers to your application for relief from double taxation dated April 11, 2000, on behalf of
your client, MONTGOMERY WATSON NEW ZEALAND LIMITED (MWNZ), requesting confirmation
of your opinion that the charges to be paid by MWNZ for the services rendered by MONTGOMERY
WATSON AMERICAS, INC. (MWAI) are not subject to income tax, and that said charges are deductible
business expenses of MWNZ, pursuant to the RP-US Tax Treaty and the National Internal Revenue Code
(Tax Code) of 1997.
It is represented that MWNZ is a foreign corporation organized and existing under the laws of New
Zealand; that it was authorized by the Securities and Exchange Commission on February 5, 1998 to
establish a branch office in the Philippines (herein referred to as "the Branch") engaged in the business of
providing construction, planning, and design of project delivery systems, operations management, and
effective/innovative solutions to problems relating to water, wastewater, industrial treatment, drainage,
flood control, dam, reservoir and other infrastructure development, taking into account the need to protect,
conserve and preserve the land, water and air surroundings, among others; that MWAI is a corporation
organized under the laws of the State of California, United States of America (USA), with no permanent
establishment in the Philippines, as per certification dated August 5, 1999 issued by the Securities and
Exchange Commission; that a subcontractor agreement was entered into by and between the Branch and
MWAI, whereby MWAI shall provide assistance to the Branch with the design and planning of a water
supply and infrastructure program relative to the Interim Services Contract with Maynilad Water Services
Inc.; that the said services shall be performed by MWAI mostly in the USA, and in case the work is to be
done in the Philippines, the stay of the MWAI's employees shall not exceed 183 days for the entire
duration of the project; and that in consideration for services rendered, MWAI shall charge MWNZ for the
former's employees time at standard hourly rates and invoiced monthly for the total hours loaned in US
dollars. HSDCTA
"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."
Moreover, Article 5 (1) and (2) of the same treaty provides, viz;
"Article 5
(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 in a trade or
business.
(2) The term 'fixed place of business' includes but is not limited to:
(b) A branch;
(c) An office;
(e) A factory;
(f) A workshop;
(g) A warehouse;
(h) A mine quarry or other place of extraction of natural resources;

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

or periods aggregating more than 183 days."
Considering that the services to be performed by MWAI's personnel under the said Subcontractor
Agreement will be performed mostly in the USA, and should it be performed in the Philippines, the same
shall not exceed an aggregate period of 183 days, MWAI does not have a permanent establishment in the
Philippines to which the fees or income could be attributable.
Such being the case, the amounts to be paid by the Branch are not subject to Philippine income tax
and consequently to the withholding tax prescribed under Section 28(B)(1) in relation to Section 57(A) of
the Tax Code of 1997. (BIR Ruling No. 110-90)
Furthermore, Section 34 (A)(1)(a) of the same Code provides that there shall be allowed as
deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable
year in carrying on, or which are directly attributable to, the development, management, operation and/or
conduct of the trade, business or exercise of profession.
Since the payments of the Branch to MWAI are "directly attributable to the conduct of trade or
business" of MWNZ in connection with its contract with Maynilad Water Services Inc. relative to the said
Interim Services Contract, the same may be claimed as deductible expenses of the Branch.
disclosed that the said facts are different, then this ruling shall be considered null and void. LexLib
Very truly yours,
By:

Deputy Commissioner
September 19, 2000
RP-US
RP-Russia
ITAD #121-00

6760 Ayala Avenue, 1226 Makati City
Attention: R.M.C. Vinzon

Tax Division
Gentlemen :
This refers to your application for tax treaty relief dated February 17, 2000 requesting, on behalf of
Hitec Park Inc. (HITEC), confirmation of your opinion that payment of royalties to Hitec Radio Control
USA Inc. (RCD) will be subject to the preferential tax rate of 15% citing the "most favored nation" clause
of the RP-US Tax Treaty in relation to the RP-Russia Tax Treaty.
It is represented that RCD is a non-resident foreign corporation duly organized and existing: under
the laws of California with principal office located at 10729 Wheatlands Avenue, Suite C, Santee, CA
90271 USA; that it is not registered as a corporation/partnership in the Philippines, as per certification
dated February 24, 2000 issued by the Securities and Exchange Commission; that HITEC is a PEZA
registered corporation with Certificate of Registration No. 96-082 dated July 3, 1996, organized and
existing under the laws of the Philippines with principal office located at Bldg. 2D, Gabriel Industry
Complex, Block 23, Phase 4, CEPZ, Rosario Cavite, Philippines; that HITEC entered into a Royalty
Agreement with RCD dated January 5, 1999; that RCD granted HITEC the use of trademark on all
products manufactured and exported in accordance with the provisions of the Agreement; that HITEC
agreed to pay royalty at six percent (6%) of the FOB Philippines amount of the sales of products bearing
the name of "RCD"; that the royalty will be based on gross sales and will not be affected whether the sales
proceeds were collected or not; that royalty shall be tabulated at the end of every quarter, namely March
31, June 30, September 30, December 31 of each year; and that the royalty payment shall be remitted to
the grantor's designated bank account within 45 days from the end of each quarter.
In reply, please be informed that Article 13 of the RP-US Tax Treaty provides, viz:
"ARTICLE 13
1. Royalties derived by a resident of one of the Contracting States from sources within the
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 HCATEa
b.) In the case of the Philippines the least of:
(i) 25 per cent of the gross amount of the royalties,
(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"
The "most favored nation" clause under Article 13 (2)(b)(iii) of the RP-US Tax Treaty calls for the
application of Article 12 of the RP-Russia Tax Treaty which provides:
"Article 12
1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
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
xxx xxx xxx"
In view of the aforecited provisions and as it appears that the lowest rate of Philippine tax imposed
on royalties of the same kind paid under similar circumstances is that provided under the RP-Russia Tax
Treaty, we hereby confirm your opinion that the payment of royalties by HITEC to RDC is subject to
fifteen percent (15%) tax rate. The said tax rate shall be withheld and paid under similar circumstances as
provided in the RP-US Tax Treaty.(BIR Ruling ITAD No. 121-00)
disclosed that the said facts are different, then this ruling shall be considered null and void.
Very truly yours,

By:

Deputy Commissioner
September 19, 2000
RP-Malaysia Art. 11 (2)

142-95 029-99

Attention: Atty. Tomasa H. Lipana

Managing Partner
Gentlemen :
This refers to your letter dated February 6, 2000, re-applying for the availment of the preferential
tax rate of 15% to be withheld from the interest payments and remittances of your client, Integrated
Device Technology (Phils.), Inc. (IDT-Philippines) to Integrated Device Technology, Inc. Malaysia Sdn
(IDT-Malaysia) pursuant to Article 11 (2) of the RP- Malaysia Tax Treaty.
It is represented that IDT-Philippines is a domestic corporation organized and existing under the
laws of the Philippines with business address at Carmelray Industrial Park, Canlubang, Laguna; that
IDT-Malaysia is a non-resident foreign corporation organized and existing under the laws of Malaysia
with address at Phase 3, Bayan Lepus Free Industrial Zone, 11900 Penang, Malaysia; that it is not licensed
to do business in the Philippines as evidenced by a Certification of Non-registration issued by Securities
and Exchange Commission dated December 20, 1999; that as of October 31, 1998, IDT-Philippines had
obtained loans from IDT-Malaysia in the aggregate amount of Nine Million Four Hundred Eighty Four
Thousand U.S. Dollars (US$9,484,000.00); that it obtained additional loans in the succeeding months thus
increasing the loan to Fifteen Million Nine Hundred Eighty Four Thousand U.S. Dollars
(US$15,984,000.00); that the loans are covered by promissory notes each of which has a term of one year
with repayment to commence on April 2, 1999; and that some of these loans were in turn
amended/replaced by succeeding promissory notes extending the period of repayment and increasing the
amount of interest to be paid.
In reply, please be informed that Article 11 (2) of the RP-Malaysia Tax Treaty provides as follows:
"Article 11
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 15 per cent of the gross amount of interest.
xxx xxx xxx
6. 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 according to the taxation laws of the Contracting state in which the income arises."
Considering that the recipient, IDT-Malaysia, is the beneficial owner of interest arising in the
Philippines, the interest payments made by IDT-Philippines are subject to the Philippine tax at the rate of
15% of the gross amount of interest. However, the Loan Agreement executed by and between them shall
be subjected to the documentary stamp tax imposed under Section 180 of the Tax Code of 1997. (BIR
Rulings 142-95 & 029-99).
void.
Very truly yours,

By:

Deputy Commissioner
September 19, 2000
SHI Designing and Manufacturing , Inc.

4th & 5th Floors, FEMS Tower One
1289 Zobel Roxas Avenue, Manila
Attention: Masao Yokoo

President & CEO
Gentlemen :
This refers to your letter dated July 20, 2000 (Ref. No. L-2000-0603) requesting for tax treaty relief
with regard to a cash dividend declared by SHI Designing & Manufacturing, Inc. (SDMI) in favor of
Sumitomo Heavy Industries, LTd. (SHI) pursuant to Article 10(2) and (3) of the RP-Japan Tax Treaty.
It is represented that SHI is a corporation formed and organized under the laws of Japan with head
office address at 9-11, Kitashinagawa 5-Chome, Shinagawa-ku, Tokyo 141, Japan; that SHI has no branch
or permanent establishment in the Philippines as evidenced by the Certificate of Non-Registration of
Corporation issued by the Securities and Exchange Commission on July 12, 2000; that SHI holds 99.99%
of the total shares issued by SDMI; that SDMI is a domestic corporation formed and organized under the
laws of the Philippines with office address at 4th Floor, FEMS Tower One, 1289 Zobel Roxas Avenue,
corner South Superhighway, Manila; that SDMI is a BOI-registered enterprise on a preferred pioneer
status per certification dated February 2, 1990 issued by the Board of Investment; and that on May 12,
2000 SDMI declared a cash dividend for the year ending December 31, 1999.
"Article 10
"(1) Dividends paid by a company which is a resident of a Contracting State to a resident of

"(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 the Contracting State, but if
(b) 25 per cent of the gross amount of the dividends in all other cases.
Philippines on the dividends 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
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,
xxx xxx xxx
In view of the foregoing, the preferential rate to be withheld by SDMI on its dividend remittances to
SHI is ten per cent (10%) considering that SHI holds ninety nine and 99/100 per cent (99.99%) of the total
shares of SDMI, outstanding and entitled to vote, and that SDMI is a BOI-registered engaged in preferred
pioneer areas of investment.
void. THAECc
Very truly yours,

By:

Deputy Commissioner
(Legal and Inspection Group)
September 19, 2000
RP-US Article 14 Reservation Clause

ITAD 12-00
Quisumbing Torres
11/F Pacific Star Building,
Makati Avenue corner Sen. Gil Puyat Avenue,
Makati City 1200
Attention: Atty. Shennan A. Sy
Gentlemen :
This refers to your letter dated October 7, 1999 on behalf of your client, Yazaki North America,
Inc. (Yazaki), applying for tax treaty relief for the exemption of any gain that may be derived from the sale
of its shares in YTM Component, Inc. (YTM) to Yazaki Corporation (Yazaki Corp.) and Mr. Feliciano L.
Torres (Mr. Torres) pursuant to the provisions of Article 14, paragraph (2) of the RP-US Tax Treaty.
It is represented that Yazaki is a non-resident foreign corporation organized and existing under the
laws of the State of Delaware, United States of America; that Yazaki has not, at any time, engaged in any
trade or business in the Philippines; that Yazaki is not registered as a partnership or as a corporation as per
certification issued by the Securities and Exchange Commission dated February 24, 1999; that Yazaki has
no permanent establishment in the Philippines; that YTM is a corporation duly organized and existing
under the laws of the Philippines; that Yazaki currently owns 74,554 shares of the issued and outstanding
capital stock of YTM, constituting approximately 63.22% of the issued and outstanding shares of YTM;
that Yazaki intends to divest itself of its shareholdings in YTM; that to implement this, Yazaki and Yazaki
Corp. executed, on August 2, 1999, a Deed of Assignment where in consideration for P67,858,571, the
former transferred to the latter 49,154 shares of YTM; that in addition, Yazaki and Mr. Torres also
executed, on August 30, 1999, a Deed of Assignment where, in consideration for P35,065,462, Yazaki
transferred to Mr. Torres 25,400 shares of YTM; and that as a result of the 2 transactions, Yazaki will
completely divest itself of its shareholdings in YTM.
In reply, please be informed that Article 14 of the RP-US Tax Treaty states:
"ARTICLE 14
"(1) Gains from the alienation of tangible personal (movable) property forming part of the
independent personal 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 derived by a resident of a Contracting State from the alienation of
ships, aircraft or containers operated by such resident in international traffic shall be taxable only in
that State and gains described in Article 13 (Royalties) shall be taxable only in accordance with the
"(2) Gains from the alienation of any property other than those mentioned in paragraph (1) or
On the other hand, the first Reservation Clause of the RP-US Tax Treaty, in pertinent part,
provides:
consists principally of real property interest located in that country. Likewise, both countries may tax
gain from the disposition of an interest in a partnership, trust or estate to the extent that the gain is
attributable to a real property interest in one of the countries. The term "real property interest" is to
TcSCEa
Note that under the Reservation Clause, the Philippines may tax the gains derived from the
disposition of interests in a corporation if its assets consist principally of real property interest located in
the Philippines. "Principally" means more than 50% of the entire assets in terms of value (Sec. 2, Revenue
The value of the real property interest of YTM located in the Philippines as appearing in its
financial statements as of March 31, 1999 and its Detailed Description of Fixed Assets as of March 1999
is only 38% of the value of total assets, thereby making the assets of YTM not consisted principally of real
property interest located in the Philippines.
This being the case, gains derived by Yazaki as a result of its transaction with Yazaki Corp. on
August 2, 1999 and with Mr. Torres on August 30, 1999 from the sale of its shares of stock in YTM shall
be taxable only in the United States pursuant to the aforequoted provision of the RP-US Tax Treaty.
Accordingly, said gains will not be subject to Philippine income tax.
It must be emphasized, however, that the said transfer of shares of stock shall be subject to the
documentary stamp tax imposed under Sec. 176 of the Tax Code of 1997.
void.
Very truly yours,

By:

Deputy Commissioner
September 19, 2000
Section 106 Section 108 Section 149

ITAD No. 63-00
Embassy of Malaysia
107 Tordesillas Street,
Salcedo Village,
Makati City
Attention: Badrruddin Ab Rahman

Deputy Head of Mission/Head of Chancery
Gentlemen :
This refers to your Note No. BY 137/2000 dated August 7, 2000, which was referred to this Office
by the Department of Foreign Affairs (DFA), requesting for tax exemption on the purchase of one (1) unit
Honda Civic Vti A/T, 2000 Model with Engine No. P6FD6-P504059 and Chassis No.
PADEKI650YV204073, for the personal use of Miss Roslina Mat Dom, Administrative Assistant of the
Embassy of Malaysia to the Philippines. HCITAS
"ARTICLE 34
"A diplomatic agent shall be exempt, from all dues and taxes, personal or real, national,
services
"xxx xxx xxx"
value-added tax (VAT) and ad valorem tax on its local purchases of goods and services. In other words,
under Sections 106(A) and 108, and the ad valorem tax under Section 149, all of the National Internal
Revenue Code of 1997.
However, under the principle of reciprocity, this Office may grant exemption to the Embassy of
Malaysia or its personnel on their local purchases of goods and/or services it appearing from the list
submitted by the DFA dated June 2, 2000 that your Government allows similar exemption to Philippine
Embassy personnel on their purchase of goods and services in your country. (ITAD No. 63-00
dated-March 31, 2000)
Hence, the purchase of one (1) unit Honda Civic 1.6 Vti A/T 2000 Model, for the personal use of
Miss Roslina Mat Dom, Administrative Assistant of the Embassy of Malaysia to the Philippines, is exempt
from value-added and ad valorem taxes.
Very truly yours,

By:

Deputy Commissioner
September 19, 2000
RP-Germany, Art. 5 & 7

028-90
Punongbayan & Araullo

20th Floor, Tower I
The Enterprise Center
6766 Ayala Avenue
1200 Makati City
Attention: Vic C. Mamalateo
Tax Partner
Gentlemen :
This refers to your application for tax treaty relief dated June 28, 2000 on behalf of your client,
MaK MOTOREN GmbH Philippine Branch (MaK), relative to the proper tax treatment of the business
profits derived by Schaltanlagen-Elektronik-Gerate GmbH & Co. KG (SEG) pursuant to the RP-Germany
Tax Treaty.
It is represented that MaK is a foreign corporation organized under the laws of the Federal Republic
of Germany and licensed to engage in trade or business in the Philippines by the Securities and Exchange
Commission; that MaK is primarily engaged in the business of managing or acting as a managing agent of
entities within the areas of power generation and transmission and other systems thereof, whether
hydro-electric, nuclear or conventional, and to provide consulting services such as project management,
investment and technical advice for commercial, industrial, manufacturing and other kinds of enterprises
within the areas of power generation and transmission and other systems; that on February 4, 1999, MaK
entered into a service contract with CIP II Power Corporation, a domestic corporation organized and
existing under and by virtue of Philippine laws, for supervision of the installation and commissioning of
the electrical part of the Power Station CIP II; that the consideration for such agreement is DM
189,136.00; that MaK sub-contracted the project to SEG, a non-resident foreign corporation organized and
existing under the laws of the Federal Republic of Germany with business address at Krefelder Weg 47
D-47906, West Germany; that as a result of the sub-contract, SEG sent two supervisors to the project site
to do the technical inspection and supervision of the project; and that these personnel stayed in the
Philippines for less than six months at any one time during the taxable year 1999.
In reply, please be informed that Article 7(1) of the RP-Germany Tax Treaty states that:
"Article 7
BUSINESS PROFITS
enterprise may be taxed in the other State but only so much of them as is attributable to that
permanent establishment." IHDCcT
Also, Article 5(1) and (2) of the said treaty provides:
"Article 5
"1. For the purposes of this Agreement the term "permanent establishment" means a fixed
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 warehouse, in relation to a person providing storage facilities for others;
g) a mine, quarry or other place of extraction of natural resources;
h) a building site or construction or assembly project or supervisory activities in

collection therewith, where such site, project or activity continues for a period of more than six
months."
The aforequoted Article 7 of the RP-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 the SEG does not have a permanent establishment in the Philippines to which its
business profits or income may be attributed, income derived by SEG, arising from the service contract it
entered into with MaK, for the supervision of the installation and commissioning of the electrical parts of
the Power Station CIP II, is not subject to Philippine income tax.
However, the services rendered in the Philippines by SEG to CIP II Power Corporation shall be
subject to 10% value-added tax pursuant to Section 108(A)(5) of the Tax Code of 1997. Thus, MaK as a
contractor of SEG, shall, before making payment for services rendered by SEG to CIP II Power
Corporation, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate VAT
return using BIR Form No. 1600. The duly validated VAT declaration/return is sufficient evidence for
MaK in claiming input tax credit (Section 4. 110-3(b) of Revenue Regulations No. 7-95).
investigation it will be disclosed or discovered that the facts are different, then this ruling shall be
considered null and void. THAECc
Very truly yours,

By:

Deputy Commissioner
September 19, 2000
Art. 13 RP-Singapore
Sec. 176 NIRC
261-89
67-90

14th Floor Multinational Bancorporation Centre
Phone: 845-2728/Fax: 845-2806
Attention: Ms. Mary Assumption Bautista-Villareal

Gentlemen :
This refers to your letter dated September 7, 1999, requesting confirmation of your opinion that the
purchase by your client, IBM Philippines Inc. (IBMP), of CSA Private Limited's (CSA) shareholdings in
their joint venture company, ACI Systems, Inc. (ACI), is exempt from the payment of capital gains tax
pursuant to Article 13 (Gains from the Alienation of Property) of the Philippines-Singapore Tax Treaty.
HTASIa
It is represented that CSA is a non-resident foreign corporation duly organized and existing under
the laws of Singapore with principal address at 221 Henderson Road No. 08-00, Henderson Building,
Singapore; that it is not registered as a corporation or partnership in the Philippines as per Securities and
Exchange Commission certificate dated September 6, 1999; that IBMP is a corporation duly organized and
existing under the laws of the Philippines with principal address at IBM Building 8757 Paseo de Roxas,
Makati City; that ACI is also a corporation duly organized and existing under the laws of the Philippines
with principal address at 11th Floor, Chatham House, 116 Valero cor. Herrera Streets, Salcedo Village,
Makati City; that CSA owned 46,950 shares of stock in ACI with a par value of P100.00 each; that the
shares owned by CSA are broken down as follows: 46,948 shares owned by CSA and 2 shares held in trust
for CSA by the 2 nominees, Messrs. Johnny Moo and Seow Chuan Bin, both resident citizens of
Singapore; that on August 17, 1999, a Share Purchase Agreement was entered into by and between CSA
and IBMP whereby CSA transferred and sold its 46,948 common shares in ACI to IBMP in consideration
of P11,288,450.00; and that, as provided in the same Agreement, CSA shall cause the nominees to transfer
their 2 shares in ACI to IBMP.
Based on the foregoing, it is your opinion that the gain resulting from the transfer by CSA of its
ACI shares (including those of the nominees) is exempt from capital gains tax pursuant to the provisions
of the RP-Singapore Tax Treaty.
In reply, please be informed that paragraphs 1 and 3, Article 13 of the same Treaty provides as
follows:
"Article 13
l. Gains from the alienation of immovable property may be taxed in the Contracting State
2. Gains from the alienation of movable property forming part of the business property of a
State.
3. Gains from the alienation of shares of a company, the property of which consists
4. Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2,
disposition of interest in a corporation if its assets consist principally of real property interests located in
"consisting principally of real property interest":
"SEC 2. Definitions. — For purposes of these Regulations, the following terms and
b) 'Principally', 'wholly or principally', 'directly principally' or attributable' — more than

50% of the entire assets in terms of value;
xxx xxx xxx"
Based on ACI's audited financial statements dated August 31, 1999, only 7 percent of the total
assets of ACI constitute its immovable property. Hence, this Office confirms your opinion as it hereby
holds that the gains realized by CSA and by the 2 nominees from the sale of their shares of stock in ACI to
IBMP are not subject to Philippine income tax.
Although exempt, the said sale, however, is subject to the documentary stamp tax imposed under
Section 176 of the National Internal Revenue Code of 1997.
In fine, while gains realized by CSA and by the 2 nominees from the sale of their shares in stock in
ACI to IBMP are not subject to Philippine income tax, the same sale, however, is subject to the
documentary stamp tax.
void.
Very truly yours,

By:

Deputy Commissioner
September 19, 2000
RP-Australia Art. 7 (1) Art. 5 (2) (k)

2-00

6805 Ayala Ave.
1226 Makati City
Attention: Mary A.S. Bautista-Villareal
Principal, Tax Services Dept.
Gentlemen :
This refers to your letter dated December 22, 1999 requesting on behalf of your client Lincolne
Scott Australia Pty. Ltd (LSAPL), confirmation of your opinion that the service fees paid by Lincolne
Scott CCF, Inc.(LSCI) to LSAPL are not subject to Philippine income tax, pursuant to Article 5(2)(k) and
Article 7(l) of the RP-Australia Tax Treaty.
It is represented that LSAPL is a corporation organized and existing under the laws of Australia;
that it is not licensed to engage in business in the Philippines as evidenced by a Certificate of
Non-Registration dated December 20, 1999, issued by the Securities and Exchange Commission; that it
entered into Agreement For Staff Secondments with LSCI, a domestic corporation engaged in building
design services; that LSCI secured the services of LSAPL to assist in the design services through the
latter's employees who visited the Philippines during the Rockwell project implementation in Makati for a
total period of 141 days; and that in consideration for services rendered, LSAPL has charged LSCI the
staff costs plus a 10% mark-up.
In reply, please be informed that Article 7(l), in relation to Article 5(2)(k), of the RP-Australia tax
treaty provides:
"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. . . ."
"Article 5
(1) For the purpose 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 State through which an enterprise of the other
Contracting State furnishes services, including consultancy services, for a period or period
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."
Based on the foregoing provisions, the profits of a corporation which is a resident of Australia is
taxable only in Australia, unless the Australian corporation carries on business in the Philippines through a
permanent establishment situated therein. An Australian corporation may be deemed to have a permanent
establishment in the Philippines if it furnishes services through its employees or personnel for a period or
periods aggregating more than six months in any taxable year, in relation to a particular project, or to any
project connected therewith, among others. Considering that the services rendered by LSAPL's employees
in Rockwell Project did not exceed a period of six months, LSAPL cannot be considered to have had a
permanent establishment in the Philippines. (ITAD Ruling No. 2-00)
Such being the case, your opinion is hereby confirmed. The service fees paid by LSCI to LSAPL
are not subject to Philippine income tax pursuant to the RP-Australia Tax Treaty.
However, the service fees made by LSCI to LSAPL are subject to the 10% value added tax pursuant
to Section 108 of 1997 Tax Code. Accordingly, LSCI shall be responsible for the payment of VAT on
such fees on behalf of LSAPL by filing a separate VAT declaration/return using BIR Form No. 1600. The
said VAT declaration/return can be used by LSCI as evidence in claiming input tax credit. (Sec.
4.102-1(b), Revenue Regulations No. 7-95) IHDCcT
void.
Very truly yours,

By:

Deputy Commissioner
September 15, 2000
Section 106, Section 108

DA-177-99
British Embassy
15-17th Floor, LV Locsin Building
6752 Ayala Avenue
1226 Makati City
Attention: Ms. Jo Ann Saltiga

Management Assistant
Gentlemen :
This refers to your letter dated July 31, 2000 requesting for the issuance of a VAT Exemption
Certificate on the purchase of one (1) unit Honda CRV 2.0 A/T 2000 Model with engine No.
PEWD7-Y306271 and Chassis No. PARD 1830YV206285 for the British Embassy Defence Section.
"ARTICLE 34
services
xxx xxx xxx
value-added tax (VAT) on their 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(A)
and 108 of the National Internal Revenue Code of 1997.
However, under the principle of reciprocity, this Office may grant exemption to the British
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 dated June 2, 2000 and pursuant to the British guide to
protocol matters entitled "Your Posting to London" that your Government allows similar exemption to
Philippine Embassy and its personnel on their purchase of goods and services in your country. (DA-177-99
dated March 23, 1999)
Hence, the local purchase of one (1) unit Honda CRV 2.0 A/T, 2000 Model for the British Embassy
Defence Section is exempt from value-added tax.
Very truly yours,

By:

Deputy Commissioner
September 1, 2000
RP-Norway, Arts. 5, 7 & 15
Ms. Griselda J.G. Bausa

Director, Energy Resource Development Bureau
Department of Energy
Energy Center, Merritt Road, Fort Bonifacio
Madam:
This is with reference to your letter dated February 12, 1999 to the Secretary of Finance, which was
referred to this Office on February 17, 1999 relative to the proposed Agreement between the Government
of the Philippines and the Government of the Kingdom of Norway regarding Financing of the Technical
Assistance to the Philippine Petroleum Resource Assessment Project.
It is represented that the objectives of the Project are: (1) to develop a petroleum resource
classification system; (2) to establish an inventory of the Philippine petroleum resources; (3) to enhance
the technical capability of the Philippine Department of Energy's Oil and Gas Division in petroleum
resource assessment; and Norway shall provide a financial grant not exceeding NOK 5,548,000
(Norwegian Kroner) to be used exclusively to finance the Project. ASaTCE
In connection therewith, you are requesting comment on Nos. 4 and 6 of Article IV of the proposed
agreement on the contributions and obligations of the Philippines, through the Department of Energy to
the Project, specifically:
xxx xxx xxx
"4. Seek exemption from any internal revenue tax of the Consultant payable under the laws
of the Philippines in respect of the emoluments paid by Norway, in accordance with the Convention
between the Government of the Kingdom of Norway and the Government of the Republic of the
Philippines for the avoidance of double taxation and the prevention of fiscal evasion with respect to
taxes on income and on capital, signed in Manila in November, 1997;
"5. ...
"6. Defray or pay any cost, if any, of the customs duties, sales tax and other taxes, fees and
levies on all equipment, materials and supplies financed by the Grant and imported into the
Philippines for the benefit of the Project."
In reply thereto, please be informed as follows:
(1) Articles 5 and 7 of the RP-Norway Tax Treaty provide:
"Article 5
1. For the purposes of this Convention, the term "permanent establishment" means a fixed
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; EIDaAH
f) 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 connected therewith if such site, project or activities continue for a period or periods
of more than 6 months;
h) the furnishing of services, including consultancy services, performed within a

Contracting State by an enterprise of the other Contracting State through employees or other
personnel, where the activities of that nature are carried out (for the same or a connected
project) for a period or periods aggregating more than 6 months within a twelve-month period;
i) premises used as a sales outlet;
j) a warehouse, in relation to a person providing storage facilities for others."
"Article 7
BUSINESS PROFIT
Thus, if the consulting company (the Consultant) has no permanent establishment situated in the
Philippines, it is not subject to any corporate income tax. On the other hand, the presence of a permanent
establishment in the Philippines will subject the business profits of such Consultant to corporate income
tax imposed under Section 28 (A) of the National Internal Revenue Code of 1997 (NIRC) on resident
foreign corporation.
Corollary to the above-quoted provisions is Article 15 (1) (2) of the same treaty which states that:
"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. EICDSA
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."
Accordingly, the remuneration of the personnel or employee of the Consultant who will render
consultancy services in this country shall be taxable only in Norway if all the conditions in the
above-quoted provision are present. The absence of any of the said condition shall subject the income of
such personnel or employee to Philippine income tax in the same manner as an individual citizen and a
resident alien individual under Section 24 in relation to Section 25 (A) of the Tax Code of 1997.
(2) Since under the proposed Agreement, the financial grant not exceeding NOK 5,548,000
(Norway Kroner) shall be used exclusively to finance the Project, the provision of Article IV(6) of the
proposed Agreement to the effect that the Government of the Republic of the Philippines through the
Department of Energy shall assume the payment of the customs duties, VAT and other taxes, fees and
levies on all equipment, materials and supplies financed by the Grant and imported into the Philippines for
the benefit of the Project is in order. The payment of said taxes shall be shouldered by the Government of
the Republic of the Philippines through the Department of Energy. TaCDIc
This ruling is being issued on the basis of facts as represented. However, if upon investigation, it
will be disclosed or discovered that the facts are different, then this ruling shall be considered as null and
void.
Very truly yours,

Undersecretary of Finance
Commissioner
September 1, 2000
RP-Netherlands Article 10
ITAD 4-00 32-99
Unilever Philippines, Inc.

Manila, Philippines
Attention: Ms. Anna Maria B. Torres

Senior Financial Accountant
Madam:
This refers to your letter dated May 29, 1997, requesting for the renewal of the authority previously
granted by this Office on July 21, 1993 relative to the availment of the preferential tax treaty rate of ten
per cent (10%) on dividends paid by UNILEVER PHILIPPINES (PRC), INC. (UNILEVER) to MAVIBEL
B. V. NAVIBEL) pursuant to paragraph (2)(a) Article 10 of the RP-Netherlands Tax Treaty.
It is represented that MAVIBEL is a non-resident foreign corporation with business address at

Weena 455,3013 AL Rotterdam, The Netherlands, with no permanent establishment here in the
Philippines per certification dated July 1, 1999 issued by the Securities and Exchange Commission; that
UNILEVER is a domestic corporation with principal office at 1351 United Nations Avenue, Manila,
Philippines; that UNILEVER is 99.99% owned by MAVIBEL, holding 4,918,515 common shares of stock
with a total par value of Two Hundred Forty Five Million Nine Hundred Twenty Five Thousand Seven
Hundred Fifty Pesos (Php 245,925,750.00); that on April 29, 1997, UNILEVER declared cash dividends
of Two Hundred Sixty Million Two Hundred Seventy Eight Thousand Three Hundred Sixty Nine Pesos
(Php260,278,369.00) out of the retained earnings of the corporation payable to stockholders in proportion
to their respective shares as of December 31, 1996.
In reply, please be informed that Article 10 paragraph 2(a) of RP-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; SHEIDC
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 foregoing, dividends paid by the Philippine corporation to a resident of the
Netherlands may be taxed at the rate not exceeding 10 per cent of the gross amount of dividends if the
recipient (Netherlands resident) is a company which holds directly at least 10 per cent of the capital of the
Philippine corporation.
Such being the case, your request for the renewal of your previous authority to avail of the
preferential tax treaty rate of 10% on the dividends under consideration is hereby granted. The said tax
should be withheld by UNILEVER before actual remittance. (ITAD Ruling 32-99 dated October 7, 1999;
4-00 dated January 19, 2000)
This ruling shall likewise apply to future similar declaration of cash dividends by UNILEVER in
favor of MAVIBEL for as long as, among other things, MAVIBEL holds at least 10% of the capital of
UNILEVER in compliance with the pertinent conditions set forth under the RP-Netherlands Tax Treaty.
void. CAacTH
Very truly yours,

Deputy Commissioner
September 1, 2000
534-98 142-95
Murata Electronics Philippines Inc.

Panorama Building 5, Block 5
Lot 9, PEZA LIIP
Biñan, Philippines
Attention: Mr. Hiroyuki Miyoshi

President
Gentlemen :
This refers to your application for relief from double taxation, dated September 2, 1999, on behalf
of Murata Electronics Singapore (PTE) Ltd. (MURATA-SINGAPORE), requesting for the availment of
the preferential tax rate on interest pursuant to the Philippine-Singapore Tax Treaty.
It is represented that MURATA-SINGAPORE is a foreign corporation organized and existing under

the laws of Singapore without a permanent establishment in the Philippines; that it is not registered as a
corporation/partnership nor licensed to do business in the Philippines as per certification dated September
3, 1999 issued by the Securities and Exchange Commission; that Murata Electronics Philippines (MEP) is
a corporation organized and existing under the laws of the Philippines; that by virtue of a Loan Agreement
made by and between MURATA-SINGAPORE and MEP dated June 1, 1999, MEP made a loan to
MURATA-SINGAPORE in the amount of $1,500,000.00 (US$ One Million Five Hundred Thousand
Only); that the proceeds of the loans will be used for MEP working capital and to complement for its
shortage; and that repayments on the loan will be made on the 1st of June 2000 subject to interest at a rate
of 50bp plus lender's funding cost.
In reply, please be informed that Article 11 of the RP-Singapore Tax Treaty provides as follows:
"Article 11
Interest
charged shall not exceed 15 percent 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. cADTSH
3. The term "interest" as used in this Article means income from debt-claims of every kind
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
interest for purposes of this Article.
xxx xxx xxx"
Interest is generally taken to mean remuneration on money lent being remuneration coming within
the category of income from movable capital. The term designates in general, income from debt claims of
any kind, whether or not secured by mortgage and whether or not carrying rights to participate in profits.
The term "debt-claims" of every kind obviously embraces cash deposits and security in the form of money,
as well as government securities and bonds and debentures, although the three latter are especially
mentioned because of their importance and of certain peculiarities that they may present. (OECD Model
Tax Convention)
Such being the case, the interest income to be remitted by MEP to MURATA-SINGAPORE
relative to the aforementioned loan shall be subject to the preferential tax rate of 15% Philippine income
tax based on the gross amount of the interest. However, the Loan Agreement executed by and between
them shall be subjected to the documentary stamp tax imposed under Section 180 of the Tax Code of
1997. (BIR Ruling Nos. 534-98, 142-95)
investigation it will be disclosed that the facts are different then this ruling shall be null and void.
Very truly yours,

Deputy Commissioner
September 1, 2000
Article 14, RP-US Tax Treaty

Sec. 176, Tax Code
Benitez Parlade Africa Herrera

Parlade & Panga Law Offices
15th Floor, Security Bank Centre,
Attention: Atty. Gwendolynn S. Santillan
Gentlemen :
This refers to your application for relief from double taxation dated December 10, 1999, filed on
behalf of FLOUR CITY ARCHITECTURAL METALS, INC. (Flour City-US), requesting for
confirmation of your opinion that the assignment of Flour City-US of its shares of stock in FLOUR
CITY-ARLO CORP. (Flour City-Arlo) is exempt from capital gains tax pursuant to the RP-US Tax
Treaty.
It is represented that Flour City-US is a corporation organized and existing under the laws of the
State of Delaware, USA, with no permanent establishment in the Philippines, as per certification dated
October 5, 1999 issued by the Securities and Exchange Commission; that it holds 78,650 shares,
representing 55% of the total stockholdings, of Flour City-Arlo; that Flour City-Arlo is a domestic
corporation organized for the purpose of engaging in business in the Philippines for the supply,
fabrication, and construction of tower curtain walls and other related works; that it has an authorized
capital stock of 143,000 common shares with a par value of P100 per share; that Messrs. John Y. Tang,
Michael Kaisersatt, and Kim Werner are, among others, incorporators of Flour City-Arlo; that the said
incorporators were designated trustees of the shares of Flour City-US in Flour City-Arlo, and that they
executed, separately, a Declaration of Trust; that as trustees, their respective subscriptions in Flour
City-Arlo were actually paid for by Flour City-US but were placed in their individual names as
incorporators to comply with the provision of the Corporation Code of the Philippines, which allows only
individuals to be incorporators; that on January 28, 1999, Flour City-US executed a Deed of Assignment
wherein it assigned, transferred and conveyed all its rights and interests on its 78,650 shares in Flour
City-Arlo to Flour City Architectural Metals(L), Ltd. (Flour City-Labuan), a foreign corporation not
engaged in business in the Philippines; and that as the new owner, Flour City-Labuan instructed the said
three trustees to turn over all their respective stockholdings, save for one qualifying share each, which are
then held in trust again by the said trustees for Flour City-Labuan.
In reply, please be informed that Article 14 of the RP-US Tax Treaty provides as follows, viz:
"Article 14
"CAPITAL GAINS
independent personal 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 derived by a resident of a Contracting State from the alienation of ships,
aircraft or containers operated by such resident in international traffic shall be taxable only in that
State, and gains described in Article 13 (Royalties) shall be taxable only in accordance with the
in Article 7 (Income From Real Property) shall be taxable only in the Contracting State of which the
alienator is a resident." SECATH
Furthermore, the Reservation Clause of the same treaty provides, in part, as follows:
"Article I
"Notwithstanding the provisions of Article 14 of the Convention relating to the capital gains
both the Philippines and the United States may tax gains from the disposition of an interest in a
corporation if its assets consists principally of a real property interest located in the country.
Likewise, both countries may tax gains from the disposition of an interest in a partnership, trust or
estate to the extent the gain is attributable to a real property interest in one of the countries. The term
'real property interest' is to have the meaning it has under the law of the country in which the
underlying real property is located." (Emphasis supplied)
It is clear from the aforequoted provisions that any capital gains which may be derived by Flour
City-US from the alienation of any property other than those mentioned in paragraph (1) of Article 14 of
the RP-US Tax Treaty shall be taxable only in the State where the alienator is a resident. Moreover, the
Reservation Clause of the same treaty does not apply in this case. It is to be noted that under the
Reservation Clause, the Philippines may tax the gains derived from the disposition of interests in a
corporation if its assets consist principally of real property interest located in the Philippines. "Principally"
means more than 50% of the entire assets in terms of value (Sec. 2, Revenue Regulations No. 4-86). The
value of the real property interest of Flour City-Arlo located in the Philippines as appearing in its audited
financial statements for the calendar year December 31, 1998 is less than 50% of the value of its total
assets.
Accordingly, your opinion that any gain that may be realized by Flour City-US from the assignment
of its share in Flour City-Arlo to Flour City-Labuan is not subject to the capital gains tax imposed under
Section 28(B)(5)(c) of the National Internal Revenue Code (Tax Code) of 1997 is hereby confirmed since
the assets of Flour City-Arlo as of December 31, 1998 do not consist principally of real property interest
located in the Philippines. CcEHaI
However, a certificate of authority to register the said transaction in the books of Flour City-Arlo
must be secured. Thus, Flour City-US, being a nonresident foreign corporation, is required to file, but is
not required to pay the capital gains tax, a Capital Gains Tax Return (BIR Form No. 1707) accompanied
by copies of the Deed of Assignment and this ruling, with Revenue District Office No. 51-Pasay (RDO
51), in order for the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock
in favor of AIB.
Moreover, Section 176 of the Tax Code of 1997 (Tax Code) provides, viz:
"Sec. 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or
Transfer of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. — On all sales, or
agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of
obligation, or shares or certificates of stock in any association, company, or corporation, or transfer of
such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum
or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such
due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the
future transfer of any due-bill, certificate of obligation or stock, there shall be collected a
documentary stamp tax of One peso and fifty centavos (P1.50) on each Two hundred pesos (P200), or
fractional part thereof, of the par value of such due-bill, certificate of obligation or stock: Provided,
That only one tax shall be collected on each sale or transfer of stock or securities from one person to
another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or
delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock
without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to
twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said stock."
The same Code provides that the corresponding documentary stamp taxes shall be levied, collected
and paid, for and in respect of the transactions so had or accomplished, by the person making, signing,
issuing, accepting, or transferring the document, instrument or paper wherever the same is made, signed,
issued, accepted or transferred when the obligation or right arises from Philippine sources or the property
is situated in the Philippines. Thus, the burden of paying the documentary stamp tax is placed upon the
parties to the contract and leaves the tax to be paid indifferently by either party, and accordingly, the party
assuming payment of said tax under the contract becomes directly liable therefor. But if for one reason or
another, the said tax is not paid, either party to the contract may be made liable to the tax.
In view of the foregoing, the documentary stamp tax (including penalties thereto, if there are any)
on the said transaction must be paid and the corresponding return thereon be filed by either Flour City-US
or Flour City-Labuan in accordance with the provisions of the Tax Code of 1997.
Flour City-Arlo can register in the Stock and Transfer Book the shares from Flour City-US to Flour
City-Labuan.
it will be disclosed that the facts are different, then this ruling shall be null and void. HcACST
Very truly yours,
Deputy Commissioner
September 1, 2000
RP-Japan, Article 10 ITAD 49-99
Mr. Yoichi Muramoto

President, MAPLE
Muramoto Audio-Visual Philippines, Inc.
Mactan Export Processing Zone
Lapu-Lapu City, Cebu, Philippines
Sir:
This refers to your application for relief from double taxation dated February 18, 2000, on behalf of
Muramoto Industry Co. Ltd. of Japan (MIC), requesting for a preferential tax rate of ten percent (10%) to
be withheld on your dividend remittances, pursuant to the RP-Japan Tax Treaty.
It is represented that MIC is a corporation organized and existing under the laws of Japan with no
permanent establishment in the Philippines, as per certification dated December 14, 1999 issued by the
Securities and Exchange Commission; that Muramoto Audio-Visual Philippines, Inc. (MAPLE) is a
corporation organized and existing under the laws of the Philippines located at Mactan Economic Zone;
that MAPLE is a PEZA-registered Ecozone Export Enterprise with Registration Certificate No. 90-08; that
MAPLE is a wholly owned subsidiary of MIC; that during the annual meeting of MAPLE's Board of
Directors held on January 21, 2000, it was resolved that an amount of P132,000,000 be declared as cash
dividends to be taken out of the unrestricted surplus profits or retained earnings as of September 30, 1999
in favor of the stockholders of record as of September 30, 1999; that the actual date of payment of the cash
dividends is on March 27, 2000; that as of January 31, 2000, MIC holds 329,000 shares of the 330,000
outstanding shares of MAPLE; and that MIC has been holding the said shares of stock since the date of
incorporation of MAPLE, i.e., March 19, 1990. CIcTAE
"ARTICLE 10
1. Dividends paid by a company which is a resident of a Contracting State to a resident of

2. However, such dividends may also be taxed in the Contracting State of which the
months immediately preceding the date of payment of the dividend
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"
It is clear under paragraph 2 above that a resident of Japan may avail of the preferential tax rate of
10% if such resident is the beneficial owner of the dividends, it is a company holding at least 25% of the
total shares of the payor of the dividends, and has been holding the said shares six months immediately
preceding the date of payment of the dividends. STcHEI
Considering that MIC owns more than 25% of the total outstanding shares of MAPLE as of record
date and has been holding the said shares for more than six months, the cash dividends payable by
MAPLE to MIC are subject to the 10% preferential withholding tax rate under Article 10 (2)(a) of the
Very truly yours,

Deputy Commissioner
September 1, 2000
RP-Japan-Art. 13 NIRC-SEC. 176 ITAD 24-99

14th Floor, Multinational Bancorporation Center

Partner, Tax Services Department
Gentlemen :
This refers to your letter dated April 26, 2000 requesting on behalf of your client, CEBU TOYO
CORPORATION (CTC), confirmation of your opinion that the gains derived by TOYO LENS CO., LTD.
(TLC) from the transfer of its shares in CTC are exempt from capital gains tax pursuant to the RP-Japan
Tax Treaty.
It is represented that TLC is a non-resident foreign corporation duly organized and existing under
the laws of Japan; that it is not registered as a corporation/partnership in the Philippines as per
certification dated April 26, 2000 issued by the Securities and Exchange Commission (SEC); that it owns
One Hundred Eighty-four Thousand Three Hundred Thirty-three (184,333) shares of stock with a par
value of One Hundred Pesos (P100.00) per share or a total par value of Eighteen Million Four Hundred
Thirty-three Thousand Three Hundred Pesos (P18,433,300.00) in CTC, a Philippine Economic Zone
Authority (PEZA)-registered corporation duly organized and existing under the laws of the Philippines,
with principal office at Lapu-lapu City; that on February 10, 1998 and on June 07, 1999, TLC respectively
transferred its One Hundred Five Thousand Three Hundred Thirty-three (105,333) and Two Hundred
Seventy-six Thousand Five Hundred (276,500) shares in CTC to Mr. Michi Miyahara, a Japanese national,
as evidenced by a Deed of Confirmation of Declaration of Bonus Stock and a Deed of Assignment both
dated June 07, 1999 and executed by TLC in favor of Mr. Michi Miyahara; that the assets of CTC do not
consist principally of real property interest located in the Philippines, as shown in its Audited Financial
Statements (AFS) as of period ended August 31, 1998 and August 31, 1999.
"Article 13
"(1) Gains derived by a resident of a Contracting State from the alienation of immovable
property as defined in paragraph (2) of Article 6 and situated in the other Contracting State may be
taxed in that other Contracting State. aDSTIC
"(2) Gains from the alienation of any property, other than immovable 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 any property, other than immovable property, pertaining to a fixed
base available to a resident of a Contracting State in the other Contracting State for the purpose of
performing independent personal 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 that other Contracting State.
"(3) Gains derived by a resident of a Contracting State from the alienation of ships or aircraft
operated in international traffic and any property, other than immovable property, pertaining to the
operation of such ships or aircraft shall be taxable only in that Contracting State.
"(4) Gains from the alienation of shares of a company, a partnership or a trust the property of
which consists principally of immovable property situated in a Contracting State, may be taxed in that
Contracting State.
"(5) Gains from the alienation of any property other than those referred to in paragraphs 1, 2,
3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident."
Based on the foregoing, the gains which will be realized by TLC from the transfer of its shares of
stock in CTC to Mr. Michi Miyahara shall be taxed only in Japan. However, the Philippines may tax the
gains derived from such disposition if CTC's assets consists principally of real property interest located in
the Philippines. "Real Property Interest" means interest on 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).
Accordingly, verification of the AFS of CTC discloses that out of its total assets of
P430,977,439.00 in August 1999, and P255,438,896 in August 1998, its real property assets consist of
P103,782,200.00 and P99,795,370, respectively, which are in both cases less than 50% of its entire assets.
In view thereof, this Office hereby confirms your opinion that the transfer of TOYO LENS CO.,
LTD. of its shares of stock in CEBU TOYO CORPORATION to Mr. Michi Miyahara is not subject to
Philippine income tax. However, the herein transfer shall be subject to the documentary stamp tax
imposed under Section 176 of the Tax Code of 1997. (BIR Ruling No. 007-96 dated January 18, 1996) ECTIHa
investigation it will be disclosed that the actual facts are different, then this ruling shall be considered null
and void.

Deputy Commissioner
September 1, 2000
RP-US-Art. 14
NIRC-Sec. 176
ITAD 59-00
Follosco Morallos & Herce

Attorneys at Law
Suite 311 Windsor Tower,
163 Legaspi St., Legaspi Village
Makati City
Attention: Atty. Rachel P. Follosco
Gentlemen :
This refers to your letter dated May 24, 2000 requesting, on behalf of your client, PACVEN
WALDEN VENTURES III, L.P. (PACVEN), for tax treaty relief pursuant to the RP-US Tax Treaty.
It is represented that PACVEN is a non-resident foreign partnership duly organized and existing
under the laws of the State of Delaware; that it is not registered as a corporation/partnership in the
Philippines as per certification dated May 30, 2000 issued by the Securities and Exchange Commission;
that it has no permanent establishment in the Philippines; that it owns Four Million Three Hundred
Thirty-three Thousand Six Hundred Five (4,333,605) shares of stock with a par value of P1.00 per share
and subscription/acquisition price of P12.23 per share in MACONDRAY & COMPANY, INC. (MCI), a
domestic corporation duly organized and existing under the laws of the Philippines; that on March 30,
2000, a Deed of Absolute Sale of Shares of Stock was entered into by and between PACVEN and MCI,
INC. (MCI, Inc.), a non-resident foreign corporation duly organized and existing under the laws of the
British Virgin Islands, whereby PACVEN sold its 4,333,605 shares in MCI to MCI, Inc. at a price of
P14.5754 per share or for the total amount of Sixty-three Million One Hundred Sixty-four Thousand
Twenty-six Pesos and Thirty-two Centavos (P63,164,026.32); that the assets of MCI do not consist
principally of real property interest located in the Philippines, as shown in its latest Audited Financial
Statements (as of December 31, 1999 and 1998). SEACTH
Based on the foregoing, you request confirmation of your opinion that the sale of shares by
PACVEN to MCI, Inc. is not taxable in the Philippines and that any gain which may have been realized by
PACVEN from its sale of the shares is exempt from capital gains tax imposed under Section 28(B)(5)(c)
of the National Internal Revenue Code.
In reply, please be informed that Article 14 of the RP-US Tax Treaty provides, viz:
"Article 14
"CAPITAL GAINS
"1. Gains from the alienation of tangible personal (movable) property forming part of the
the other State. However, gains derived by a resident of a-Contracting State from the alienation of
that State, and gains described in Article 13 (Royalties) shall be taxable only in accordance with the
"2. Gains from the alienation of any property other than those mentioned in paragraph (1)
or in Article 7 (Income from Real Property) shall be taxable only in the Contracting State of which
the alienator is a resident." (Emphasis supplied)
Relative thereto, the Reservation Clause of the same Treaty provides, viz:
States and the Philippines may tax gain from the disposition of an interest in a corporation if its
assets consist principally of a real property interest located in that country. Likewise, both countries
may tax gain from the disposition of an interest in a partnership, trust or estate to the extent the gain is
(Emphasis supplied)
Under the aforequoted provisions, the gains which will be realized by PACVEN from the sale of its
shares of stock in MCI to MCI, Inc. shall be taxable only in the US. However, the Philippines may tax the
gain from the disposition of an interest in a corporation if the assets of the corporation consist principally
of real property interest located in the Philippines. "Real Property Interest" means interest on 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). AHEDaI
Verification of the 1999 and 1998 Audited Financial Statements of MCI disclosed that its real
property interest located in the Philippines is only 3% of its total assets, thereby making the assets of MCI
not principally consisted of real property interest located in the Philippines.
Accordingly, your opinion that the sale by PACVEN WALDEN VENTURES III L.P. of its shares
of stock in MACONDRAY & COMPANY INC. to MCI, INC. is not subject to Philippine income tax
since the assets of MACONDRAY & COMPANY INC. do not consist principally of real property located
in the Philippines is hereby confirmed.
However, the Deed of Sale of Shares of Stock shall be subject to the documentary stamp tax
imposed under Section 176 of the Tax Code of 1997. (BIR Ruling No. 007-96 dated January 18, 1996)
investigation it will be disclosed that the actual facts are different, then this ruling shall be considered null
and void.
Very truly yours,

By:

Deputy Commissioner
September 1, 2000
RP-US Article 13,

RP-Sweden, Art 12
RP-Denmark, Art. 12
Viva Music Group

Viva Entertainment Center
No. 334 E. Rodriguez Sr. Ave.
New Manila Q.C.
Attention: Atty. Maria Rita R. Bonifacio

Legal Counsel
Gentlemen :
This refers to your letter dated May 19, 1999 requesting for the issuance of a ruling confirming
your opinion that the royalty payment of VIVA RECORDS CORPORATION (VRC) to WALT DISNEY
RECORDS ("Disney Records") is subject to withholding tax at the reduced rate of ten percent (10%)
pursuant to Art. 13, par. 2 (b)(iii) of the RP-US Tax Treaty in conjunction with the RP-Denmark and
RP-Sweden Tax Treaties.
It is represented that VRC is a corporation duly organized and existing under and by virtue of the
laws of the Philippines and is engaged in the business of producing, recording, processing, reproducing,
manufacturing, distributing, buying, selling, and otherwise dealing in phonograph and sound records of
any form; that Disney Records is organized under the laws of the United States of America and is a
non-resident foreign corporation not engaged in trade or business in the Philippines, as evidenced by a
certification issued by the Securities and Exchange Commission dated May 19, 1999; that VRC and
Disney Records entered into a Licensing Agreement whereby the latter granted the former a non-exclusive
license to, among others:
1. manufacture, advertise, distribute, sell and otherwise exploit the Master Recordings
owned and controlled by Disney Records;
2. produce and record master recordings embodying vocal performances in the Filipino
and Tagalog languages derived from the Masters to be manufactured, advertised,
distributed and sold;
3. produce and record, or cause to be produced and recorded, and to manufacture,

advertise, distribute and sell records under the Walt Disney Records label, or records
featuring any of the trademarks which embody master recordings originally created by
VRC and comprised of either newly recorded music and vocals in the Filipino and
Tagalog languages or instrumental only master recordings;
4. use and publish the drawings, artwork, fanciful characters and literary properties owned
or controlled by Disney Enterprises, Inc., and the name, likeness and biography of each
artist whose performances are embodied in the masters in connection with the
advertising, publicizing or sale of records; EDcICT
5. use the names and designs (as specified in the Agreement) on the labels, jackets, and or
advertising and promotional materials related thereto, in connection with the sale of
records;
that in consideration of the aforementioned license, VRC agreed to pay Disney Records royalties as
follows:
Frontline Records 28 % PPD (published price to dealers)
(Soundtracks, Musicals,
New Releases)
Back Catalog Records 22% PPD
In reply, please be informed that under the most favored nation provision of the RP-US Tax Treaty
[Article 13, paragraph 2(b)(iii)], the tax imposable 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. cDIHES
Article 12 of the RP-Sweden Tax Treaty provides:
"Article 12
"ROYALTIES
"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) 15 percent 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;
"(b) in all other cases, 25 per cent of the gross amount of the royalties.
xxx xxx xxx"
Article 12 of the RP-Denmark Tax Treaty provides:
"Article 12
"ROYALTIES
State may be taxed in that other Stale.
according to the laws of that State, but if the recipient is the owner of the royalties the tax so charged
shall not exceed 15 percent of the gross amount the royalties.
The competent authorities of the Contracting State may by mutual agreement settle the mode
of application of this limitation.
xxx xxx xxx"
Such being the case, the royalties payable by VRC to Disney Records under their Licensing
Agreement are subject to Philippine tax at the rate of fifteen percent (15%), in accordance with the
provisions of both the RP-Denmark and RP-Sweden Tax Treaties, in relation to Article 13 paragraph
2(b)(iii) of the RP-US Tax Treaty, contrary to your opinion that the applicable rate is ten percent (10%).
CIcEHS
In addition to the foregoing, please note that the royalty payments remitted by VRC to Disney
Records is subject to the ten percent (10%) value added tax under Section 108 of the National Internal
Revenue Code of 1997. Moreover, Sec. 4.102-1(b) of Revenue Regulations No. 7-95 provides that:
"The VAT on rental and/or royalties payable to non-resident foreign corporations or owners
for the sale of services and use or lease of properties in the Philippines shall be based on the contract
price agreed upon by the licensor and the licensee. The licensee shall be responsible for the payment
of VAT on such rentals and/or royalties in behalf of the non-resident foreign corporation or owner by
filing a separate VAT declaration/return for this purpose. The duly validated VAT declaration/return
is sufficient evidence in claiming input tax credit by the licensee."
Very truly yours,

Commissioner
August 29, 2000
Article 11 RP-Japan BIR RULING 310-88

Attention: Ms. Tomasa H. Lipana

Managing Partner
Gentlemen :
This refers to your letter dated November 15, 1999 requesting for a ruling to the effect that interest
on the delayed payments on K & K Molding's (K & K) purchase of equipment from Kasei Industry Co.,
Ltd. (Kasei) shall be subject to the preferential tax treaty rate of 15% pursuant to RP-Japan Tax Treaty.
It is represented that Kasei is a non-resident foreign corporation organized and existing under the
laws of Japan; that it is not registered either as a corporation/partnership in the Philippines as per
certification dated October 18, 1999 issued by the Securities and Exchange Commission; that K & K is a
corporation organized and existing under the laws of the Philippines; that Kasei sold to K & K plastic
molding equipment for the latter's plant at Lima Technology Center in Malvar Batangas; that the
agreement provides that the purchase price of US$2,367,000 shall be payable without interest if paid on or
before December 31, 1998; that K & K failed to pay the balance of US$1,739,405 out of US$2,367,000;
that on December 9, 1998, the parties entered into another agreement entitled " Addendum to the
Agreement for the Purchase of Equipment"; that under the Addendum, the parties agreed that the balance
of US$1,739,405 shall be paid in equal quarterly installments in the amount of US$96,600 until the entire
balance is paid; and that the Addendum further provides that the initial quarterly payments shall be subject
to interest amounting to US$12,780.08 and; that the succeeding quarterly payments shall be subject to
interest at US$13,071.76 per installment.
In reply, please be informed that Article 11 of the RP-Japan Treaty provides as follows:
"INTEREST
2. However, such interest may also be taxed in the Contracting State in which it arises, and
a) 10 per cent of the gross amount of interest if the interest is paid in respect of
Government Securities, or bonds or debentures; DAEIHT
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,
profits, and in particular, income .from Government securities and income from bond or debentures,
xxx xxx xxx"
Such being the case, the interest payments to be remitted to Kasei by K & K relative to delayed
payments on K & K's purchase of equipment from Kasei is subject to a tax of 15% of the gross amount of
interest imposed pursuant to Article 11 of the RP-Japan Tax Treaty.
void.
Very truly yours,
DAKILA B. FONACIER
Commissioner
By:

Deputy Commissioner
August 29, 2000
Art. 13, RP-US

Art. 12, RP-Russia

6760 Ayala Avenue
1226 Makati City, Philippines
Attention: Joel L. Tan-Torres

Partner, Tax Division
Gentlemen :
This refers to your letter dated January 18, 2000 requesting for confirmation of your opinion that
the royalties paid by your client, S. C. Johnson & Son, Inc. (SCJ) to S. C. Johnson and Son, United States
of America (SCJ-USA), is subject to tax at a rate of 15 percent pursuant to the "most favored nation"
clause of the RP-US Tax Treaty in relation to RP-Russia Tax Treaty. cAECST
It is represented that SCJ-USA is a non-resident foreign corporation duly organized and existing
under the laws of the United States of America;-that it is not registered as a corporation/partnership in the
Philippines as per Securities and Exchange Commission certification issued February 15, 2000; that SCJ is
a corporation duly organized and existing under Philippine Laws; that on July 4, 1998, SCJ entered into a
Licensing Agreement with SCJ-USA, whereby SCJ was granted the right to use the trademark, patents and
technology owned by SCJ-USA which includes the right to manufacture, package and distribute products
covered by the agreement and secure assistance in management, marketing and production from SCJ-USA;
that in consideration of the aforementioned rights licensed to SCJ, SCJ shall pay SCJ-USA a royalty of
four percent of the former's net sales on the products covered by the agreement; that the Licensing
Agreement complies with the provisions of the Intellectual Property Code as evidenced by the
Certification of Compliance No. 5-1998-00074 dated November 6, 1998 issued by the Intellectual Property
Office (IPO); that SCJ had earlier subjected its royalty payments to 10 percent withholding tax on
royalties pursuant to the most favored nation clause of the RP-US Tax Treaty in relation to the RP-West
Germany Tax Treaty.
In reply, please be informed that under the "most favored nation" clause provision of the RP-US
Tax Treaty [Article 13, paragraph (2) (b) III], 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.
Article 12, paragraph 2 of the RP-Russia Tax Treaty provides that royalties arising from the Philippines
and paid to a resident of Russia may also be taxed in the Philippines but the tax so charged shall not
exceed 15 per cent of the gross amount of royalties. The term "royalties" as used in this Article means any
payment of any kind received as a consideration for the use of, or right to use, any patent, trademark,
design or model, secret formula or process, or for the use of, or the right to use of, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific experience.
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. Thus, anent the
most favored nation clause, U.S. recipients of royalty income are not entitled to the lower rate of 10
percent enjoyed by the German recipients under the RP-West Germany Tax Treaty because it was held
that there is no payment under similar circumstance. Moreover, the aforementioned decision and its
doctrine shall be applied prospectively (BIR Ruling No. 163-99 dated October 20, 1999).
A perusal of the RP-US and RP-Russia Tax Treaties particularly their provisions on the avoidance
of double taxation show that there is a similarity on the manner of payment of taxes, that is, the allowable
foreign tax credit on both treaties is the amount actually paid in the Philippines. TSHIDa
Such being the case, your opinion that the royalties paid by S.C Johnson and Son, Inc. to S.C.
Johnson and Son, United States of America is subject to tax at the rate of 15 percent pursuant to the "most
favored nation" provision of the RP-US Tax Treaty in relation to RP-Russia Treaty is hereby confirmed.
Moreover, the said royalties based on the net sales shall be subject to 10 percent value added tax
(VAT) pursuant to Section 108(A)(1) and (3) of the Tax Code of 1997. SCJ shall, before making payment
of royalties to SCJ-USA, withhold and remit to this Bureau the said 10 percent VAT due thereon by filing
a separate VAT return for and on behalf of SCJ-USA. The duly validated VAT declaration/return is
sufficient evidence in claiming input tax credit (Section 4.110-3(b) of Revenue Regulations No. 7-95).
In fine, the royalties paid by S.C. Johnson and Son, Inc. (SCJ) to S.C. Johnson and Son, United
States of America (SCJ-USA) is subject to tax at the rate of 15 per cent. Furthermore, SCJ shall, on behalf
of SCJ-USA, withhold the 10 percent VAT due by filing a separate VAT return for SCJ-USA using BIR
Form No. 1600.
void.
Very truly yours,

Commissioner
August 29, 2000
RP-US Art. 5 & 8 201-88; 198-87; 129-87
Ongkiko Kalaw Manhit & Acorda Law Offices

4TH Floor, Cacho-Gonzalez Building
101 Aguirre Street, Legaspi Village
Makati City
Attention: Atty. Mariano C. Ereco

Partner
Gentlemen :
This refers to your letter dated February 8, 2000, requesting confirmation of your opinion that your
client, Toshiba International Corporation ("TIC"), is not subject to Philippine income tax and consequently
to the withholding tax of 32% under the provisions of Section 28 (B) of the Tax Code of 1997, pursuant to
the RP-US Tax Treaty.
It is represented that TIC is a corporation organized under the laws of the State of California, USA;
that it is a non-resident foreign corporation and is not engaged in trade or business in the Philippines; that
it has a contract with United Engineers International, Inc. ("UEI"), also a non-resident foreign corporation,
to supply turbines, generators, plant control system, main power transformers and start-up auxiliary
transformer, all of which shall be manufactured by Toshiba Corporation in Japan; that the title to these
equipment shall be transferred by TIC to UEI abroad; that these equipment will be supplied by UEI to San
Roque Power Corporation ("SRPC") for use in the San Roque Multipurpose Project situated in San Roque,
San Manuel, Pangasinan; and that the title to these equipment shall likewise be transferred by UEI to
SRPC abroad.
It is further represented that in addition to supplying the above-mentioned equipment, TIC will
provide "inland-transportation, installation and erection, including supervision, field testing, start-up and
commissioning of turbines, generators, main transformers and start-up transformer and plant control
system" at the project site in San Roque, San Manuel, Pangasinan; that TIC is currently negotiating with
MOF Company (Subic), Inc. for the inland transportation/delivery of the equipment to the site; that the
installation, erection, testing, start-up and commissioning will be subcontracted to Toshiba Plant Kensetsu
Co., Ltd. (TPK), a corporation organized and existing under the laws of Japan, which, however, is in the
process of registering a branch in the Philippines; that the activities of TPK are not devoted wholly or
almost wholly to TIC and are done in the ordinary course of its business under arm's length conditions;
that TIC will have no employees in the Philippines for the works subcontracted to the independent
contractors; and finally, that Raytheon Ebasco Overseas Ltd. ("REOL") which is the principal contractor
for the project of SRPC will pay TIC for the works done on the project site and in turn, TIC will pay its
independent sub-contractors MOF Company (Subic), Inc. and Toshiba Plant Kensetsu Co., Ltd. EcICSA
In reply thereto, please be informed that Article 5 paragraph 5 of the RP-US Tax Treaty provides
that —
"(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 an 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 arm's length
conditions."
Moreover, Article 8, paragraphs 1 and 6 of the same treaty further provides:
"Article 8
(1) Business profits of a resident of one of the Contracting States shall be taxable only in
resident has a permanent establishment in that other Contracting State, a tax may be imposed by that
other Contracting State on the business profits of the resident but only so much of them as are
attributable to the permanent establishment.
xxx xxx xxx
(6) The term "business profits" means income derived from any trade or business whether
carried on by an individual corporation or any other person, or group of persons including the rental
of tangible personal (movable) property.
xxx xxx xxx"
Under the aforequoted provisions of the RP-US Tax Treaty, business profits of TIC shall only be
taxable in the Philippines if it has a permanent establishment in the Philippines. However, nothing in the
foregoing facts as represented will show that TIC has established a permanent establishment in the
Philippines. While it enters into contract with a subcontractor, TPK, it cannot constitute a permanent
establishment since TPK has a separate and distinct personality from TIC and its activities are not devoted
wholly or almost wholly to TIC and are done in the ordinary course of its business under arm's length
conditions. Therefore, in view of the absence of a permanent establishment of TIC in the Philippines, any
payment made by REOL to TIC, although may constitute business profits under Article 8, paragraph 6 of
the RP-US Tax Treaty, shall not be subjected to Philippine income tax pursuant to Article 8, paragraph 1
of the same treaty. ESITcH
In this regard, this office already had the occasion to rule in BIR Ruling No. 201-88 dated May 6,
1988, that where an entity is deemed not to have carried on business in the Philippines through a
permanent establishment, its income shall not be taxable under Philippine jurisdiction. Accordingly, this
Office rules as it hereby holds that TIC under the represented facts does not have a permanent
establishment in the Philippines and that as a result thereof, the income derived by it under the
arrangement is not subject to the Philippine income tax and consequently, to the withholding tax of 32%
imposed under Section 28 (B) of the Tax Code of 1997. (BIR Rulings Nos. 201-88, 198-87 and 129-87)
On the other hand, should TPK establish a branch office in the Philippines, it shall be considered a
permanent establishment of TPR and not of TIC. Hence, any income derived by TPK from its contract
with TIC shall be subjected to withholding tax at the rate of 32% pursuant to Section 28 (B) of the Tax
Code of 1997.
Very truly yours,

Deputy Commissioner
August 29, 2000
RP-Singapore Article 10 ITAD 37 99
Follosco Morallos & Herce

Attorneys at Law
Suite 311 Windsor Tower
163 Legaspi Street, Legaspi Village
1229 Makati City
Attention: Rachel P. Follosco

Director
Gentlemen :
This refers to your letter dated April 10, 2000 on behalf of Provident Securities Pte Ltd.
(Provident), requesting confirmation of your opinion that the dividends to be paid and remitted by OCBC
Securities Philippine, Inc. (OSPI) to Provident is subject to the preferential tax rate of fifteen per cent
(15%) pursuant to the RP-Singapore Tax Treaty.
It is represented that Provident is a non-resident foreign corporation, duly organized and existing
under the laws of Singapore with principal office address at 18 Church Street #06-00 OCBC Centre South
Singapore 049479; that it is not a registered corporation/partnership in the Philippines as per certification
dated March 1, 2000 issued by the Securities and Exchange Commission; that OSPI is a corporation duly
organized and existing under the laws of the Philippines; that OSPI is a wholly owned subsidiary of
Provident; that Provident holds 99.999% of the outstanding capital stock of OSPI; that Provident is the
holder of the aforementioned shares from February 2, 1994 to present as per Secretary's Certificate dated
June 2, 2000; that on March 14, 2000, the Board of Directors of OSPI passed and approved the declaration
of cash dividends of twenty five million pesos (P25,000,000.00) from the unrestricted retained earnings of
the corporation; and, that the dividends shall be paid on April 28, 2000 to the stockholders of record as of
April 14, 2000.
"Article 10
Dividends

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 amount of the dividends.
The Competent authorities of the Contracting States shall by mutual agreement settle the mode
of application of this limitation."
The 15% preferential tax rate on dividend applies whenever the beneficial owner/recipient of the
dividend owns at least 15% 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.
Since Provident is the recipient and beneficial owner of the dividends, holding 99.999% of the
outstanding shares of the voting stock of the paying company OSPI, evidenced by the Secretary's
Certificate dated April 11, 2000, and being the holder of which from February 2, 1994 to present, dividend
received by Provident shall be subject to the preferential tax rate of 15% pursuant to the above-quoted
provision of RP-Singapore Tax Treaty. (BIR Ruling No. ITAD 37-99).
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. IAEcCT
Very truly yours,

Deputy Commissioner
August 29, 2000
Article 13-RP-United Kingdom

ITAD 41-00

6805 Ayala Ave., Makati City
Attention: George J. Lavadia

Principal
Tax Corporate Services
Gentlemen :
This refers to your letter dated January 25, 2000, requesting for a confirmation of your opinion that
sale/transfer by Biwater Overseas Limited (BOL) of its share holdings in Subic Water and Sewerage
Company Inc., (SWSCI) to Biwater B.V. (BBV) is not subject to Philippine income/withholding tax
pursuant to the RP-United Kingdom Tax Treaty. EcTDCI
It is represented that BOL is a corporation organized and existing under the laws of United
Kingdom; that SWSCI a corporation organized and existing under the laws of the Philippines, is 99%
owned by BOL; that BOL is not registered as a corporation or partnership in the Philippines per Securities
and Exchange Commission Certification dated March 22, 2000; that on October 19, 1999, BOL sold its
shares in SWSCI to BBV, a corporation organized and existing under the laws of Netherlands, whose
registered office is in Amsterdam.
In reply, please be informed that Article 12 of the RP-United Kingdom Tax Treaty provides as
follows:
"Article 12
1. Capital 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.
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.
3. Notwithstanding the provisions of paragraph 2, of this Article, capital gains derived by a

paragraphs 1, 2 and 3 of this Article shall be taxable only in the Contracting State of which the
alienation is a resident."
It is clear from the aforequoted provisions of the RP-United Kingdom Tax Treaty that capital gains
from the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 shall be taxable
only in the State where the alienator is a resident. Considering that the sale of shares of stock is not among
those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by BOL from the sale of its
shares of stock in SWSCI shall not be subject to Philippine income tax imposed under Section 28(B)(5)(c)
of the Tax Code, as amended, but are subject to tax only in the United Kingdom.
However, the said sale by BOL to BBV is subject to Philippine documentary stamp tax in
accordance with Section 176 of the Tax Code, as amended.
This ruling is being issued on the basis of the foregoing facts as represented, however, if upon
investigation, it will be discovered that the facts are different, then this ruling shall be considered null and
void. cSTHAC
Very truly yours,

Deputy Commissioner
August 29, 2000
NIRC - Secs. 24, 25, 27 & 108

000-00
Embassy of Mexico
18th Floor Ramon Magsaysay Bldg.
1680 Roxas Boulevard
Manila, Philippines
Attention: His Excellency Enrique Michel

Ambassador
Gentlemen :
This refers to your letter dated July 20, 1999 requesting for information on the taxability of any
national or foreigner engaged in the export-import business in the Philippines, either in a private capacity
or with a company.
In reply, please be informed that for purposes of taxation of a non-resident alien individual engaged
in trade or business in the Philippines, he shall be subject to income tax in the same manner as an
individual citizen and a resident alien individual, on his net income received from all sources within the
Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an
aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a
"nonresident alien doing business in the Philippines". [Section 25 (A)(1), National Internal Revenue Code
of 1997 (Tax Code of 1997)]. Accordingly, he will be subject to the rates as hereinbelow provided under
Section 24 (A)(1)(c) of the same Code:
"c) On the taxable income defined in Section 31 of this Code other than income subject to
tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources
within the Philippines by an individual alien who is a resident of the Philippines.
The tax shall be computed in accordance with and at the rates established in the following
schedule:
Not over P10,000... 5%
Over P10,000 but not over P30,000...P500+10% of the excess over P10,000
Over P30,000 but not over P70,000...P2,500+15% of the excess over P30,000
Over P500,000...P125,000+34% of the excess over P500,000 in 1998
Provided, That effective January 1, 1999, the top marginal rate shall be thirty-three percent (33%) and
effective January 1, 2000 the said rate shall be thirty two percent (32%)."
With regard to cash and/or property dividends from a domestic corporation or joint stock company,
or insurance or mutual fund company or regional operating headquarter of multinational company, or
share in the distributable net income of a partnership (except a general professional partnership), joint
account, joint venture taxable as a corporation or association, interests, royalties, prizes, and other
winnings, shall be subject to an income tax of twenty percent (20%) on the total amount thereof: provided,
that interest income from long-term deposit or investment in the form of savings, common or individual
trust funds, deposit substitutes, investment management accounts and other investments evidenced by
certificates in such form prescribed by the Bangko Sentral ng Pilipinas shall be exempt from the tax
imposed under this Subsection: provided, finally, that should the holder of the certificate pre-terminate the
deposit or investment before the fifth year, a final tax shall be imposed on the entire income and shall be
deducted and withheld by the depositary bank from the proceeds of the long-term deposit or investment
certificate based on the remaining maturity thereof: Four (4) years to less than five (5) years ... 5%; Three
(3) years to less than four (4) years ... 12%; and Less than three (3) years ... 20%. [Sec. 25 (A) (2) of the
Tax Code of 1997] CTSDAI
As provided under Sec. 25 (A) (3) of the Tax Code of 1997, capital gains realized from sale, barter
or exchange of shares of stock in domestic corporations not traded through the local stock exchange, shall
be subject to a final tax at the rates prescribed below upon the net capital gains realized during the taxable
year:
Not over P100,000 5%
On any amount in excess of P100,000 10%
As regards capital gains from sale of real property, a final tax of-six percent (6%) based on the
gross selling price or current fair market value as determined by the Commissioner or as shown in the
schedule of value of the Provincial and City Assessors, whichever is higher, is imposed upon capital gains
presumed to have been realized from the sale, exchange, or other disposition of real property located in the
Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales,
by individuals, including estates and trusts. [Section 25 (A)(3) of the Tax Code of 1997]
However, if the stay of the alien is for an aggregate period of less than one hundred eighty (180)
days during any calendar year, he shall be deemed a "nonresident alien not engaged in trade or business
within the Philippines", and consequently, be subject to an income tax equivalent to 25% of the entire
income received from all sources within the Philippines [Section 25 (B) of the Tax Code of 1997].
As regards the taxation of a corporation engaged in the export-import business, please be informed
that a corporation organized, authorized, or existing under the laws of a foreign country and doing
business in the Philippines, shall be subject to an income tax equivalent to thirty-two percent (32%).
[Section 28 (A)(1) of the Tax Code of 1997].
On Value-Added Tax (VAT) liability, pursuant to Section 105 of the Tax Code of 1997, "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 VAT imposed in Sections 106 to 108
of this Code." 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. [Sec. 106 of the Tax Code of 1997] Moreover, there shall be levied, assessed and collected on
every importation of goods a VAT equivalent to ten percent (10%) based on the total value used by the
Bureau of Customs in determining tariff and customs duties plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from customs custody:
Provided, that where the customs duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus excise taxes, if any. [Section 107 of the
Tax Code of 1997]
For your guidance and reference. SETaHC
Very truly yours,
By:

Deputy Commissioner
August 29, 2000
Sections 106, 107, 108
Wilfredo L. Maximo
Director, Immunities and Privileges
Office of Protocol, Department of Foreign Affairs.
Roxas Blvd., Pasay City
Sir:
This refers to your letter dated September 29, 1999 requesting for confirmation that the Manila
Japanese School (MJS), an institution attached to the Embassy of Japan, enjoys value-added tax (VAT)
exemption for its local purchase of goods and services
It is represented that MJS, located at Brgy. Don Bosco, Levitown Subd., Parañaque City, is
planning to build a new facility in University Park, Fort Bonifacio Global City, Taguig, Metro Manila to
accommodate an increasing number of enrollees; that MJS has sought confirmation from your Office if it
will continue to enjoy VAT exemption (if ever indeed it has been entitled to such exemption) and whether
materials imported for the proposed new school building will continue to be exempt from customs duties;
that under the present arrangement, all importations of the said School are coursed through the Embassy to
enjoy tax exemption accorded by your Department.
In reply, please be informed that this case has already been denied by this Office for lack of legal
basis in our letter to the Department of Finance dated October 20, 1999. However, in the said letter, it was
raised that VAT exemption based on the principle of reciprocity in International Law may be resorted to
resolved this request.
In this connection, we cite the Vienna Convention on Diplomatic Relations, pertinent portions of
which read:
"ARTICLE 3
1. The functions of a diplomatic mission consist inter alia in:
(a) representing the sending State in the receiving State;
(b) protecting in the receiving State the interests of the sending State and of its
nationals within the limits permitted by international law;
(c) negotiating with the Government of the receiving State;
(d) ascertaining by all lawful means conditions and developments in the receiving
State, and reporting thereon to the Government of the sending State;
(e) promoting friendly relations between the sending State and the receiving State,
and developing their economic, cultural, and scientific relations.
The operation of a school is not within the purview of the regular functions of a foreign diplomatic
mission. Although previous communications between the Department of Foreign Affairs (DFA) and the
Embassy of Japan will prove that it is the latter that established MJS, it does not necessarily follow that
the establishment of MJS is within the ambit of the said Embassy's regular functions, thus, entitling the
school to like privileges enjoyed by the Embassy.
As a matter of fact, the Office of Legal Affairs of the DFA noted that based on the communications
between the DFA and the Embassy, tax exemption is not part of the agreement allowing the Embassy to
construct the school. While under paragraph 1, Article 23 of the same Convention, foreign diplomatic
missions, such as the Japanese Embassy, are exempt from national, regional or municipal dues and taxes in
respect of the premises of the mission, since MJS is not in the premises of the Embassy, MJS is not
covered by the exemption.
Such being the case, your request is hereby denied for lack of legal basis. The Manila Japanese
School (MJS) is not entitled to all forms of tax exemption accorded the Japanese Embassy including VAT
exemption granted based on reciprocity. The purchase of goods and services as well as the importation of
materials for the construction of the proposed school building of MJS shall be subject to VAT pursuant to
Sections 106 to 108 of the National Internal Revenue Code of 1997. (BIR Unnumbered Ruling dated
October 20, 1999)
For confirmation on whether materials imported for the proposed new school is exempt from
customs duties or not, the matter should be brought to the attention of the Bureau of Customs for their
appropriate action.
For your information and guidance. aCHDST
Very truly yours,

Deputy Commissioner
August 29, 2000
Sec. 106 149

187-99
The World Bank

23rd Floor, The Taipan Place
Emerald Avenue, Ortigas Center
Pasig City
Attention: Vinay Bhargava

Country Director, Philippines
East Asia and Pacific Region
Gentlemen :
This refers to your letter dated March 16, 2000 which was referred to this Office by the Department
of Finance (DOF) requesting for the tax free local purchase of one (1) unit Ford Expedition A/T XLT 4x2
Model 2000, with Chassis No. IFMRU1564YLB10697 and Engine No. YLB10697 for the personal use of
Mr. Aloysius Ordu, Principal Operations Officer of International Bank for Reconstruction and
Development (The World Bank)
In reply, please be informed that Section VII, Article XIII of the Agreement between the Republic
of the Philippines and International Bank for Reconstruction and Development (The World Bank)
concerning, Establishment of a Resident Mission in the Republic of the Philippines provides as follows:
"VII. OFFICERS, EXPERTS AND CONSULTANTS OF THE BANK
Article XIII
"Officers, experts, persons on secondment and consultants of the Bank assigned to perform
service with the Resident Mission shall enjoy in the territory of the Philippines, the following
exemptions, privileges and immunities: IDSaTE
"xxx xxx xxx
"(h) except with respect to nationals or permanent residents of the Philippines, the right to
import and re-export or sell their furniture and effects, including motor vehicles and spare parts
therefor subject to payment of applicable taxes hereon if sold to and enjoying the same privileges and
immunities as regards to goods, including motor fuel, purchased in the Philippines as are accorded in
the Philippines to the resident members of diplomatic and international organizations.
"xxx xxx xxx
(j) all such other exemptions, privileges and immunities which are or may be accorded by
the Government to members or officers of other international organizations."
It is evident that the intention of the foregoing provisions is to place the officers of the World Bank
at par with the officers of other international organizations insofar as exemption from taxes is concerned.
One such organization is the Asian Development Bank whose officers are granted exemption from
value-added tax (VAT) and ad valorem tax on their local purchase of motor vehicles pursuant to
Memorandum of the Executive Secretary to the Secretary of Foreign Affairs and Secretary of Finance
dated August 15, 1973 as implemented by Department Order No. 43-89. (BIR Ruling No. 187-99 dated
November 29, 1999)
Accordingly, on the basis of the favorable recommendation of the Department of Foreign Affairs
and in line with the precedent rulings granting VAT and ad valorem tax exemption to ADB personnel and
members of diplomatic missions on their local purchase of motor vehicles, your request on behalf of Mr.
Aloysius Ordu, Principal Operations Officer of the World Bank, for exemption from VAT and ad valorem
tax imposed under Sections 106(A) and 149 of the 1997 Tax Code on his purchase of one (1) unit Ford
Expedition is hereby granted.
Very truly yours,

Deputy Commissioner
August 29, 2000
RP-Korea Article 10
ITAD Ruling 49-99
Hitec-Park, Inc.
Bldg. 2D, Gabriel Industrial Complex
Phase IV, Block 23, Cavite Export Processing Zone
Rosario, Cavite
Attention: Lyndon A. Ferolino

Administrative Manager
Gentlemen :
This refers to your letter dated May 23, 2000 requesting for a ruling on the applicable tax rate for
dividends received by TAE-KWANG HITEC CO., LTD (TK HITEC) from HITEC PARK, INC., pursuant
to the RP-Korea Tax Treaty. DHITcS
It is represented that your company, HITEC-PARK, INC. (hereinafter referred to as the

"Corporation"), is a PEZA registered enterprise operating in Rosario, Cavite City; that TK HITEC is a
non-resident foreign corporation duly organized and existing under the laws of Korea with principal office
at 550-9Kasan dong, Kun Chon Ku, Seoul, Korea; that TK HITEC is not registered as a
corporation/partnership in the Philippines as per certification dated May 15, 2000 issued by the Securities
and Exchange Commission; that the stockholders of record of the Corporation as of October 1999 are as
follows:
NUMBER OF
NAME ADDRESS SHARES HELD
TAE KWANG HITEC. CO., Seoul, Korea 130,690
LTD
PARK MODELCRAFT, INC. Incheon City, Korea 1
Mr. Chun Sue Park San Diego, California, 1
United States of America
Mr. Jong Kon Heong Seoul, Korea 1
Mr. Lawrence J. Gotuaco Makati City, Philippines 1
Mr. Andrew P. Gotuaco Muntinlupa, Metro 1
Manila, Philippines ————
Total Shares 130,695
that on the 25th day of November 1999, the Corporation at a duly called meeting of its Board of Directors,
declared cash dividends in the amount of ONE HUNDRED TWENTY FIVE PESOS (P125.00) per share
to the shareholders of record as of October 31, 1999; and that the dividends shall be and payable in three
installments: the first installment to fall due on December 23, 1999, the-second on March 31, 2000, and
the third on June 30, 2000 as evidenced by the Secretary's Certificate dated December 7, 1999.
In reply, please-be informed that Article 10 of the RP-Korea 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:
company (other than a partnership) which holds directly at least 25 per cent of the capital of
the company paying the dividends; and
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". TcEDHa
xxx xxx xxx"
In view of the foregoing, and since TK HITEC holds directly more than 25 % of the total shares of
the Corporation, the cash dividends payable by the Corporation to TK HITEC are subject to the
preferential tax rate of 10% of the gross amount of dividends.
void.
Very truly yours,
By:
Deputy Commissioner
August 28, 2000
RP-UK-Article 12
NIRC Sec. 28 Sec. 127 Sec. 176
011-82
ITAD 44-00 17-99

6760 Ayala Avenue
1226 Makati City
Attention: J.A. Osana

Tax Division
Gentlemen :
This refers to your letter dated June 5, 2000 requesting, on behalf of Philippine Shell Petroleum
Corporation (PSPC), confirmation that pursuant to RP-UK tax treaty, the sale by Shell Petroleum
Corporation (SPCO) of shares of stock of PSPC, whether through or outside the facilities of the Philippine
Stock Exchange is exempt from capital gains tax imposed under Section 28(B)(5)(c) and from the stock
transaction tax imposed under Section 127(A), but subject to documentary stamp tax imposed under
Section 176, all of the 1997 Tax Code.
It is represented that SPCO is a corporation duly organized and existing under the laws of United
Kingdom, with office address at Shell Center London, SEI 7NA; that it is not registered as a corporation or
partnership in the Philippines, as per certification dated May 31, 2000 issued by the Securities and
Exchange Commission; that PSPC is a corporation duly organized and existing under the laws of the
Philippines; that SPCO was the registered owner of Four Hundred Sixty Three Million Nine Hundred
Eighty Eight Thousand Nine Hundred Ninety Eight (463,988,998) shares in PSPC, including seven (7)
shares in the name of nominees, with a par value of P1.00 per share, with an aggregate value of Four
Hundred Sixty Three Million Nine Hundred Eighty Eight Thousand Nine Hundred Ninety Eight pesos
(P463,988,998); that PSPC is required to offer at least ten percent (10%) of its common stock to the public
by virtue of the Republic Act No. 8479, Section 22, otherwise known as the Downstream Oil Industry
Deregulation Act of 1998; and that in compliance thereof, PSPC is planning to sell its common shares of
stocks with a par value of P1.00 per share, either, by primary offering (involving unissued common shares
of stock) or by secondary offering (involving outstanding common shares of stock).
"Article 12
1. Capital 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. AHDcCT
Contracting State in the other Contracting State for the purpose of performing professional services,
including 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 that provisions of paragraph (2) of this Article, capital gains derived by
a resident of a Contracting State from the alienation of ships and aircraft operated in international
xxx xxx xxx"
It is clear from the aforequoted provision that the capital gains from the alienation of any property
other than those mentioned in paragraphs 1, 2 and 3 of Article 12 shall be taxable only in the State where
the alienator is a resident. Inasmuch as the assignment or transfer of the subject shares of stock is not
among those mentioned in said paragraphs 1, 2 and 3, the gains derived by SPCO, which is a resident of
the United Kingdom (UK), from the assignment of its shares of stock to PSPC are not subject to the capital
gains tax imposed under Section 28(B)(5)(c), but are subject to tax only in UK. (BIR Ruling No. 011-82)
However, a certificate of authority to register the said transaction in the books of PSPC must be
secured. Thus, SPCO, being a nonresident foreign corporation, is not required to pay the capital gains tax,
but is required to file a Capital Gains Tax Return (BIR Form No. 1707) accompanied by copies of the
Deed of Assignment and this ruling, with Revenue District Office No. 51 — Pasay (RDO) 51), in order for
the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of
PSPC. aATHIE
Moreover, notwithstanding this exemption, the sale of shares of stock is subject to the documentary
stamp tax in accordance with Section 176 of the Tax Code of 1997.
PSPC can register in the Stock and Transfer Book the shares from SPCO to whoever the buyer is.
it will be disclosed that the facts are different, then this ruling shall be rendered null and void.

Deputy Commissioner
August 28, 2000
RP-Netherlands-Art. 11 00-00
Philips Semiconductors Phils., Inc.

LIIP-EPZA, Bo. Diezmo,
Cabuyao, Laguna
Attention: Mr. Ayasamy Ramajillu

Financial Controller and Vice President
Gentlemen :
This refers to your letter dated September 28, 1999 regarding the preferential tax rate of fifteen per
cent (15%) currently being withheld by your company, PHILIPS SEMICONDUCTORS PHILIPPINES,
INC. (PSPI), on your interest payments to KONINKLIJE PHILIPS ELECTRONICS N.V. (KPEN) under
the Term Loan Agreement dated January 31, 1999 entered into by both companies.
Relative thereto, you now ask for reconsideration requesting that a lower preferential tax rate of ten
per cent (10%) be granted on the same interest payments, under the same Term Loan Agreement entered
into by the said two (2) companies, on the ground that the loan is intended to finance the acquisition of
new technology, citing as basis Article 11 of the RP-Netherlands Tax Treaty.
In reply, please be informed that Article 11 of the RP-Netherlands Tax Treaty provides as follows:
"Article 11
INTEREST
"1. Interest 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 interest may also be taxed in the 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 if such interest is paid:
(i) in connection with the sale of credit of any industrial, commercial or

scientific equipment or HCSEcI
(ii) on any loan of whatever kind granted by a bank, or any other financial
institution,
(iii) in respect of public issues of bonds, debentures or similar obligations.
xxx xxx xxx"
It is clear from the said Article that, in order to qualify for the 10% tax rate, the interest is paid
under any of the three conditions set forth therein. Although the loan is intended to finance a new
technology, such basis alone cannot qualify under paragraph 2(a) of the aforementioned Article. A
thorough evaluation of the Term Loan Agreement submitted shows no sale on credit of any industrial,
commercial or scientific equipment, neither is the lender a financial institution, nor is the interest paid in
respect of public issues of bonds, debentures or similar obligations.
Considering that the interest payments made by PHILIPS SEMICONDUCTORS PHILIPPINES,

INC. to KONINKLIJE PHILIPS ELECTRONICS N. V. cannot be categorized under any of the conditions
set forth in paragraph 2(a), Article 11 of the RP-Netherlands Tax Treaty, your request for a 10%
preferential tax rate is hereby denied.
Very truly yours,
By:

Deputy Commissioner
August 28, 2000
RP-US Art. 14 (2)

135-94
Platon Martinez Flores San Pedro & Leaño

6th & 7th Floors Tuscan Building
114 Herrera St. Legaspi Village
Makati City, Philippines
Attention: Hector A. Martinez
Gentlemen :
This refers to your letter dated January 7, 2000 requesting on behalf of your client, Philip Morris
Philippines, Inc., (PM Philippines), for confirmation of your opinion that the transfer of the shares of stock
of PM Philippines by its parent corporation Philip Morris International Finance Corporation (PMIFCO) in
favor of FTR Holding S.A. (FTR-H) is not subject to the capital gains tax pursuant to Article 14 (2) of the
RP-US Tax Treaty in connection with the Reservation Clause of the said Treaty.
It is represented that PM Philippines is a domestic corporation duly registered with the Securities
and Exchange Commission; that PMIFCO is a non-resident foreign corporation duly organized and
existing under the laws of the State of Delaware, U.S.A.; that it is not registered as a
corporation/partnership in the Philippines as per certification dated June 28, 1999 issued by the Securities
and Exchange Commission (SEC); that FTR-H is a non-resident foreign corporation duly organized and
existing under the laws of Switzerland; that it is not registered to engage in business in the Philippines;
that PM Philippines has an authorized capital stock of Fifty Million Pesos (P50,000,000.00) divided into
Fifty Thousand (50,000) common shares with a par value of P1,000.00 each, of which Nineteen Thousand
(19,000) common shares are issued and outstanding and the following are the registered owners of said
shares:
Name No. of Shares

PMIFCO 18,992
Duck Y Song, 1
Harold Dyrvik 1
Marshall S. White 1
Roman Mabanta, Jr. 1
Jose F. Buenaventura 1
Cynthia R. Del Castillo 1
Herminio S. Ozaeta. Jr. 1
Owen Carsi-Cruz 1
that PMIFCO and FTR-H entered into an Agreement and Plan of Exchange and Reorganization
(Reorganization Agreement) dated July 14, 1998 pursuant to which PMIFCO transferred to FTR-H all of
PMIFCO's right, title and interest in the shares of the various corporations in exchange solely for newly
issued shares of voting common stock of FTR-H; that under the Reorganization Agreement, PMIFCO
transferred to FTR-H effective as of July 14, 1998 the 18,992 PM Philippines common shares owned by
and registered in the name of PMIFCO in exchange for 1,294 newly issued shares of voting common stock
of FTR-H; and that in a letter agreement dated November 30, 1999 between PMIFCO and FTR-H, it was
clarified that the 8 common shares registered in the names of the individuals and held in trust for PMIFCO
are included in the transfer from PMIFCO to FTR-H. CIDTcH
In reply, please be informed that Article 14 (2) of the RP-US Tax Treaty provides, as follows:
"Article 14
"Capital Gains
"xxx xxx xxx
in Article 7 (Income From Real Property) shall be taxable only in the Contracting state of which the
In view of above-quoted provision of the RP-US Tax Treaty, gains which may be realized from the
transfer of 19,000 PM Philippines shares by PMIFCO in favor of FTR-H in exchange for newly issued
shares of voting common stock of FTR-H shall be taxable only in the United States.
Moreover, please be informed that the Reservation Clause of the RP-US Tax Treaty, pertinent
portion of which is quoted hereunder, states as follows:
"Article I
"Notwithstanding the provisions of Article 14 of the Convention relating to capital gains, both
the Philippines and the United States may tax gains from the disposition of an interest in a
corporation if its assets consist principally of real property interest located in that country. Likewise,
both countries may tax gains from the disposition of an interest in a partnership, trust or estate to the
extent the gain is attributable to a real property interest in one of the countries. The term "real
property interest" is to have the meaning it has under the law of the country in which the underlying
real property is located." (emphasis supplied)
It is to be noted that under the Reservation Clause, the Philippines may tax the gains derived from
the disposition of interest in a corporation if its assets consist principally of real property interest located
in the Philippines. "Principally" means more than 50% of the entire assets in terms of value. (Sec. 2,
Revenue Regulations No. 4-86) [BIR Ruling No. 135-94 dated September 1, 1994] Verification of the
audited Financial Statement as of December 31, 1997 and unaudited Financial Statement as of December
31, 1998, shows that PM Philippines' real property interest as of July 14, 1998 situated in the Philippines
is 29% of the total assets of the corporation. ISTCHE
In view thereof, your opinion is hereby confirmed. Gains, if any, which may be realized by your
client from the transfer of PMIFCO shares of stock in PM Philippines to FTR-H shall be taxable only in
the United States pursuant to Article 14 (2) of the RP-US Tax Treaty.
Although exempt, the said sale, however, is subject to the documentary stamp tax imposed under
Section 176 of the National Internal Revenue Code of 1997.
investigation, it will be disclosed that the facts are materially different, then this ruling shall be considered
as automatically revoked.
Very truly yours,

Deputy Commissioner
August 23, 2000
Sec. 32 (B) (6) (c)

RP-France, Art. 19
Quisumbing Fernando & Javellana

Law Offices
Lajave Center, R. Alvero cor. E. Abada Sts.,
Loyola Heights, Quezon City
Attention: Mr. Emmanuel Q. Fernando

and
Mr. Enrico Q. Fernando
Gentlemen :
This refers to your letter dated January 19, 2000, seeking clarification on the taxability of the
income from pension of your client, Mr. Serge M. Laumond, a French national residing in the Philippines.
It is represented that Mr. Laumond is a French national who has been granted permanent residency
status in the Philippines pursuant to Executive Order No. 1037 (Philippine Retirement Authority Law);
that Mr. Laumond is a holder of a Special Resident Retiree's Visa (SRRV) issued by the Philippine
Retirement Authority of the Office of the President; that he is not engaged in any trade or business nor in
the exercise of any profession in the Philippines; and that his only source of income is the pension from
the French government.
In reply, please be informed that Sec. 32(B)(6)(c) of the National Internal Revenue Code of 1997
(Tax Code of 1997) provides:
xxx xxx xxx
(B) Exclusions from Gross Income. — The following items shall not be included in gross
xxx xxx xxx
(6) Retirement Benefits, Pensions, Gratuities, etc. —
xxx xxx xxx
(c) The provisions of any existing law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident
citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign
government agencies and other institutions, private or public." (Emphasis supplied) THDIaC
Furthermore, Article 19 (2) of the RP-France Tax Treaty states:
"Article 19
GOVERNMENT SERVICE
xxx xxx xxx
2. Any pension paid by, or out of funds created by, a Contracting State or one of its
political subdivisions or local authorities or by a statutory body thereof to any individual in respect of
services rendered to that State or subdivision or local authority or statutory body shall be taxable only
in that State." (Emphasis supplied)
It is clear that the Tax Code of 1997 exempts from income tax the pensions received from foreign
governments by aliens permanently residing in the Philippines. Likewise, the above-quoted provision of
RP-France Tax Treaty declares that pension paid by French Government to any individual in respect of
services rendered to the Government of the French Republic shall be taxable only in that State. Thus, the
pensions transmitted to and received by Mr. Laumond from the French Government is taxable only in
France.
Accordingly, the pension of Mr. Serge M. Laumond from the French government is exempt from
Philippine income tax and he is not required to file income tax return in the Philippines in accordance with
Section 51(A)(2)(d) of the Tax Code of 1997.
investigation, it shall be disclosed or discovered that the facts are different, then this ruling shall be
Very truly yours,

Commissioner
August 23, 2000
Sec. 32 (B) (7) (a)
Embassy of the Sovereign Military Order of Malta

6th Floor, Cattleya Condominium Building
235 Salcedo St., Legaspi Village
1229 Makati City
Attention: H. E. Enrique P. Syquia

Ambassador
Gentlemen :
This refers to your letter dated March 15, 1999 requesting for exemption from payment of the seven
and one-half percent (7½%) final income tax on the interest income which the Embassy of the Sovereign
Military Order of Malta receives from its foreign currency time deposit with a local bank.
It is represented that the Embassy has a foreign currency certificate of time deposit with a local
bank, and that the local bank is requesting the Embassy to present a certificate issued by the Bureau of
Internal Revenue to the effect that the Embassy is exempt from the seven and one-half percent (7½%) final
income tax on interest income it receives from its foreign currency time deposit. cTDECH
In reply thereto, please be informed that Sec. 32(B)(7)(a) of the National Internal Revenue Code of
1997 (Tax Code of 1997) provides:
"(B) Exclusions from Gross Income. — The following items shall not be included in gross
"(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 governments and (iii) international or regional financial institutions
established by foreign governments."
It is clear from the aforequoted provision of the Tax Code of 1997 that interest income received by
the Embassy from its foreign currency time deposit with a local bank is considered "income derived from
interest on deposits in banks in the Philippines by foreign governments." As an exclusion from the
computation of gross income, the same is exempt from taxation.
In fine, interest income which the Embassy of the Sovereign Military Order of Malta receives from
its foreign currency time deposit with a local bank is exempt from withholding tax.
void.
Very truly yours

Commissioner
August 9, 2000
RP-Korea Art. 12 129-98

ITAD #54-00
Daeduck Philippines, Inc.
Philippine Economic Zone Authority
Lot No. 1-13, Blk. 20, Phase 4, Main Avenue
Rosario, Cavite
Attention: Jae Yeol Lim

Accounting Division Manager
Gentlemen :
This refers to your application for tax treaty relief dated June 15, 2000, requesting for 10%
preferential tax rate on royalty payments of your company to Daeduck Electronics Co. Ltd.
(Daeduck-Korea) by virtue of the RP-Korea Tax Treaty.
It is represented that Daeduck Philippines Inc. (Daeduck-Phils.) is a domestic corporation organized

and existing under Philippine laws and duly registered as an enterprise at Philippine Economic Zone
Authority (PEZA) under Certificate of Registration No. 96-038; that Daeduck-Korea is a non-resident
foreign corporation organized and existing under the laws of the Republic of Korea with business address
at 390-1 Moknai Dong Ansan Si, Kyunggi Do, Korea; that Daeduck-Phils. entered into a Technical
License Agreement with Daeduck-Korea effective for five years from March 16, 1996 and renewable by
mutual consent; that under the said Agreement, Daeduck-Korea grants Daeduck-Phils. an exclusive license
to use the technical information for the manufacture of the “PCB Products” (printed circuit board
products); and that in consideration for such grant , Daeduck-Phils. shall pay royalties to Daeduck-Korea
in the amount equivalent to 5% Net Sales for the Multi layer PCB and 2.5% Net Sales for Double side
PCB.
In reply, please be informed that Article 12 of the RP-Korea Tax Treaty states that:
"Article 12
ROYALTIES
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 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 Korea, who is the beneficial owner of
the royalties, shall not exceed 10 per vent of the gross amount of the royalties." HTASIa
"4. The term “royalties” as used in this Article means payments of any kind received as a
consideration for the use of, or 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"
The foregoing RP-Korea Tax Treaty provision allows a 10% preferential tax rate on royalty
payments if the paying company is registered with the Board of Investments and engaged in preferred
pioneer areas of investments and 15% in all other cases as long as the recipient of the royalty payments is
the beneficial owner and a resident of a Contracting State.
Inasmuch as Daeduck-Phils. is not registered and not engaged in preferred areas of activities in the
Philippines in accordance with the above-quoted Article 12(3), royalties arising in the Philippines and
payable to Daeduck-Korea are subject to Philippine tax at the rate of 15% of the gross amount of royalties
pursuant to Article 12(2) of the RP-Korea Tax Treaty, contrary to your opinion that said royalties are
subject to the preferential tax rate at 10%. (BIR Rulings 129-98 and ITAD 54-00)
This ruling is being issued on the basis of the foregoing representation. However, if upon
investigation, it will be disclosed or discovered that the facts are different, then this ruling shall be
Very truly yours,

Deputy Commissioner Legal and Inspection Group
August 9, 2000
RP-Japan Art. 10
ITAD 49-99
The Bengzon Firm

SOL Building 112 Amorsolo St
Legaspi Village 1229 Makati City
Attention: Atty. Hubert E. Molina

Atty. Victoria T. Lim Kico
Gentlemen :
This refers to your letter dated October 26 1999, requesting for confirmation/ruling on the
application of the 10% preferential tax rate to be withheld from the dividend remittances of Sagara Metro
Plastics Industrial Corp. ("Metro") to Sagara Plastics Industrial Co. Ltd. ("Plastics") and to individual
Japanese stockholders pursuant to Article 10 (2) (a) of the RP-Japan Tax Treaty. CIHTac
It is represented that Metro is a domestic corporation organized and existing under the laws of the
Philippines with office address at Brgy. Paciano Rizal, Calamba, Laguna; that Plastics is a non-resident
foreign corporation domiciled in Japan with business address at 4371120 Hirooka Fukuroi-shi, Shizuoka,
Japan; that Plastics owns 81,360 shares of stock with a par value of PhP1,000.00 per share which represent
approximately 88.44% of the total outstanding shares of stock of Metro; and that on September 7, 1999,
Metro's Board of Directors approved the declaration of cash dividends equivalent to 20% of the retained
earnings as of June 30, 1999 in favor of Metro shareholders in the amount of Two Million Five Hundred
Forty Seven Thousand Two Hundred Eighty Seven Pesos (PhP2,547,287.00) per Secretary's Certificate
dated January 29, 2000.
In reply please be informed that Article 10 of the RP-Japan Tax Treaty provides:
"Article 10
(1) Dividends paid by a company which is a resident of a Contracting State to a resident of

(2) However, such dividends may also be taxed in the Contracting State of which the
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 that 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;
(3) ...
(4) The term "dividends" as used in this Article means income from shares or other rights,
making the distribution is a resident." ESDHCa
In view of the foregoing, and since Plastics owns 88.44% of the total outstanding stocks of Metro,
the cash dividends payable by Metro to Plastics are subject to 10% withholding tax.
However, Secretary's Certificate showing the stockholders' value and number of common shares as
of September 2, 1999, provides that the four (4) individual Japanese stockholders of Metro, namely,
Tomohide Sagara, Hisako Sagara, Tadashi Osumi and Takayuki Ishikawa owns 590, 20, 10 and 10 shares
of stock of Metro, respectively, and since each of whom represents less than 25% of Metro's outstanding
stocks, the cash dividends payable by Metro to the four (4) individual Japanese stockholders are subject to
25% withholding tax pursuant to Article 10(2)(b) of the RP-Japan Tax Treaty.
Very truly yours,

Deputy Commissioner
August 9, 2000
ITAD 28-99 ITAD 28-00
Claflin Chemical Company, Inc.

74 Epifanio delos Santos Avenue
Mandaluyong City
Attention: Mr. Ramon T. Quilloy, Jr.

Director
Gentlemen :
This refers to your application for relief from double taxation dated June 4, 1999 on behalf of
SMITHKLINE BEECHAM INTERCREDIT B.V., requesting for a preferential tax rate of ten per cent
(10%) to be withheld on dividend remittances by CLAFLIN CHEMICAL COMPANY, INC. pursuant to
the RP-Netherlands Tax Treaty.
It is represented that SMITHKLINE BEECHAM INTERCREDIT B.V. is a non-resident foreign

corporation duly organized and existing under the laws of Netherlands, with no permanent establishment
here in the Philippines per certification dated March 4, 1999 issued by the Securities and Exchange
Commission, while CLAFLIN CHEMICAL COMPANY, INC. is a domestic corporation organized and
existing under the laws of the Philippines; that SMITHKLINE BEECHAM INTERCREDIT B.V. owns
10,245 shares with par value P1,024,500.00, comprising ninety nine and 99/100 per cent (99.99%) of the
total outstanding capital stock of CLAFLIN CHEMICAL COMPANY, INC. as of November 30, 1999;
that on December 9, 1998, the Board of Directors of CLAFLIN CHEMICAL COMPANY, INC. passed
and approved a resolution declaring a cash dividends in the amount of P1,500,000 00 or P146.34 per share,
in favor of its stockholders of record as of November 30, 1998.
Based on the foregoing, you now request that the preferential tax rate of ten per cent (10%) under
the RP-Netherlands Tax treaty be applied on the dividend remittances of CLAFLIN CHEMICAL
COMPANY, INC. to SMITHKLINE BEECHAM INTERCREDIT B.V. SaIHDA
In reply, please be informed that Article 10 of RP-Netherlands Tax Treaty provides as follows:
"Article 10
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;
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
xxx xxx xxx"
In view of the foregoing, your application is hereby approved. Hence, the preferential rate to be
withheld by CLAFLIN CHEMICAL COMPANY, INC., on its dividend remittances to SMITHKLINE
BEECHAM INTERCREDIT B.V. is ten per cent (10%) considering that the latter holds ninety nine and
99/100 (99.99%) of the voting shares of the former. (ITAD Ruling 28-99; ITAD Ruling 28-00) ACcTDS
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void.
Very truly yours,

Deputy Commissioner
August 7, 2000
RP-USA Art. 13
RP-Netherlands, Art. 12
BIR Ruling 129-98 ITAD #54-00

Attention: Mary Assumption S. Bautista

Principal
Gentlemen :
This has reference to your application for tax treaty relief dated February 24, 2000 on behalf of
your client, Bristol-Myers Squibb (Philippines), Inc. (BMS-Phils.) for the availment of the 15% final
withholding tax rate on royalty payments made by BMS-Phils. to Bristol-Myers Squibb Company (BMSC)
pursuant to RP-USA Tax Treaty in relation to RP-Netherlands Tax Treaty.
It is represented that BMSC is a nonresident foreign corporation organized and existing under the
laws of the State of Delaware; that BMS-Phils. is a domestic corporation duly organized and existing
under Philippine laws; that on January 1, 1998, BMSC entered into an Administrative and Technical
Services Agreement (Agreement) with BMS-Phils. whereby BMSC agreed to provide BMS-Phils. with
services and guidance enumerated in the Agreement such as, but not limited to marketing, sales,
promotional and distribution planning and techniques; that in consideration for all services and guidance
in different fields, BMS-Phils. agreed to pay an annual administrative and technical services fee (royalty
fee) in the amount equal to three percent (3%) of the net sales for the year of all products sold by
BMS-Phils.
[Art. 13, paragraph (2)(b)(iii)], the tax imposable on royalties derived by a resident of the United States
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. Corollarily, Article 12(b) of the
RP-Netherlands Tax Treaty provides that royalties arising in the Philippines but the tax so charged shall
not exceed 15 per cent of the gross amount of the royalties in cases other than royalties paid by an
enterprise registered in preferred areas of activities in the Philippines.
Such being the case and since BMS-Phils. is not registered and engaged in preferred areas of
activities in the Philippines, royalties arising in the Philippines and payable to BMSC are subject to
Philippine tax at the rate of 15 per cent pursuant to Article 13(2)(b)(iii) of the RP-US Tax Treaty in
relation to Article 12(b) of the RP-Netherlands Tax Treaty. (BIR Ruling No. 129-98 and ITAD Ruling No.
54-00) CaAIES
Moreover, the said royalties based on the net sales shall be subject to 10% value-added tax (VAT)
pursuant to Section 108(A)(1) and (3) of the Tax Code and that BMS-Phils. shall, before making payment
of royalties to BMSC, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a
separate VAT return for and in behalf of BMSC. The duly validated VAT declaration/return is sufficient
evidence for BMS-Phils. in claiming input tax credit. (Section 4.110-3(b) of Revenue Regulations No.
7-95)
In fine, the royalties paid by Bristol-Myers Squibb (Philippines), Inc. (BMS-Phils.) to

Bristol-Myers Squibb Company (BMSC) is subject to tax at the rate of 15 per cent. Furthermore,
BMS-Phils. shall, on behalf of BMSC, withhold the 10 per cent VAT due by filing a separate VAT return
for BMSC using BIR Form 1600.
void.
Very truly yours,

Deputy Commissioner
August 7, 2000
RP-Japan Article 12 Sec. 108 7-86 96-81

6805 Ayala Avenue
1226 Makati City
Attention: Atty. George J. Lavadia

Principal
Gentlemen :
This is in connection with your application for tax treaty relief dated September 22, 2000, with
respect to the royalties payable by your client, GNF Philippines, Inc. (GNF) to Ammic Corporation
(Ammic) pursuant to Article 12 (2)(b) of the RP-Japan Tax Treaty.
It is represented that Ammic is a non-resident foreign corporation duly organized and existing under
the laws of Japan; that it is nor registered as a corporation/partnership in the Philippines as per
certification dated February 11, 2000 issued by the Securities and Exchange Commission (SEC); that the
Ammic Corporation registered with the SEC under License No. AF095000063 is a representative office of
Ammic in the Philippines as per Certificate of Registration and License dated June 9, 1995 issued by SEC;
that the said representative office was established with the following functions: a) dissemination of foreign
market information, b) promotion for export of Philippine products, particularly non-traditional products
and products presently being distributed in the Philippines, c) to act as message/communication center
between interested parties and head office, d) to render, assist and give technical know-how and training to
existing and future customers of the company’s products, e) to provide and facilitate better communication
and contact between its head office and affiliated companies on one hand and present and future customers
on the other hand, f) to inform potential customers of price quotations of the head office and affiliated
companies, g) to attend the needs of the end users of its products in the Philippines; that GNF is a
domestic corporation duly organized and existing under the laws of the Philippines; that on July 17, 1997,
Ammic and GNF entered into a Software License Agreement whereby Ammic will grant GNF a
non-exclusive right to use its computer-application software; that in consideration for such grant, Ammic
shall receive royalty payments in the amounts set forth in the schedule/s provided under the Agreement;
and that the License Agreement has been duly registered with the Bureau of Patents, Trademarks and
Technology Transfer on October 20, 1997 under Certificate of Registration No. 2027.
In reply, please be informed that Article 12 (2)(b) of the RP-Japan Tax Treaty provides: DaIACS
“Article 12
“1. Royalties arising in a Contracting State and paid to a resident of the other Contracting
“2. However, such royalties may also be taxed in the Contracting State in which they arise,
“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. (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 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
or scientific experience.
"xxx xxx xxx"
Based on the foregoing, the royalty payments will be taxed at the preferential tax rate not exceeding
ten per cent (10%) if the payor is a Board of Investments (BOI) registered enterprise, fifteen per cent
(15%) if the payments are in respect of the use of or the right to use cinematograph films and films and
films or tapes for radio or television broadcasting, and in all other cases, twenty-five per cent (25%) of the
gross amount of royalties.
Such being the case, since GNF is not a BOI-registered enterprise, and the payments made by GNF
to Ammic are not in respect of the use or the right to use cinematograph films and films or tapes for radio
and television broadcasting, the herein payments are subject to tax at the rate of 25 per cent on the gross
amount of royalties pursuant to the RP-Japan Tax Treaty. (BIR Ruling Nos. 96-81 and 7-86)
Moreover, the said royalties based on the net sales shall be subject to 10 percent value added tax
(VAT) pursuant to Section 108 of the Tax Code of 1997. GNF shall, before making payments of royalties
to Ammic, withhold and remit to this Bureau the said 10 percent VAT due thereon by filing a separate
VAT return for and on behalf of Ammic. The duly validated VAT declarations/return is sufficient
evidence in claiming input tax credit. (Section 4.110-3(b) of Revenue Regulations No. 7-95)
In fine, the royalties to be paid by GNF Philippines, Inc. (GNF) to Ammic Corporation (Ammic) is
subject to tax at the rate 25 per cent. Furthermore, GNF shall, on behalf of Ammic, withhold the 10 per
cent VAT due by filing a separate VAT return for Ammic using BIR Form 1600.
void. TcSHaD
Very truly yours,

August 7, 2000
Art. 13, RP-US ITAD # ITAD # Art. 12, RP-Netherlands 54-00
Quisumbing Torres Law Firm

11th Floor, Pacific Star Building
Makati Ave., cor. Sen Gil J. Puyat Ave.
1200 Makati City
Attention: Jose R. Sandejas

and
Jose Jaime V. Cruz
Gentlemen :
This refers to your letter dated February 22, 2000 requesting for confirmation of your opinion that
the royalties to be paid by ITW Ampang Industries Philippines, Inc. (Ampang) to your client, ITW Illinois
Tool Works, Inc. (ITW), is subject to the preferential tax rate of 15 per cent pursuant to the “most favored
nation” clause of the RP-US Tax Treaty in relation to RP-Netherlands Tax Treaty.
It is represented that ITW is a non-resident foreign corporation duly recognized and existing under
the laws of the United States of America; that it is not registered as a corporation/partnership in the
Philippines as per Securities and Exchange Commission certification issued September 21, 1999; that
Ampang is a PEZA registered corporation duly organized and existing under Philippine laws; that ITW
proposes to enter a Licensing Agreement with Ampang, whereby ITW will grant Ampang the exclusive
right and license to practice and use the patents, trademarks, marketing support and the license technology
for the manufacture and sale of the former’s products in the Philippines for a duration of five years; that in
consideration of the aforementioned rights to be licensed to Ampang, Ampang shall pay ITW a royalty of
four per cent of the former’s net sales on the products covered by the agreement.
In reply, please be informed that under the “most favored nation” clause provision of the RP-US Tax
Treaty [Article 13, paragraph (2) (b) III], 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. Article 12,
paragraph 2 (b) of the RP-Netherlands Tax Treaty provides that royalties arising from the Philippines and
paid to a resident of Netherlands may also be taxed in the Philippines but the tax so charged shall not exceed
15 per cent of the gross amount of royalties in cases other than royalties paid by an enterprise registered in
preferred areas of activities in the Philippines. The term “royalties” as used in this Article means payments
of any kind received as a consideration for the use of, or right to use, any patent, trademark, design or
model, secret formula or process, or for the use of, or the right to use of, industrial, commercial or scientific
equipment, or for information concerning industrial, commercial or scientific experience.
A perusal of the RP-US and RP-Netherlands Tax Treaties, particularly their article on the avoidance
of double taxation, show that there is a similarity on the manner of payment of taxes, that is, the allowable
foreign tax credit on both treaties is the amount actually paid in the Philippines.
Such being the case, your opinion that the royalties to be paid by ITW Ampang Industries
Philippines, Inc. (Ampang) to your client, ITW Illinois Tool Works, Inc. (ITW) is subject to the preferential
tax rate of 15 per cent pursuant to the “most favored nation” provision of the RP-US Tax Treaty in relation
to RP-Netherlands Tax Treaty is hereby confirmed. (ITAD No. 54-00 dated March 7, 2000)
void.
Very truly yours,

August 7, 2000
RP-US-Arts. 5 & 8
RP-Australia-Arts. 5 & 7
RP-Singapore-Arts. 5 & 7
NIRC-Secs. 34 & 108
ITAD 61-00
ITAD 65-00

14TH Floor, Multinational
Bancorporation Center
6805 Ayala Avenue
1226 Makati City, Manila
Attention: Mary Assumption S. Bautista-Villareal

Gentlemen :
This refers to your letter dated April 13, 2000, requesting confirmation of the following: 1) that the
payments made by your client NCR Corporation Philippines (NCRP) to NCR Corporation (NCR), NCR
International, Inc. (NCRI), NCR (Australia) Pty. Ltd. (NCRA) and the NCR Asia-Pacific Regional Office
(NAPRO) under the Integrated Services Agreement (ISA) are not subject to Philippine income tax
pursuant to the RP-US Tax Treaty, RP-Australia Tax Treaty and the RP-Singapore Tax Treaty; 2) that the
same payments are not subject to value-added tax (VAT); 3) and that said payments are considered
ordinary and necessary in the conduct of NCRP's trade or business and deductible from its gross income
under Section 34(A)(1) of the National Internal Revenue Code of 1997 (NIRC).
It is represented that NCR and NCRI are non-resident foreign corporations duly organized and
existing under the laws of the State of Maryland and the State of Delaware, respectively; that NCRA and
NAPRO are, likewise, non-resident foreign corporations, affiliates of NCR and NCRI, duly organized and
existing under the laws of Australia and Singapore, respectively; that NCR, NCRI, NCRA and NAPRO are
not registered as corporation/partnership in the Philippines as per certifications dated February 16, 1999
issued by the Securities and Exchange Commission (SEC); that NCRP on the other has, is a corporation
duly organized and existing under the laws of the Philippines, engaged in general import and export
business, general commission business, sale and manufacture of all kinds of radio, wireless electric and
radio instrumentalities; that on January 01, 1997, NCRP entered into an Integrated Services Agreement
(ISA) with NCR, NCRI, NCRA and NAPRO whereby the latter corporations will provide administrative,
management, advisory, technical and professional services to NCRP; that the services covered by the ISA
will be rendered outside the Philippines, and the personnel of the aforementioned service providers will
come to the Philippines only as the need arises, but such visits will not exceed, for the entire duration of
the ISA, one hundred eighty-three (183) days; and, that the service fee will be charged out directly to
NCRP based on total cost plus 10% uplift.
In reply, please be informed that Article 8(1) in relation to Article 5(1) and (2) of the RP-US Tax
Treaty provides, viz:
"Article 8
BUSINESS PROFITS
"(1) Business profits of a resident of one of the Contracting States shall be taxable only in
resident has a permanent establishment in the other Contracting State, tax may be imposed by that
attributable to the permanent establishment."
"Article 5
"(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. cAHIST
"(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 a connected project) within the other Contracting State for a period or periods
aggregating more than 183 days."
xxx xxx xxx"
Also, Article 7(1) in relation to Article 5(1) and (2) of the RP-Australia 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
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 avoiding taxation in that other State."
"Article 5
"(1) For the purposes of this Agreement, the term "permanent establishment" means a fixed
"(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
And finally, Article 7(1) in relation to Article 5(1) and (2) of the RP-Singapore Tax Treaty
provides, viz:
"Article 7
BUSINESS PROFITS
"(1) The profits of an enterprise of a Contracting State shall be taxable only in that State
"Article 5
"(2) The term "permanent business" 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 State 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." TDAHCS
Based on the aforequoted provisions, business profits derived by an enterprise/resident of the US,
Australia and Singapore are taxable only in their respective States. However, if the said enterprise/resident
has a permanent establishment/fixed place of business in the Philippines, their business profits which are
attributable to such permanent establishments/fixed place of business, may be taxed in the Philippines
In the absence of a fixed place of business, the existence of a permanent establishment is

determined by the duration of stay of the enterprises' personnel in the Philippines, through whom the
services of the said enterprises are rendered. In the case of the RP-US and RP-Singapore tax treaties, if the
period of stay for the purpose of rendering services exceeded in the aggregate of more than 183 days, and
in the case of RP-Australia, if the period exceeded in the aggregate of more than six (6) months in a
calendar year, there is deemed to exist a permanent establishment in the Philippines.
Considering that the services of NCR, NCRI, NCRA and NAPRO covered by the ISA will be
rendered mostly outside the Philippines, and that the visits of their personnel in the Philippines will not
exceed an aggregate period of 183 days/6 months, NCI, NCRI, NCRA and NAPRO do not have a
permanent establishment in the Philippines to which their business profits could be attributed to. Hence,
the service fees to be paid by NCRP are not subject to Philippine income tax prescribed under Section
28(B)[1] in relation to Section 57(A) of the NIRC. (BIR Ruling No. ITAD 61-00)
Furthermore, Section 34(A)(1)[a] of the same Code provides that there shall be allowed as
year in carrying on or which are directly attributable to, the development, management, operation/conduct
of the trade, business or exercise of a profession. Inasmuch as the fees to be paid by NCRP to NCR, NCRI,
NCRA and NAPRO are directly attributable to the development, management, operation/conduct of trade
or business of NCRP, being incurred to promote efficiency and hone its business expertise, the same may
be claimed by NCRP as deductible expenses.
However, the fees to be paid by NCRP to the aforementioned service providers for services
rendered in the Philippines are subject to the 10% value-added tax pursuant to Sec. 108 of the Tax Code.
Accordingly, NCRP shall be responsible for the payment of VAT on the said services on behalf of NCR,
NCRI, NCRA and NAPRO by filing a separate VAT declaration/return using BIR Form 1600, and the said
VAT declaration/return can be used by NCRP as evidence in claiming input tax credit. (Sec. 4.102-1(b),
Revenue Regulations No. 7-95 [BIR Ruling No. ITAD 65-00 dated April 06, 2000]
Very truly yours,

Deputy Commissioner
August 7, 2000
RP-Japan [DA-048-1-31-96]; Art. 5; Art. 7 068-88; 022-88

6805 Ayala Avenue
1226 Makati City

Gentlemen :
This refers to your letter dated January 12, 1998 submitting on behalf of GNF (Philippines) Inc.
(GNF) an application for tax treaty relief pursuant to the provisions of the RP-Japan Tax Treaty.
It is represented that GNF, a PEZA-registered corporation organized and existing under the laws of
the Philippines, entered into a Services Agreement with Futaba Manufacturing., LTD. TOKYO (FMC), a
corporation duly organized and existing under the laws of Japan and not registered to do business in the
Philippines as evidenced by a certification issued by the Securities and Exchange Commission dated
January 16, 1998; that under the said Services Agreement, FMC is to provide GNF with services
consisting of supervision and maintenance work of the GNF’s manufacturing plant in the Philippines
during the start up process of two months commencing from January 5, 1998 up to March 4, 1998; and
that in consideration for the said services, GNF will pay FMC the total amount of US$100,209.48
Based on the foregoing, it is your opinion that since the length of service of FMC in the Philippines
was only for a period of two (2) months, then FMC will not be deemed to have a permanent establishment
in the Philippines and accordingly, payments to be made by GNF to FMC are not subject to Philippine
income tax.
In reply thereto, please be informed that paragraph (1), Article 7 of the RP-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"
Moreover, paragraphs (1), (2) and (3) of Article 5 of the said treaty provide, viz:
“Article 5
“(1) For the purpose 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. cCAIaD
“(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"
Under the aforementioned provisions, it is clear that if an enterprise of Japan does not carry on
business in the Philippines through a permanent establishment situated therein, the profits of an enterprise
of Japan shall not be subject to Philippines income tax.
In view of the foregoing, your opinion is hereby confirmed. Considering that as represented, FMC
does not have a permanent establishment in the Philippines, the service fees to be paid and remitted by
GNF to FMC are not subject to income tax in the Philippines (BIR Ruling No. 068-88 dated March 3,
1988).
investigation, it will be disclosed that the facts are different, then this ruling shall be without force and
effect insofar as the parties herein are concerned.
Very truly yours,
By:

Deputy Commissioner
August 7, 2000
RP-Singapore Articles 5 & 7
BIR Ruling #088-86
Picazo, Buyco, Tan, Fider & Santos

8th, 6th & 4th Floors, Singapore Airlines Building
138 H.V. dela Costa Street, Salcedo Village,
Makati City
Attention: Atty. Antonio A. Picazo

Atty. Peter Donnely A. Barot
Partners
Gentlemen :
This refers to your letter dated March 27, 2000 requesting confirmation of your opinion that the
service fees paid to Morgan Stanley Dean Witter Asia (Singapore) Pte (hereinafter, "Morgan Stanley") by
AsianBank Corporation (hereinafter, "AsianBank") and its shareholders including, A. Soriano
Corporation, Philippine Investment-Management Consultants, Inc. and Philippine Long Term Equity Fund
(hereinafter, the "Shareholders"), are not subject to Philippine tax pursuant to the RP-Singapore Tax
Treaty. AsianBank and the Shareholders are hereinafter collectively referred to as the "Clients."
It is represented that Morgan Stanley is a corporation engaged in providing financial services; that
it is organized and existing under the laws of Singapore; that it is not registered to do business in the
Philippines as per certification issued by the Securities and Exchange Commission dated May 3, 2000; that
the Clients are residents of the Philippines; that the Clients engaged the services of Morgan Stanley to be
their exclusive financial advisor in connection with the sale of the Shareholders' shares in AsianBank
and/or a merger of AsianBank with another financial institution (the "Transaction") and/or a proposed sale
(the "Subsidiary Sale") of some or all of the share capital of one or more subsidiaries or associated
companies of AsianBank under an Engagement-Letter between Morgan Stanley and the Clients dated
September 17, 1999; that during the term of the aforesaid engagement, Morgan Stanley will provide the
Clients with financial advice and assistance in connection with the Transaction and/or the Subsidiary Sale,
which may include, if appropriate, advice and assistance with respect to defining objectives, performing
valuation analysis, and structuring, planning and negotiating the relevant transaction; that whether or not
the Transaction or Subsidiary Sale is completed, Morgan Stanley will charge the Clients an "Advisory
Fee" which will compensate the said corporation for their time and effort expended; that under this
arrangement, Morgan Stanley will charge a monthly retainer of US$50,000, to be paid by the Clients on a
quarterly basis; that if the Transaction is completed, Morgan Stanley will charge a "Transaction Fee"
against which any Advisory Fee previously paid will be credited; that if the Subsidiary Sale is completed,
Morgan Stanley will charge a "Subsidiary Sale Fee" which will be calculated in the same manner as the
calculation of the Transaction Fee; that the furnishing of services by Morgan Stanley will not exceed 183
days; and that Morgan Stanley does not have a "permanent establishment" in the Philippines as this term is
defined in the RP-Singapore Tax Treaty.
In reply thereto, please be informed that paragraph (1), Article 7 of the RP-Singapore Tax Treaty
Article 7
Business Profits
"1. The profits of all enterprise of a Contracting States shall be taxable only in that State
xxx xxx xxx"
Moreover, paragraphs (1), (2) and (3) of Article 5 of the aforesaid treaty provide, viz:
"Article 5
place of business 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; IcHTED
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

xxx xxx xxx"
Under the aforementioned provisions, it is clear that if a corporation which is a resident of the
Republic of Singapore does not carry on business in the Philippines through a permanent establishment
situated therein, the profits of the Singaporean-resident corporation shall not be subject to Philippine
income tax. For this purpose, a corporation which is a resident of the Republic of Singapore may be
deemed to have a permanent establishment in the Philippines if, among others, the furnishing of services
by such Singaporean-resident 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.
Considering that the performance of Morgan Stanley's Advisory Services under the
Engagement-Letter with the Clients will be for less than 183 days, Morgan Stanley cannot be considered
to have a permanent establishment in the Philippines. Hence, the service fees paid to Morgan Stanley by
the Clients under the Engagement-Letter are not subject to Philippine income tax. [BIR Ruling #088-86]
However, the fees paid by the Clients to Morgan Stanley for the services rendered in the
Philippines are subject to the 10% value-added tax pursuant to Sec. 108 of the Tax Code. Accordingly, the
Clients, being the lessee of Morgan Stanley for the advisory services rendered under the
Engagement-Letter, shall be responsible for the payment of VAT on said services on behalf of Morgan
Stanley by filing a separate VAT declaration/return using BIR Form 1600 and the said VAT
declaration/return can be used by the Clients, as evidence in claiming input tax credit (Sec. 4.102-1(b).
Revenue Regulations No. 7-95) [BIR Ruling No. 49-96 dated April 11, 1996] TIaCHA
In fine, while payments made by the Clients to Morgan Stanley for services rendered in the
Philippines under the Engagement-Letter are not subject to income taxes in the Philippines, the same are
subject to the 10% value-added tax.
void.
Very truly yours,

Deputy Commissioner
August 2, 2000
ITAD 28-00
The Bengzon Firm

SOL Building 112 Amorsolo Street
Attention: Mr. Hubert E. Molina

Ms. Mary Jane B. Austria-Delgado
Gentlemen :
This refers to your letter dated February 10, 2000 requesting confirmation of your opinion that the
dividends to be paid by your client, Servier Philippines, Inc. (SPI) to Servier International B.V. (SIBV) are
subject to the preferential tax rate of 10 per cent pursuant to the RP-Netherlands Tax Treaty. cda
It is represented that SIBV is a non-resident foreign corporation organized and existing under the
laws of Netherlands; that it is not registered as a corporation/partnership in the Philippines as per
certification dated May 17, 2000 issued by the Securities and Exchange Commission; that SPI is a
corporation duly organized and existing under the laws of the Philippine; that on August 15, 1999, the
Board of Directors of SPI declared cash dividends out of its unrestricted retained earnings in the amount of
Ten Million Pesos (PHP10,000,000) to its stockholders of record as of the said date; that the said
dividends are payable on or before January 31, 2000; and that at the time of the declaration of said
dividends, SIBV owns 89,934 shares with a total par value of PHP8,993,400.00 representing 30 per cent of
SPI's outstanding capital stock.
In reply please be informed that Article 10 of the RP-Netherlands Tax Treaty provides:
"Article 10
DIVIDENDS
other Contracting State may be taxed in that other State.
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)
xxx xxx xxx"
"5. 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 participating in profits, as
xxx xxx xxx"
In view of the foregoing, since SIBV owns more than ten per cent (10%) of the total capital stock of
SPI as evidenced by the Secretary's Certificate dated February 18, 2000, the cash dividends to be paid by
SPI to SIBV are subject to 10 per cent final withholding tax rate pursuant to the above quoted provision of
the RP-Netherlands Tax Treaty. cdtai
In fine, your opinion is hereby confirmed. The dividend payments by your client, Servier
Philippines, Inc. (SPI) to Servier International B.V. (SIBV) are subject to the preferential tax rate of 10
percent pursuant to the RP-Netherlands Tax Treaty.
void.
Very truly yours,

Deputy Commissioner
August 2, 2000
RP-Japan Article 11 & 12

ITAD 19-99 Royalty
Florafe M. Bantayan
Director and Controller
Philippine-International Manufacturing and
Engineering Services
Cavite Economic Zone
Rosario, Cavite
Madam:
This refers to your application for relief from double taxation dated February 10, 1999 and May 10,
1999, on behalf of International Manufacturing & Engineering Services Co., Ltd. of Japan (IMES);
requesting for a preferential tax rate of ten percent (10%) to be withheld both on your royalty and interest
payments, pursuant to the RP-Japan Tax Treaty.
It is represented that IMES is a corporation established and existing under the laws of Japan with
principal business address at #3 Kirihara-cho, Fujisawa-shi, Kanagawa-Ken, Japan; that it is neither
registered as a corporation/partnership nor licensed to do business in the Philippines as per certification
dated February 25, 1999, issued by the Securities and Exchange Commission (SEC); that
Philippines-International Manufacturing and Engineering Service (PIMES) is a domestic corporation
established and existing under the laws of the Philippines; that PIMES is a Philippine Economic Zone
Authority (PEZA) registered enterprise; that PIMES is 100% fully-owned subsidiary of IMES; that IMES
entered into a Technology Transfer Agreement with PIMES dated May 18, 1994; that IMES shall provide
technological transfer assistance to PIMES for the development, manufacturing and marketing of TFT
LCD, high technology parts and other computer-related hardware and software; that PIMES agreed to pay
royalty in the amount equivalent to five (5) percent of the net sales on locally manufactured products; that
both entered into a Master Loan Agreement dated June 28, 1999 whereby IMES granted loans to PIMES
through the Loan Confirmation Form with inception date as follows:
February 1, 1999 — JP¥353,000,000
March 17, 1999 — JP¥50,000,000
March 25, 1999 — JP¥15,000,000
January 18, 1999 — JP¥200,000,000
that the loan interest rate is 6 month Yen TIBOR + 50 bp; and that the purpose of this loan is
mainly to finance working capital. SHAcID
In reply, please be informed that pertinent portions of Articles 11 and 12 of the RP-Japan Tax
Treaty read as follows:
Interest
"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 if
"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.
"4) 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. cdasia
"xxx xxx xxx."
Royalties
"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. TcEDHa
"(2) However, such royalties may also be taxed in the Contracting State in which they arise, and
the royalties the tax so charged shall not exceed:
broadcasting; cda
(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
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.
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, 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 provisions, the preferential rate of 10%, both on royalty and interest can
only be availed of by an entity registered with the Board of Investments (BOI) and engaged in preferred
pioneer areas of investment under Executive Order No. 226, otherwise known as the Omnibus Investments
Code. Since PIMES is not a BOI-registered enterprise, interest and royalties paid by it are not covered by
the provisions of Article 11(3) and Article 12(3) of the RP-Japan Tax Treaty, and therefore, not qualified
to avail of the 10% preferential tax rate but rather subject to the 15% and 25% tax rates, respectively,
under Article 11(2) and Article 12(2)(b) of the same treaty. (ITAD Ruling 19-99 dated August 18, 1999).
void.
Very truly yours,
By:

Deputy Commissioner
August 2, 2000

ITAD 13-9
Embassy of Finland
21st Floor, Far East Bank and Trust Center
Sen. Gil Puyat Avenue corner
Gentlemen :
This refers to your letter dated February 4, 2000, which was referred to this Office by the
Department of Foreign Affairs (DFA), relative to your request for a Certification of Value-Added Tax
(VAT) Exemption on purchases of goods and services based on the principle of reciprocity. Cdpr
"ARTICLE 34
services
xxx xxx xxx"

the tax exemption privilege of all Embassy and its diplomatic agents does not include exemption from
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, under the principle of reciprocity, this Office may grant exemptions to your embassy and
its personnel on their local purchases of goods and/or services it appearing from the list submitted by the
Department of Foreign Affairs dated June 02, 2000 and pursuant to Sections 127 and 128 of the 1996
VAT Code of Finland that your Government allows similar exemption to Philippine Embassy personnel on
their purchase of goods and services in your country. (BIR Ruling No. 206-93 dated May 11, 1993) Cdpr
Hence, the Embassy of Finland and its personnel are entitled to VAT exemptions on their purchase
of local goods and/or services.
Very truly yours,

Deputy Commissioner
August 2, 2000
Sec. 108 Sec. 109

104-89
Asian Development Bank

6 ADB Avenue, Mandaluyong City
0401 Metro Manila
Attention: Mr. Normin S. Pakpahan

Manager, General Services Division
Gentlemen :
This refers to your letter dated January 17, 2000, requesting our Office to re-issue and validate our
letter dated November 29, 1989 regarding Asian Development Bank's (ADB) exemption from the payment
of value-added tax (VAT).
In reply, please be informed that under Executive Order (EO) No. 161 promulgated April 21, 1987,
the pertinent portion of which provides. viz:
"xxx xxx xxx
"SEC. 1. Provisions of the National Internal Revenue Code, as amended, to the contrary
notwithstanding:
(a) goods sold directly to the Asian Development Bank shall not be subject to sales tax, and
cdasia
(b) services rendered under contracts entered into with the Asian Development Bank shall
not be subject to contractors tax.
xxx xxx xxx"
ADB is exempt from sales tax on its purchase of goods and from contractors tax on its purchase of
services.
With the promulgation of EO No. 273 which took effect January 01, 1988 designed to simplify tax
on sale of goods and services, the sales and contractors tax and other business taxes were abolished and
were replaced by VAT. In the light of these developments, it is understood that the grant of exemption
from the sales and contractors tax entitles the grantee like exemption from VAT which merely replaced
these taxes. (BIR Ruling 104-89 dated May 16, 1989)
In fine, since ADB is exempt from the then sales and contractors tax, it is likewise exempt from
VAT.
This ruling serves as the Bureau's certification that the Asian Development Bank is exempt from
VAT on its purchase of goods and services. cdphil
Very truly yours,

Deputy Commissioner
August 1, 2000
Sec. 106 Sec. 108 & Sec. 149

BIR Ruling 333-92
Embassy of France
16F Pacific Star Bldg.
Sen. Gil Puyat Ave., cor.
Makati Avenue,
Makati City
Attention: Jean-Charles Demarquis

Deputy Chief of Mission
Gentlemen :
This has reference to your letter dated June 2, 2000 referred to this Office by the Department of
Foreign Affairs (DEA), requesting for a tax-free local purchase of one (1) Honda CRV 2.0 specifically
described as follows:
Type of Use: Official
Make: Honda CRV 2.0 A/T (5 door sedan, gas, 2.0li, PGM-FI,
4-speed automatic transmission, 150 hp)
Model Year: 2000
Color: Dark Emerald Green
Chassis Number: PADRD 1830YV 205886
Engine Number: PEWD7-Y305981
"ARTICLE 34
services, cdlex
xxx xxx xxx"
under Sections 106 and 108, and ad valorem taxes under Section 149, both of the National Internal
France 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
Hence, the local purchase of one (1) Honda CRV 2.0, for the official use of the Embassy of France
is exempt from VAT and ad valorem. (BIR Ruling No. 333-92 dated October 27, 1992) cdtai
Very truly yours,

Deputy Commissioner
August 1, 2000
RP-Japan Article 10 ITAD Ruling No. 31-00 BIR Ruling

010-84
Daitoh Precisions, Inc.

3rd Avenue, 5th Street
PEZA, Lapu-Lapu City
Cebu, Philippines
Attention: Marivic A. Tizon

Accounting Manager
Gentlemen :
This refers to your application for relief from double taxation dated December 1, 1999 on behalf of
Daitoh Seimitsu Company Ltd. (Daitoh) requesting for a preferential tax rate of ten percent (10%) to be
withheld on dividend remittances by Daitoh Precisions Inc. (DPI) through offset of accounts pursuant to
RP-Japan Tax Treaty. cdphil
It is represented that DPI is a PEZA registered enterprise organized and existing under the laws of
the Philippines; that Daitoh is a non-resident foreign corporation duly organized and existing under the
laws of Japan; that Daitoh is not registered as a corporation/partnership in the Philippines as per
certification dated November 9, 1999 issued by the Securities and Exchange Commission; that DPI is 99%
owned by Daitoh; that on April 12 1999, the Board of Directors of DPI passed and approved the
declaration of stock dividends to its shareholders in the amount of FIFTEEN MILLION PESOS (PHP
15,000,000.00) and cash dividends in the amount of SEVENTY-SIX MILLION PESOS (PHP
76,000,000.00); and that the said dividends shall be settled/paid through offset of accounts.
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

"(2) However, such dividends may also be taxed in the Contracting State of which the
months immediately preceding the date of payment of the dividends; cdlex
xxx xxx xxx
not being debt-claims participating in profits, as well as income from other corporate rights
making the distribution is a resident."
Based on the foregoing, dividends paid by a Philippine corporation to a resident of Japan may be
taxed at the rate of 10 per cent of the gross amount of dividends if the beneficial owner (Japanese resident)
is a company which holds directly at least 25 per cent of the voting shares or total shares issued by the
Philippine corporation during the period of six months immediately preceding the date of payment of
dividends. cdrep
Since Daitoh is the recipient and the beneficial owner of the dividends and owns 99.9% of the
outstanding shares of the voting stock of the paying company (DPI), as evidenced by the Secretary's
Certificate dated November 19, 1999, the said stock dividends in the amount of PHP 14,985,000.00 out of
the total PHP 15,000,000.00 and cash dividends in the amount of PHP 75,924,000.00 out of the total PHP
76,000,000.00 are subject to 10% final withholding tax rate pursuant to the above-quoted provision of
RP-Japan Tax Treaty. [ITAD Ruling No. 31-00; BIR Ruling No. 010-84]
it will be disclosed or discovered that the facts are different, then this ruling shall be considered as null
and void.
Very truly yours,

OIC, Deputy Commissioner
August 1, 2000
NIRC-Sec. 176 52-99
Quisumbing Torres
11th Floor, Pacific Star Building
Makati Ave., corner Sen. Gil. J. Puyat Ave.
Makati City 1200
Attention: Atty. Jose R. Sandejas

Atty. Jose Jaime V. Cruz
Gentlemen :
This refers to your letter dated March 09, 2000 applying, on behalf of your client CDL
Entertainment & Leisure Pte. Ltd. ("CDLE&L"), for tax exemption on any gain that it may derive from the
sale of its shareholdings to CDL Hotels (Phils.) Corporation ("CDLHP"), pursuant to the provision of
Article 13 of the RP-Singapore Tax Treaty.
It is represented that CDLE&L is a corporation organized and existing under the laws of Singapore
and is not licensed to do business in the Philippines as evidenced by the Certificate of Non-Registration
issued by the Securities and Exchange Commission dated February 17, 2000; that CDLHP is a corporation
organized and existing under Philippine laws; that CDLE&L owns 52,695 of CDLHP's 60,000 authorized
capital stocks represented by Stock Certificate No. 006 with a par value of P100.00 per share; that based
on CDLHP's audited financial statements, it does not own any immovable property; that on January 20,
2000, the Board of Directors of CDLHP approved a share buyback exercise involving its stockholders; and
that under the share buyback exercise, CDLHP will purchase 1 share out of every 5 shares of capital
stocks at P1,250.00 per share which made CDLE&L interested to sell 10,539 shares out of its 52,695
shares. cda
In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty, provides:
"Article 13
(1) Gains from the alienation of immovable property, may be taxed in the Contracting State
(2) Gains from the alienation of movable property forming part of the business property of a
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 derived by an enterprise of a
Contracting State from 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. cdasia
(3) Gains from the alienation of shares of a company, the property of which consists
principally or immovable property situated in a Contracting State, may be taxed in that State. Gains
(4) Gains from the alienation of any property, other than those mentioned in paragraph 1, 2
disposition of interest in a corporation if its assets consist principally of real property interests located in
"consisting principally of real property interest":
"SEC. 2. Definitions. — For purposes of these Regulations, the following terms and
b) 'Principally', 'wholly or principally', directly principally' or 'attributable' — more than

50% of the entire assets in terms of value;
xxx xxx xxx"
Based on the CDLHP's audited financial statements dated December 31, 1999, CDLHP does not
own any immovable property instead, its assets consist entirely of current assets. In view thereof, this
Office confirms that the sale made by CDLE&L of its shares of stocks to CDLHP is not subject to capital
gains tax.
Notwithstanding this exemption, the sale of shares of stocks is subject to the documentary stamp
tax under Section 176 of the Tax Code.
it will be disclosed that the facts are different, then this ruling, shall be considered null and void. prcd
Please be guided accordingly.
Very truly yours,

Deputy Commissioner
August 1, 2000
RP-Malaysia Art. 5 & 7

179-95
Roxas Delos Reyes Laurel & Rosario

19/F PDCP Building 8737 Paseo de Roxas Avenue
Makati City 1200
Attention: Maria Portia E. Rosell
Gentlemen :
This refers to your letter dated February 2, 2000) applying for the availment of tax treaty relief on
behalf of your client, Eng Teknologi Holdings Bhd (ETHB), pursuant to Article 7 of the RP-Malaysia Tax
Treaty.
It is represented that Engtek Phils. Inc. ("ETPI") is a corporation organized and existing under the
laws of the Philippines with business address at Blk. 16 Ampere St., LISP, Cabuyao Laguna; that ETPI is a
subsidiary of the ETHB; that ETHB is a non-resident foreign corporation duly organized and existing
under and by virtue of the laws of Malaysia and with business address at Plot 69-70 Persiaran, Kampung
Jawa, Bayan Lepas Industrial Zone, Penang, Malaysia; that ETHB is not registered to engage in business
in the Philippines as evidenced by Securities and Exchange Commission certification dated February 2,
2000; that on April 30, 1999, ETPI and ETHB entered into a Management Services Contract whereby
ETPI engaged the services of ETHB to perform management and organizational direction, financial
management, marketing strategies and information technology advice and services; that the Management
Services Contract shall be effective from May 1999 until December 1999, renewable upon mutual
agreement of the parties herein; and that ETPI agrees to pay ETHB a management fee in an amount
equivalent to one percent (1%) of ETPI's total monthly sales volume.
In reply, please be informed that Article 7 of the RP-Malaysia Tax Treaty provides:
"Article 7
enterprise may be taxed in the other State but only so much thereof as is attributable to that permanent
establishment." cdlex
To establish the existence of permanent establishment there must be a fixed place of business in the
Contracting State wherein the business of the enterprise is wholly or partially carried on which include
especially, a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a
quarry or other place of extraction of natural resources including timber or other forest produce, a farm or
plantation and a building site or construction, installation or assembly project which exist for more than
six (6) months.
Since the ETHB has no fixed place of business nor legal presence in the Philippine then no
permanent establishment exist. While it has a subsidiary in the Philippine, the ETPI, the same does not
constitute a permanent establishment pursuant to Article 5, paragraph 7 of the RP-Malaysia Tax Treaty, to
wit:
"Article 5
(7) 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 State (whether through a permanent establishment or otherwise), shall not of itself
constitute either company a permanent establishment of the other."
In view thereof, this Office is of the opinion, and so holds, that since ETHB has no permanent
establishment in the Philippines, the business profits received by ETHB from ETPI are no subject to
Philippine income tax. (BIR Ruling No. 179-95)
null and void if upon investigation it will be disclosed that the facts are different. cdrep
Very truly yours,

August 1, 2000
RP-Japan Article 12 ITAD #20-99
KDK International (Phils.) Corporation

11-A Harmony Street cor. Eleven Road,
Grace Village Balintawak Quezon City
Attention: Ng Siong Chi

Vice-President
Gentlemen :
This refers to your application for relief from double taxation dated September 14, 1997 on behalf
of MATSUSHITA SEIKO CO LTD. (MATSUSHITA) requesting for a preferential tax rate of ten percent
(10%) to be withheld on dividend remittances by KDK INTERNATIONAL (PHILS.) CORPORATION
(KDK) pursuant to the RP-Japan Tax Treaty.
It is represented that MATSUSHITA is a non-resident foreign corporation duly organized and

existing under the laws of Japan; that it is not registered either as a corporation/partnership in the
Philippines as per certification dated March 4, 1999 issued by the Securities and Exchange Commission;
that KDK is a corporation duly organized and existing under the laws of the Philippines; that
MATSUSHITA holds forty percent (40%) of the capital stock of KDK; that on July 31, 1997 the Board of
Directors of KDK passed and approved the declaration of cash dividend in the amount of Four Hundred
Thousand Pesos (P400,000.00) payable to the stockholders on or before August 31, 1997. LibLex
"Article 10

(a) 10 percent of the gross amount of the dividends if the beneficial owner is a
months immediately preceding the date of payment of the dividends; cdphil
xxx xxx xxx
xxx xxx xxx
In view of the foregoing, and since MATSUSHITA SEIKO., LTD. holds forty per cent (40%) of
the capital stock of KDK INTERNATIONAL (PHILS.) CORPORATION, your application is hereby
approved. Hence, the preferential tax rate to be withheld by KDK on its dividend remittances to
Matsushita is ten per cent (10%). (BIR Ruling No. ITAD 20-99) cda
Very truly yours,

Deputy Commissioner
August 1, 2000
Precision Springs Cebu, Inc.

PEZA-Mactan, Pusok, Lapu-lapu City
Mactan Island, Cebu
Attention: Ms. Edna L. Flores
Accounting Manager
Gentlemen :
This refers to your letter dated February 10, 2000, requesting for a ruling: on the application of 10%
preferential tax rate to be withheld from the dividend remittances of Precision Springs Cebu, Inc.
("Precision Cebu") to Precision Springs Co Ltd. ("Precision Japan) pursuant to Article 10 of the RP-Japan
Tax Treaty.
It is represented that Precision Cebu is a domestic corporation organized and existing under the
laws of the Philippines; that Precision Cebu is a non-pioneer PEZA-registered enterprise operating in
Mactan, Lapu-lapu City, Cebu; that Precision Japan is a non-resident foreign corporation organized and
existing under the laws of Japan with business address at Ichikawa City, Chiba Prefecture, Japan; that as
of January 31, 2000, Precision Japan owns 23,999,995 shares of stock with a par value of Php1.00 per
share which represents approximately 99.9 % of the outstanding shares of stock of Precision Cebu; and
that Precision Cebu's Board of Directors approved the declaration of cash dividends from its accumulated
retained earnings as of March 31, 1999 in favor of Precision Japan in the amount of Six Million Five
Hundred Thousand Pesos (Php6,500,000.00) as evidenced by Secretary's Certificate dated February 16,
2000 and Board Resolution dated January 21, 2000. cdasia
"Article 10

months immediately preceding the date of payment of the dividends; cdphil
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) . . .
assimilated to income from share by the taxation laws of the Contracting State of which the company
In view of the foregoing, and since Precision Japan owns 99.9% of the outstanding shares of stock
of Precision Cebu, the cash dividends payable by Precision Cebu to Precision Japan are subject to 10%
withholding tax. (ITAD 49-99 dated December 15, 1999) cdlex
Very truly yours,

Deputy Commissioner
August 1, 2000
RP-Australia Article 14
036-97
R.S. Bernaldo and Associates

Unit 1810 Cityland Condominium 10 Tower 1
6815 Ayala Avenue cor. H.V. dela Costa Ext.
1200 Makati City
This refers to your letter dated December 6, 2000 requesting confirmation that the consultancy fees
to be paid by your client, James Hardie Philippines, Inc. (JHPI), to Mr. Noel Tink (Mr. Tink), is not
subject to Philippine income tax and withholding tax pursuant to the RP-Australia Tax Treaty. llcd
It is represented that JHPI is a domestic corporation duly organized and existing under Philippines
laws; that Mr. Tink is a resident of Australia who is not engaged in trade or business in the Philippines;
that JHPI and Mr. Tink entered into a service contract which stipulated that the latter will render
commissioning assistance in accordance with the terms and conditions of the formal offer dated September
15, 1998; that in consideration of: the aforementioned services, JHPI paid Mr. Tink a total consultancy fee
in the amount of Twelve Thousand Australian Dollars ($12,000); and that Mr. Tink has rendered the said
services from September 18 to October 15, 1998, covering a total period of twenty eight (28) days.
In reply, please be informed that Article 14 of the RP-Australia Tax Treaty provides:
"Article 14
Independent Personal Services
(1) Income derived by an individual who is a resident of one of the Contracting States in
respect of professional services or other independent activities of a similar character shall be taxable
only in that State. However, if such an individual —
(a) has a fixed base regularly available to him in the other Contracting State for the
purpose of performing his activities; or
(b) in a year of income or taxable year, as the case may be, stays in the other
Contracting State for a period or periods aggregating 183 days for the purpose of performing
his activities; or
(c) derives, in a year of income or taxable year, as the case may be, from residents of
the other Contracting State gross remuneration in that State exceeding ten thousand
Australian dollars or its equivalent in Philippine pesos from performing his activities,
(emphasis supplied) LexLib
so much of the income derived by him as is attributable to activities so performed may be taxed in the
other State. (emphasis supplied)
Based on your representations, Mr. Tink received a total amount of Twelve Thousand Australian
Dollars ($12,000) as payment for his services. Such being the case, this amount received by Mr. Tink for
the consultancy services he rendered, which falls within the purview of the exception under letter (c) of
the aforequoted provision, is income which is taxable in the Philippines.
In view of all the foregoing, your request is hereby denied. The consultancy fees paid by James
Hardie Philippines, Inc. (JHPI) to Mr. Noel Tink is subject to Philippine income tax pursuant to Article 14
par. 1(c) of the RP-Australia Tax Treaty. Moreover, the said consultancy fees shall be subject to
Philippine income tax and consequently to withholding tax at the rate of 25 per cent as provided for under
Sections 25(b) and 58 of the National Internal Revenue Code (NIRC) of 1997. (BIR Ruling No. 036-97
dated April 3, 1997) prcd
Very truly yours,

August 1, 2000
RP-JAPAN Art. 12
ITAD 19-99
JS Steel Cebu Corporation

Mactan Economic Zone
Lapu-lapu City, Cebu
Attention: Mr. Masao Sekiuchi

President
Gentlemen :
This refers to your letter dated June 24, 1998, requesting for approval of the use of preferential tax
rate on your royalty payments to ISUZU TECHNICAL CENTER CORPORATION (ITC), pursuant to the
RP-Japan Tax Treaty. LexLib
It is represented that ITC is a non-resident foreign corporation duly organized and existing under
the laws of Japan; that it is not registered as a corporation/partnership in the Philippines as per
certification dated January 26, 1999 issued by the Securities and Exchange Commission (SEC); that JS
STEEL CEBU CORPORATION (JSC), on the other hand is a Philippine Economic Zone Authority
(PEZA)-registered domestic corporation duly organized and existing under the laws of the Philippines;
that on February 01, 1998, a Technical Assistance Agreement was entered into by and between ITC and
JSC whereby ITC shall provide JSC the following assistance: a) provide information and assistance for
Factory Management, Production Control, Quality Control and other daily management and operations; b)
provide information and assistance for general maintenance, repair and amendment of machinery
equipment; c) provide information and assistance for equipment, fast moving spare parts and so on, and d)
provide information and assistance to deal with and to solve the Quality Claims; that in consideration of
the aforementioned assistance, JSC shall pay ITC an annual amount equivalent to JPY2,000,000.00 (Two
Million Yen) which shall be due and owing on the 30th day after every six months from the date of the
Agreement.
"Article 12
broadcasting; cda
(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
or scientific experience. (emphasis supplied) cdtai
cent (10%) if the payor is a Board of Investments (BOI)-registered enterprises, fifteen per cent (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 per cent (25%) of the gross amount of
the royalties.
Such being the case, since JSC is not a BOI-registered enterprise, and the payments made by JSC to
DAIWA are not in respect of the use of or the right to use cinematograph films and films or tapes for radio
or television broadcasting, the herein payments which are made in consideration for the services involving
transfer of information concerning industrial, commercial or scientific experience, qualifies as royalty
payments under Article 12(2)[b] of the RP-Japan Tax Treaty.
Hence, the royalty payments made by JS STEEL CEBU CORPORATION to ISUZU TECHNICAL
CENTER CORPORATION shall be subject to the preferential tax rate of twenty five per cent (25%) based
on the gross amount of royalties.
it will be disclosed that the facts are different, then this ruling shall be considered null and void. cdtai
Very truly yours,

August 1, 2000
RP-JAPAN Art. 12
ITAD 19-99
JS Steel Cebu Corporation

Mactan Economic Zone
Lapu-lapu City, Cebu
Attention: Mr. Masao Sekiuchi

President
Gentlemen :
This refers to your letter dated June 24, 1998, requesting for approval of the use of preferential tax
rate on your royalty payments to DAIWA KOHTAI CO., LTD. (DAIWA), pursuant to the RP-Japan Tax
Treaty. LexLib
It is represented that DAIWA is a non-resident foreign corporation duly organized and existing
under the laws of Japan; that it is not registered as a corporation/partnership in the Philippines as per
certification dated January 26, 1999 issued by the Securities and Exchange Commission (SEC); that JS
STEEL CEBU CORPORATION (JSC), on the other hand is a Philippine Economic Zone Authority
(PEZA)-registered domestic corporation duly organized and existing under the laws of the Philippines;
that on January 08 1997 a Technology Transfer Agreement was entered into by and between DAIWA and
JSC whereby DAIWA shall provide JSC the following assistance: a) conduct training on basic operations
and troubleshooting of problems concerning the slitter line; b) formulate more efficient procedures in
operating the factory warehouse including monitor and control of consumption for cost control purposes;
c) establish an efficient product delivery system to customers including the tools/jigs equipment, delivery
vehicles and scheduling system that is required; d) generate and implement a plantwide preventive
maintenance system for all equipment and vehicles; e) generate safety and housekeeping policies and
monitor effectiveness and compliance; train supervisors on attaining productivity and quality schedules; f)
monitor day to day operation of the factory and suggest ways for further improvement; that in
consideration of the aforementioned assistance, JSC shall pay DAIWA an annual amount equivalent to
JPY6,000,000.00 (Six Million Yen). LexLib
"Article 12
broadcasting; cda
supplied)
(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
or scientific experience. (emphasis supplied) cdtai
cent (10%) if the payor is a Board of Investments (BOI)-registered enterprises, fifteen per cent (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 per cent (25%) of the gross amount of
the royalties.
Such being the case, since JSC is not a BOI-registered enterprise, and the payments made by JSC to
DAIWA are not in respect of the use of or the right to use cinematograph films and films or tapes for radio
or television broadcasting, the herein payments which are made in consideration for the services involving
Hence, the royalty payments made by JS STEEL CEBU CORPORATION to DAIWA KOHTAI
CO., LTD. shall be subject to the preferential tax rate of twenty five per cent (25%) based on the gross
it will be disclosed that the facts are different, then this ruling shall be considered null and void. cdtai
Very truly yours,

August 1, 2000
Art. 11 RP-Singapore
BIR Ruling 127-98
ITAD Ruling 30-99
ITAD Ruling 20-00

6805 Ayala Ave., 1226 Makati City

Principal
Gentlemen :
This refers to your application, on behalf of your client Sony Electronics (Singapore) Pte. Ltd.
(SES), to avail of the 15% preferential rate relative to the interest payment on the loan obtained by Sony
Philippines, Inc. (SPI) from Sony International (Singapore) (SONIS), a division of SES, pursuant to the
RP-Singapore Tax Treaty. Cdpr
It is represented that SES is a non-resident foreign corporation organized and existing under and by
virtue of the laws of the Republic of Singapore with business address at No. 1 Tuas Road Singapore
638481; that SES has a division company, SONIS, with principal address at #10 Hoe Chiang Road #23-00
Keppel Towers, Singapore 089315; that SPI is a domestic corporation organized and existing under and by
virtue of Philippine laws with business address at Solid House Building 2285 Lumbang Street Corner
Pasong Tamo Extension, Makati City; that on December 8, 1999, SPI entered into a Loan Agreement with
SONIS whereby SONIS agreed to lend SPI the sum of US$ EIGHTEEN AND A HALF MILLION
(US$18,500,000.00) with an interest rate of 6.6328% per annum and payable on or before February 15,
2000.
In reply, please be informed that Article 11 (1) and (2) of the RP-Singapore Tax Treaty states:
"Article 11
INTEREST
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."
(Emphasis supplied)
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 and debentures,
including premiums and prizes attaching to such securities, bonds or debentures, as well as income
interest for purposes of this Article.
xxx xxx xxx"
Based on the above-quoted provisions of the RP-Singapore Tax Treaty, the applicable withholding
tax rate shall be 15% of the gross amount of the interest payment since SES is the beneficial owner of the
interest income received from SPI. (BIR Ruling 127-98, ITAD Rulings 30-99 and 20-00)
Very truly yours,

August 1, 2000
RP-Australia Art. 7 (1) Art. 5 (2) (k)
02-00

6805 Ayala Ave.
1226 Makati City
Attention: Mary A.S. Bautista-Villareal

Principal, Tax Services Dept.
Gentlemen :
This refers to your letter dated December 22, 1999 requesting on behalf of your client, Lincolne
Scott Pty. Ltd. (LSPL), confirmation of your opinion that reimbursement of costs by Lincolne Scott CCF,
Inc. (LSCI) to LSPL for the latter's participation in the bidding process relative to the Rockwell Project is
not subject to Philippine income tax, pursuant to Article 5(2)(k) and Article 7(1) of the RP-Australia Tax
Treaty. cdrep
It is represented that LSPL is a corporation organized and existing under the laws of Australia; that
it is not licensed to engaged in business in the Philippines as evidenced by a Certificate of
Non-Registration dated December 20, 1999, issued by the Securities and Exchange Commission; that
LSCI is a corporation organized and existing under Philippine laws; that Leighton Contractors Philippines
Inc. (Leighton) is a domestic corporation engaged in detailed design and contract administration services
such as mechanical, electrical, plumbing, fire protection and vertical transportation services; that LSCI
was a sub-contractor of Leighton with respect to the Rockwell Center Project in Makati City; that during
the bidding process LSPL was invited to join the Leighton team to bid for the Rockwell Center Project;
that during the bid phase, LSPL will be compensated by Leighton at agreed rates which are below cost;
that should the team be successful in winning the project, Leighton will pay LSPL, a success fee; that
LSCI, in turn, agreed to reimburse LSPL the shortfall between the actual cost and the fees paid by
Leighton during the bid phase up to a maximum of P2,500,000.00; and that should the bid be successful,
the Main Contract will be assigned by LSPL to LSCI.
In reply, please be informed that Article 7(1), in relation to Article 5(2)(k), of the RP-Australia Tax
Treaty provides:
"Article 7
Business Profits
(1) The profits of an enterprise of one of the Contracting State shall be taxable only in that
establishment situated therein. cdphil
xxx xxx xxx
"Article 5
(1) For the purposes of this Agreement, the term "permanent establishment" means a fixed
placed 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 State through which an enterprise of the other
Contracting State furnishes services, including consultancy services, for a period or periods
Under the foregoing provisions, it is clear that if a corporation which is a resident of Australia does
not carry on business in the Philippines through a permanent establishment situated therein, the profits of
the Australian corporation shall not be subject to Philippine income tax. An Australian corporation may be
deemed to have a permanent establishment in the Philippines if the furnishing of the services by such
corporation, through its employees or other personnel, in a particular or connected project, continue within
the Philippine for a period or periods aggregating more than six months in any taxable year. Considering
that the participation of LSPL in the bidding phase relative to the Rockwell Project were done mostly in
Australia and the portion of the work done in the Philippines did not exceed a period of six months, then it
cannot be considered to have a permanent establishment in the Philippines.
Such being the case, your opinion is hereby confirmed. The reimbursement of costs paid by LSCI to
LSPL is not subject to Philippine income tax pursuant to RP-Australia Tax Treaty.
void. cdtai
Very truly yours,

Deputy Commissioner
August 1, 2000
RP-US Art. 12
ITAD 6-99

6805 Ayala Avenue
Makati City
Attention: Ms. Mary Assumption S. Bautista

Principal, Tax Services
Gentlemen :
This refers to your letter dated February 15, 1998 requesting confirmation of your opinion that the
interests on loans paid by your client, Caterpillar Financial Services Philippines, Inc. (CFSPI) to
Caterpillar Financial Services Corporation (CFSC) shall be subject to preferential rate of 15% pursuant
to Article 12(2)(a) of the RP-US Tax Treaty. cda
It is represented that CFSPI is a domestic corporation organized and existing under the laws of
Philippines; that it is engaged in the business of extending credit facilities to industrial and commercial
enterprises and to the business of other financial operations including extending credit facilities by leasing
heavy equipment, industrial, machinery engines, generators and other movable property by selling
contracts, leases chattel mortgages and other evidence of indebtedness and by discounting or factoring
commercial papers or accounts receivable, without engaging in quasi-banking functions; that CFSC is a
corporation organized under the laws of Delaware, USA with principal address at 3322 West End Avenue,
Nashville, Tennessee, USA; that CFSC is not registered to engage in business in the Philippines as per
certification of the Securities and Exchange Commission dated February 15, 1999; that to augment its
funds to ensure availability for its business operations, CFSPI entered into lending agreement (Agreement)
with CFSC on May 14, 1999 whereby the latter shall send to the former certain sum of money in
accordance with the terms and conditions of the Agreement; that the parties further agreed, among others,
that the interest rate on the contracted loan shall be determined from time to time by the parties based on
either fixed or floating rate and that the manner of repayment of the principal and interest on the loan
together with the rate shall be specified in the Drawdown Document.
In reply please be informed that Article 12 of the RP-US Tax Treaty provides as follows:
"INTEREST
1. Interest derived by a resident of one of the Contracting States from sources within the
2. Interest derived by a resident of one of the Contracting States from sources within the
percent of the gross amount of such interest. cdrep
xxx xxx xxx
5. Paragraphs (2), (3), and (4) shall not apply if the recipient of interest from sources within
one Contracting States, being a resident of the other Contracting State, carries on business in the
first-mentioned Contracting State or through a permanent establishment situated therein or performs
in that other 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
xxx xxx xxx
7. The term "interest" as used in this Convention 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
the income arises, including interest on deferred payment sales."
Since CFSC is not registered to engage in business in the Philippines through a permanent
establishment situated therein, your opinion that income earned by CFSC from the loan it extended to
CFSPI shall be plainly considered as interest income subject to 15% withholding tax pursuant to Article
12(2) of the RP-US Tax Treaty is hereby confirmed. (ITAD Ruling 6-99) However, the Loan Agreement
executed by and between them shall be subject to the documentary stamp tax imposed under Section 180
of the Tax Code of 1997.
void. cda
Very truly yours,

Deputy Commissioner
August 1, 2000
RP-Japan Art. 12
49-96


Gentlemen :
This refers to your letter dated November 16, 1999 requesting on behalf of your client, KASEI
INDUSTRY CO., LTD. (KASEI), confirmation of your opinion that its royalty income derived from the
Philippine is entitled to the preferential tax rate of twenty-five percent (25%), pursuant to the RP-Japan
Tax Treaty.
It is represented that KASEI is a non-resident foreign corporation duly organized and existing under
the laws of Japan, that it is not registered as a corporation/partnership in the Philippines as per
certification dated October 18, 1999 issued by the Securities and Exchange Commission; that on January
22, 1999, it entered into a License and Technical Assistance Agreement with K & K MOLDING, INC.
(K&K), a Philippine Economic Zone Authority (PEZA) registered domestic enterprise engaged in the
manufacture and assembly of plastic injection molding parts; that the said Agreement complies with the
provisions of Section 87 and 88 of the Intellectual Property Code as certified by the Intellectual Property
Office under Certificate of Compliance No, 5-1999-00081; that under the said Agreement, KASEI will
provide K&K with technical information and know-how relative to the operation and maintenance of the
latter's equipment as well as the manufacture of its products; that KASEI's engineers/foremen will be sent,
if necessary, but shall not stay in the Philippines for more than six (6) months; and that in consideration
for such services, KASEI shall be entitled to receive royalty payments at the rate of three percent (3) of
K&K's net sales. llcd
"Article 12
ROYALTIES
broadcasting; cda
supplied)
xxx xxx xxx
or scientific experience. (emphasis supplied)
xxx xxx xxx"
In view thereof, the herein payments which are made in consideration for the services involving
Hence, your opinion that the royalty income derived by KASEI INDUSTRY CO., LTD. is entitled
to the preferential tax rate of twenty five per cent (25%) based on the gross amount of royalties, is hereby
confirmed.
This ruling is being 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 considered null and
void. prcd
Very truly yours,

Deputy Commissioner
August 1, 2000
ITAD #28-00

14TH Floor Multinational
6805 Ayala Avenue
1226 Makati City

Principal
Gentlemen :
This refers to your letter dated October 26, 1998 requesting confirmation of your opinion that the
dividends to be paid and remitted by your client, Warner Lambert Philippines, Inc. (Warner) to its
non-resident shareholder, Parke Davies B.V. (Parke Davis) are subject to final withholding tax at the
preferential rate of 10 per cent pursuant to Article 10 (2)(a) of the RP-Netherlands Tax Treaty. cda
It is represented that Parke Davis is a non-resident foreign corporation duly organized and existing
under the laws of Netherlands with principal office at Saturnusstraat 72132 HB Hoofddorp, The
Netherlands; that it is not registered as a corporation/partnership in the Philippines as per Securities and
Exchange Commission certification issued November 4, 1998; that Warner is a corporation duly organized
and existing under Philippine Laws and is engaged in the manufacture and distribution of pharmaceutical
and confectionery products; that on October 21, 1998 the Board of Directors of Warner declared cash
dividends out of its unrestricted retained earnings in the amount of PHP15,000,000.00 to its stockholders
of record as of October 23, 1998; that payment of the said dividends shall be made on or before October
30, 1998; and that at the time of the declaration of said dividends Parke Davies owns 126,404 shares with
a total par value of PHP12,640,400.00 representing 99.9960% of Warner's outstanding capital stock.
In reply please be informed that Article 10 of the RP-Netherlands Tax Treaty provides:
"Article 10
DIVIDENDS
a) 10 percent 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)
xxx xxx xxx"
In view of the foregoing, and since Parke Davis owns 99.99% of the total capital stock of Warner as
of record date, your opinion is hereby confirmed. The cash dividends to be paid and remitted by Warner
Lambert Philippines, Inc. (Warner) to Parke Davies B.V. (Parke Davies), are subject to final withholding
tax at the preferential rate of 10 per cent pursuant to the aforequoted provisions of the RP-Netherlands Tax
Treaty. cdtai
void.
Very truly yours,

Deputy Commissioner
July 28, 2000
Article 15, RP-France Tax Treaty

044-97
Article 14, RP-Italy Tax Treaty
Article 61, EO 226
Section 25 (C), NIRC of 1997
Marilyn A. Cruz
Legrand Phils. Inc.
2/F Zuellig Bldg.
Sen. Gil J. Puyat Avenue
Makati City
Madam:
This refers to your letters dated September 1 and 2, 1999 seeking advice on the applicability of the
RP-France and RP-Italy Tax Treaties on your two clients namely Messrs. Jerome Marchadier and Marco
Corti, and on whether Article 61 of Executive Order (EO) No. 226 (otherwise known as the Omnibus
Investments Code of 1987) has been superseded by the said tax treaties. LexLib
It is represented that Mr. Marchadier is a French national and is a resident of Limoges France; that
he is a Resident Representative of Legrand Phils. Inc., a regional or area headquarter in the Philippines of
Legrand France, as per Certificate of Registration and License No. A1997-10837 issued by the Securities
and Exchange Commission dated July 28, 1997; that his remuneration or salary is being paid directly by
Legrand France; and that he has no interest or investments whatsoever in any company or business in the
Philippines; that Mr. Corti is an Italian national and is a resident of Como, Italy; that he is a Technical and
Marketing Consultant of the said regional or area headquarter; that his remuneration or salary is being paid
directly by Biticino, Spa., Italy, a subsidiary of the same regional or area headquarter; that he has no
interest or investment whatsoever in any company or business in the Philippines; and that his presence in
the Philippines does not in any way exceed an aggregate period of 183 days.
I. For Mr. Jerome Marchadier
Article 15 of the RP-France Tax Treaty provides viz:
"Article 15
"DEPENDENT PERSONAL SERVICES
"1. Subject to the provisions of Articles 16, 18 and 19 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 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
c.) the remuneration is not borne by a permanent establishment or a fixed base which
the employer has in the other State. cdrep
xxx xxx xxx"
Paragraph 2 lays down the conditions for a resident of France to be exempted from Philippine
income tax. Applying the said provision, the remuneration received directly from France by Mr.
Marchadier shall not be subject to Philippine income tax if the duration of his stay in the Philippines does
not exceed an aggregate of 183 days in a year and such remuneration is not paid nor borne by Legrand
Phils.
As per certification issued by Mr. Francois Grappote, the Chief Executive Officer of Legrand
France, Mr. Marchadier is assigned as the regional executive, and tasked to work exclusively for Legrand
Phils. and that he will receive and will be paid by the said regional or area headquarter.
Such being the case, Mr. Marchadier did not meet the conditions set forth in subparagraphs b and c
of paragraph 2 of the said Article. Thus, he shall then be taxed at 15% based on his gross income, pursuant
to the Tax Code of 1997.
Furthers fringe benefits which may be received by Mr. Marchadier is subject to the Fringe Benefits
Tax at 15% on its grossed-up monetary value. The said tax base shall be computed by dividing the
monetary value of the fringe benefit by 85%. (Section 33 of the Tax Code of 1997 and Revenue
Regulations No. 3-98)
II. For Mr. Marco Corti
Article 14 of the RP-Italy Tax Treaty provides viz:
"Article 14
"PERSONAL SERVICES
"1. Subject to the provisions of Articles 15, 17 and 18 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 State unless the services are performed in other
Contracting State. If the services are so performed, such remuneration or income as is derived
therefrom may be taxed in that other State.
"2. Notwithstanding the provisions of paragraph 1, remuneration or income derived by a

resident of a Contracting State in respect of personal (including professional) services performed in
the other Contracting 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 taxable year concerned, and cdphil
b.) the remuneration is paid by, or on behalf of, an employer who is not a resident of
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 also lays down the conditions for a resident of Italy to be exempted from Philippine
income tax. Based on your representations, Mr. Corti's presence in the Philippines does not in any way
exceed an aggregate period of 183 days in a taxable year. Further his remuneration as Technical and
Marketing Consultant is being paid directly by Biticino, Spa, Italy, a non-resident of the Philippines. Thus,
although it may be argued that Legrand France maintained a regional or area headquarter here in the
Philippines, which for purposes of the RP-Italy Tax Treaty is considered as a "permanent establishment"
pursuant to Article 5 paragraph 2 of the said Tax Treaty, the said headquarter nevertheless must not pay or
accrue the said remuneration in its books of accounts, hence, the aforesaid three conditions imposed under
the aforequoted Article 14 paragraph 2 of the subject Tax Treaty have been sufficiently met and complied
with. (BIR Ruling No. 044-97)
In view thereof, the remuneration or salary received by Mr. Corti for services rendered in the
Philippines, as Technical and Marketing Consultant of Legrand Phils. Inc., is not subject to Philippine
income tax pursuant to Article 14 paragraphs 1 and 2 of the RP-Italy Tax Treaty.
III. On whether or not the provisions of the said Tax Treaties superseded Article 61 of EO No. 226
Article 61 of EO No. 226 (as amended by Republic Act No. 8756) provides, viz:
"ARTICLE 61. Withholding Tax of 15% — Aliens employed by the regional or are
headquarters and regional operating headquarters of multinational companies shall be subject for each
taxable year upon their gross income received as salaries, wages, annuities, compensations,
remuneration and emoluments to a tax equal to fifteen percentum (15%) of such gross income. The
same tax treatment is applicable to Filipinos employed and occupying the same positions as those
aliens employed by multinational companies: Provided, That said Filipinos shall have the option to be
taxed at either 15% of gross income or at the regular tax rate on their taxable income in accordance
with the National Internal Revenue Code, as amended by Republic Act No. 8424."
Furthermore, Section 25(C) of the Tax Code of 1997, which practically stated the same provision as
that of the said Article 61 above regarding alien individual employed by the said headquarters, provides:
"SEC. 25. Tax On Nonresident Alien Individual. —
xxx xxx xxx"
"(C) Alien Individual Employed by Regional or Area Headquarters and Regional Operating
Headquarters of Multinational Companies. — There shall be levied, collected and paid for each
taxable year upon the gross income received by every alien individual employed by regional or area
headquarters and regional operating headquarters established in the Philippines by multinational
companies as salaries, wages, annuities, compensation, remuneration and other emoluments, such as
honoraria and allowances, from such regional or area headquarters and regional operating
headquarters, a tax of fifteen percent (15%) of such gross income: Provided, however, That the same
tax treatment shall apply to Filipinos employed and occupying the same position as those of aliens
employed by these multinational companies. . . ."
A tax treaty is in the nature of a special law, i.e., a law which relates to particular persons or things
of a class or to a particular portion or section of the State. On the other hand, the provisions of the Tax
Code or other tax laws (such as the said Article 61) are in the nature of a general law or that which applies
to all of the people of the State or to all of a particular class of persons in the State with equal force. LibLex
It is a rule in statutory construction that a general law and a special law on the same subject should
be read together and harmonized, if possible, with a view to giving effect to both. In case of conflict
between the two, the special law shall prevail. The fact that one law is special and the other general,
creates a presumption that the special law is to be considered as remaining an exception of the general law,
one as a general law of the land and the other as the law of a particular case.
Hence, the application of a tax treaty is limited only to persons or properties which are clearly
covered thereby. A tax treaty therefore may not be viewed as superseding or repealing the Tax Code.
Article 61 of EO No. 226, as amended, and Articles 15 and 14 of the RP-France and RP-Italy Tax
Treaties, respectively, may be harmonized in such a way as to give effect to both laws. Under the said
Articles 15 and 14, it is provided that a resident of France or Italy, respectively, may not be taxed if he is
present in the Philippines for less than or equal to 183 days in a year and the remuneration of such resident
"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 or a fixed base which the employer has in the Philippines." On the other hand,
the said Article 61 contemplates that the payor of the remuneration of the alien concerned is the regional
or are headquarter or the regional operating headquarter of a multinational corporation, which for purposes
of the said Tax Treaties is considered as a "permanent establishment", and thus, it is tasked to withhold
from such remuneration the tax due therefrom.
Thus, if all of the conditions cited under Articles 15 and 14 of the RP-France and RP-Italy Tax
Treaties, respectively, are met, no Philippine income tax shall be imposed on the income of the residents
of France and Italy. On the other hand, if one of the conditions is not satisfied, the residents of France and
Italy shall become subject to Philippine tax imposed under Article 61 of EO No. 226, as amended, or
Section 25(C) of the Tax Code of 1997.
disclosed that the said facts are different, then this ruling shall be considered null and void. cdlex
Very truly yours,

By:

Deputy Commissioner
July 25, 2000
Sec. 108 Sec. 109

104-89
Asian Development Bank

6 ADB Avenue, Mandaluyong City
0401 Metro Manila
Attention: Mr. Normin S. Pakpahan

Manager, General Services Division
Gentlemen :
This refers to your letter dated May 02, 2000, requesting certification of the Asian Development
Bank's (ADB) exemption from the payment/collection by the Philippine Government of value-added tax
(VAT), to be used exclusively by ADB to facilitate its claim for refund of UK VAT collected by HM
Customs and Excise of Northern Ireland from an ADB's professional staff member who was officially sent
as a participant in the Oxford Strategic Leadership Program at Templeton College, Oxford, England.
In reply, please be informed that under Executive Order (EO) No. 161 promulgated April 21, 1987,
the pertinent portion of which provides, viz:
"xxx xxx xxx
"SEC. 1. Provisions of the National Internal Revenue Code, as amended, to the contrary
notwithstanding:
(a) goods sold directly to the Asian Development Bank shall not be subject to sales
tax, and cda
(b) services rendered under contracts entered into with the Asian Development Bank
shall not be subject to contractors tax.
xxx xxx xxx"
ADB is exempt from sales tax on its purchase of goods and from contractors tax on its purchase of
services.
With the promulgation of EO No. 273 which took effect January 01, 1988 designed to simplify tax
on sale of goods and services, the sales and contractors tax and other business taxes were abolished and
were replaced by VAT. In the light of these developments, it is understood that the grant of exemption
from the sales and contractors tax entitles the grantee like exemption from VAT which merely replaced
these taxes. (BIR Ruling 104-89 dated May 16, 1989)
In fine, since ADB is exempt from the old sales and contractors tax, it is likewise exempt from
VAT.
This ruling serves as the Bureau's certification that the Asian Development Bank is exempt from
VAT on its purchase of goods and services.
Very truly yours,

Deputy Commissioner
July 6, 2000
Sec. 106 Sec. 108 Sec. 149

BIR-ITAD 34-99
The Embassy of the People's

Republic of Bangladesh
106 Paseo de Roxas cor. Perea St.
Makati City
Gentlemen :
This refers to your Note No. MISC-1/98 dated February 1, 2000 which was referred to this Office
by the Department of Foreign Affairs, requesting for the issuance of a certificate of exemption from
value-added tax (VAT) and other government taxes for items purchased by the Embassy from local
markets/shops. cdasia
"Article 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods
and services
xxx xxx xxx"
VAT and ad valorem taxes on their local purchases of goods and services. In other words, purchases by
the Embassy of goods and services shall be subject to VAT prescribed under Sections 106 and 108, and ad
valorem tax under Section 149, all of the National Internal Revenue Code of 1997. cdtai
the People’s Republic of Bangladesh and its personnel on their local purchases of goods and services, it
appearing from the lists submitted by the Department of Foreign Affairs (dated October 4, 1999 in the case
of VAT, and dated June 15, 1994 in the case of ad valorem tax) that your Government allows similar
exemption to Philippine Embassy personnel on their purchase of goods and services in your country.
Hence, the Embassy of the People’s Republic of Bangladesh and its personnel are entitled to VAT
and ad valorem tax exemption on their local purchases of goods and services. (BIR-ITAD Ruling No.
34-99) cdrep
Very truly yours,

July 4, 2000
Sections 106-108
ITAD 1-00
Embassy of the Sovereign Military Order of Malta

6th Floor, Cattleya Condominium Building
235 Salcedo St., Legaspi Village
1229 Makati City
Attention: Enrique P. Syquia

Ambassador
Gentlemen :
This refers to your letter No. 076 dated August 16, 1999 requesting for the issuance of a
value-added tax (VAT) Exemption Certificate.
"ARTICLE 34
(a) indirect taxes of a kind which are normally incorporated in the price of the goods
and services cdlex
xxx xxx xxx"
VAT on their local purchase and importation of goods. In other words, purchase and importation by the
Embassy of the Sovereign Military Order of Malta of goods and services shall be subject to the VAT
prescribed under Section 106, 107 and 108 of the National Internal Revenue Code of 1997.
However, under the principle of reciprocity, and since your Government allows tax exemption to
the Philippine Embassy on its purchase and importation of goods in reference to Department of Foreign
Affairs (DFA) Office of Protocol Indorsement Letter no. 3589, this Office may likewise grant tax
exemption to your embassy on its purchase and importation of goods.
Hence, the Embassy of the Sovereign Order of Malta is entitled to VAT exemptions on its local
purchase and importation of goods as above-stated. cdphil
Very truly yours,

July 4, 2000
Sec. 106 Sec. 108 Sec. 149

BIR-ITAD 64-00 71-00
Royal Thai Embassy

107 Rada St., Legaspi Village
Makati City
Attention: Mr. Chirakom Kitiyakara

Minister Counsellor
Commercial Section
Gentlemen :
This pertains to your Note No. 40001/430 dated April 19, 2000 which was referred to this Office by
the Department of Foreign Affairs, requesting for a tax free local purchase of one (1) unit Honda City
Model 2000, 1.3 LXi A/T, 4-door sedan, 1.3 liter gas, SOHC, PGM-FI, 4-speed automatic transmission, 95
h.p., Cond. St. No. 13 TNH, Engine No. P3RD6-P301703, Frame No. PAD3A1640XV101652, kaiser
silver color, for the personal use of Mr. Chirakom Kitiyakara, Minister Counsellor of the Commercial
Section of the Embassy. Cdpr
Relations pertinent portions of which read:
"Article 34
and services
xxx xxx xxx"
purchases by the Embassy of goods and services shall be subject to VAT prescribed under Sections 106
and 108, and ad valorem tax under Section 149, both of the National Internal Revenue Code of 1997.
However, under the principle of reciprocity, this Office may grant VAT and ad valorem tax
exemption to the Royal Thai Embassy and its personnel on their local purchases of goods and services, it
appearing from the list submitted by the Department of Foreign Affairs dated October 4, 1999 that your
Government allows similar exemption to Philippine Embassy personnel on their purchase of goods and
services in your country. Cdpr
Hence, the local purchase of one (1) unit Honda City Model 2000, 1.3 LXi A/T, for the personal
use of Mr. Chirakom Kitiyakara, Minister Counsellor of the Commercial Section of the Embassy, is
exempt from VAT and ad valorem tax. (ITAD Ruling 71-00 dated May 4, 2000)
Very truly yours,

Deputy Commissioner
June 23, 2000
Sec. 106 Sec. 108

249-99
Embassy of the Czech Republic

Makati City
Attention: H. E. Stanislav Slavicky

Ambassador
Gentlemen :
This pertains to your Note No. 00/057 dated May 5, 2000 which was referred to this Office by the
Department of Foreign Affairs, requesting for a tax free local purchase of one (1) unit Opel Vectra 2.0
Wagon Model 2000, star silver color, for the official use of the Embassy.
"Article 34
and services prcd
xxx xxx xxx"
value-added tax (VAT) on their local purchases of goods and services. In other words, purchases by the
Embassy of goods and services shall be subject to VAT prescribed under Sections 106 and 108, both of
the National Internal Revenue Code of 1997.
However, under the principle of reciprocity, this Office may grant VAT exemption to the Embassy
of the Czech Republic and its personnel on their local purchases of goods and services, it appearing from
the list submitted by the Department of Foreign Affairs dated June 2, 2000 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) unit Opel Vectra 2.0 Wagon Model 2000, for the official use
of the Embassy is exempt from VAT. (BIR Ruling 249-99 dated April 23, 1999) cda
Very truly yours,

Deputy Commissioner
June 16, 2000
Article 10 RP-Japan Tax Treaty ITAD 9-00
Quiason Makalintal Barot Torres & Ibarra

21ST Floor, Robinsons PCIBank Tower
ADB Ave. Corner Pedro Poveda Road
1605 Ortigas Center, Pasig City
Attention: Atty. Ruelito Q. Soriano
Gentlemen :
This refers to your letter dated February 21, 2000 requesting for a confirmation of your opinion that
the applicable tax treaty rate on the dividends received by Sumitomo Tokyo from First Philippine
Industrial Park, Inc. (FPIP) is 10% pursuant to the RP-Japan Tax Treaty.
It is represented that Sumitomo Tokyo is a foreign corporation organized and existing under the
laws of Japan; that Sumitomo Tokyo has a branch office in the Philippines, Sumitomo Manila, which is
engaged in trading activities; that Sumitomo Tokyo holds 30% of the total subscribed shares of FPIP; that
investments to FPIP came directly from Tokyo, Japan; that on October 25, 1999, FPIP declared cash
dividends to all stockholders of record as of June 30, 1999, payable on November 29, 1999; that the total
dividends allocated to Sumitomo Tokyo amounted to P27,360,000.00; and that 15% of the dividends
received amounting to P4,104,000.00 was deducted and withheld by FPIP. LibLex
In reply, I have the honor to inform you that Article 10 of the RP-Japan Tax Treaty provides as
follows:
"Article 10

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
months immediately preceding the date of payments of the dividends;
b) 25 per cent of the gross amount of the dividends in all other cases."
In view of the foregoing, and since Sumitomo Tokyo holds thirty percent (30%) of the total
subscribed shares of FPIP, the dividend remittance to Sumitomo Tokyo is subject to the preferential tax
treaty rate of ten per cent (10%) notwithstanding the fact that Sumitomo Tokyo has a branch in the
Philippines since the investment in FPIP was made independently by Sumitomo Tokyo and not through the
Philippine branch. This being the case, the dividend income cannot be attributed as an ordinary
consequence of Sumitomo Tokyo’s trade or business in the Philippines (Marubeni Corporation vs.
Commissioner of Internal Revenue and Court of Appeals, G.R. No. 76573, September 14, 1989, 177
SCRA, 500; ITAD Ruling 9-00 dated January 13, 2000).
void.
Very truly yours,

June 2, 2000
Article 11 RP-Australia
015-85
Export Finance and Insurance Corporation

P O Box R65 Royal Exchange
NSW 1223 Australia
Attention: Angus Armour

General Manager, Export and Project Finance
Gentlemen :
This refers to your letter dated March 9, 2000, requesting for confirmation of your opinion that the
loans extended by banks to Philippine borrowers guaranteed or insured by the Export Finance and
Insurance Corporation (EFIC) are exempt from withholding tax on interest pursuant to RP-Australia Tax
Treaty. cdasia
It is represented that EFIC is the official Export Credit Agency of Australia and is 100 per cent
owned by the latter supported by a Government guarantee; that to support Australian exports, EFIC can
either provide direct loans to Philippine borrowers or guarantee or insure Export Credit loans provided by
international banks to Philippine Importers; that the Export Credit loan from a bank that is guaranteed or
insured by EFIC and the associated benefits for the Philippine Importer are consistent with the Export
Credits guaranteed by other OECD-Export Credit Agencies or with a direct loan provided by EFIC; that
EFIC is restricted to support or finance 85 per cent of the value of goods imported from Australia and the
guaranteed or insured bank typically finances amounts in excess of the 85 per cent financed by EFIC.
It is alleged that the loans guaranteed or insured by EFIC provided by banks to Philippine
borrowers are not subject to withholding tax on interest because of Article 11(7) of the RP-Australian Tax
Treaty which provides:
"(7) Interest derived by the Government of a Contracting State, or by any other body
exercising governmental functions in, or in a part of, a Contracting State, or by a bank performing
central banking functions in a Contracting State, shall be exempt from tax in the other Contracting
State."
In reply, please be informed that for lack of legal basis, your request cannot be granted. The
aforementioned provision exempts interest income from withholding tax only when the recipient is the
Government of Australia or any of its instrumentalities exercising governmental function or a bank
performing central banking functions in Australia. Thus, the said provision is not applicable in this case
because the recipient of the interest income is not the Australian Government nor EFIC and other
governmental instrumentalities but the international banks that extended the loan to the Philippine
borrowers. These banks are not governmental entities that may perform governmental functions and also
are not performing central banking functions in Australia as contemplated by the foregoing provision.
(BIR Ruling 015-85 dated February 8, 1985) cdlex
Such being the case, the loans extended by different international banks to Philippine borrowers
and guaranteed or insured by the Export Finance and Insurance Corporation (EFIC) are not exempt from
withholding tax on interest. Only direct loans provided by EFIC are exempted from withholding tax on
interest since it is the recipient of the interest income. Moreover, the interest income from loans provided
by these banks to Philippine borrowers is subject to withholding tax at the rate 20% provided by Section
28(B)(5)(a) of the National Internal Revenue Code of 1997. However, if there is an existing Tax Treaty
between the State where the bank is a resident and the Philippines, the bank may apply for a tax treaty
relief and its interest income may be subjected to the preferential tax rate provided in the said Tax Treaty.
void.
Very truly yours,

2000
Sec. 106 Sec. 108

#206-93

Attention: Mr. Young-Ho Chung

Counsellor
Gentlemen :
This refers to your Note No. KPH 2000-091 dated April 7, 2000 which was referred to this Office
by the Department of Foreign Affairs (DFA), requesting for an exemption from payment of value-added
tax (VAT) and ad valorem tax on a local purchase of one (1) unit Honda Accord 2.3 Vti Model 2000,
Chassis No. PADCG5540WV000204, Engine No. PAHPO-P100221, kaiser silver color, for the personal
use of Mr. Young-Ho Chung, Counsellor of the Embassy of the Republic of Korea. prcd
In reply, please be informed that under the principle of reciprocity, this Office may grant exemption
to the Embassy of the Republic of Korea or its personnel on their local purchases of goods and/or services
it appearing from the lists submitted by the DFA (dated October 4, 1999 and June 15, 1994) that your
services in your country.
Hence, the purchase of one (1) unit Honda Accord 2.3 Vti Model 2000 for the personal use of Mr.
Young-Ho Chung, Counsellor of the Embassy, is exempt from VAT and ad valorem tax.
Very truly yours,
(SGD.) ROMEO S. PANGANIBAN

OIC-Commissioner
May 18, 2000
Sec. 106 Sec. 108

#206-93

Attention: Mr. Suk-Inn Choi

Counsellor
Gentlemen :
This refers to your Note No. KPH 2000-085 dated April 4, 2000 which was referred to this Office
by the Department of Foreign Affairs (DFA), requesting for an exemption from payment of value-added
tax (VAT) and ad valorem tax on a local purchase of one (1) unit Honda Accord 2.3 Vti Model 2000,
Chassis No. PADCG5540WV000209, Engine No. PAHPO-P100218, cypress green color, for the personal
use of Mr. Suk-Inn CHOI, Counsellor of the Embassy of the Republic of Korea. prcd
In reply, please be informed that under the principle of reciprocity, this Office may grant exemption
to the Embassy of the Republic of Korea or its personnel on their local purchases of goods and/or services
it appearing from the lists submitted by the DFA (dated October 4, 1999 and June 15, 1994) that your
Hence, the purchase of one (1) unit Honda Accord 2.3 Vti Model 2000 for the personal use of Mr.
Suk-Inn CHOI, Counsellor of the Embassy, is exempt from VAT and ad valorem tax.
Very truly yours,
(SGD.) ROMEO S. PANGANIBAN

OIC-Commissioner
May 4, 2000
Sec. 106 Sec. 108 Sec. 149

BIR-ITAD 51-99 64-00
Royal Thai Embassy

Makati City
Attention: Ms. Nitima Vudhivad

Second Secretary
Gentlemen :
This pertains to your Note No. 40001/367 dated March 24, 2000 which was referred to this Office
by the Department of Foreign Affairs, requesting for a tax free local purchase of one (1) unit Honda City
Model 2000, 1.3 LXi A/T, 4-door sedan, 1.3 liter gas, PGM-FI, 4-speed automatic transmission, 95 h.p.,
Cond. St. No. 06 TMB, Engine No. P3RD6-P301433, Frame No. PAD3A1640XV101419, iced teal pearl
color, for the personal use of Ms. Nitima Vudhivad, Second Secretary of the Embassy. LibLex
"Article 34
and services
xxx xxx xxx"
services in your country. LibLex
Hence, the local purchase of one (1) unit Honda City Model 2000, 1.3 LXi A/T, for the personal
use of Ms. Nitima Vudhivad, Second Secretary of the Embassy, is exempt from VAT and ad valorem tax.
(ITAD Ruling 64-00 dated April 6, 2000)
Very truly yours,

Commissioner
April 26, 2000
Sec. 106 Sec. 108 Sec. 149

BIR-ITAD 64-00
Embassy of the Republic of Turkey

2268 Paraiso St., Dasmariñas Village
Makati City
Attention: Ms. Beste Pehlivan

Third Secretary
Gentlemen :
This pertains to your Note No. 2000/6 dated January 25, 2000 which was referred to this Office by
the Department of Foreign Affairs, requesting for a tax free local purchase of one (1) unit Honda City
Model 2000, 1.3 LXi M/T, 4-door sedan, 1.3 liter gas, PGM-FI, 5-speed manual transmission, 95 h.p.,
Cond. St. No. 66 TND, Engine No. P3RD1-P302240, Frame No. PAD3A1530XV102275, kaiser silver
color, for the personal use of Ms. Beste Pehlivan, Third Secretary of the Embassy. cdrep
"Article 34
and services
xxx xxx xxx"
purchases made by the Embassy and its personnel of goods and services shall be subject to VAT
prescribed under Sections 106 and 108, and ad valorem tax under Section 149, both of the National
Internal Revenue Code of 1997.
However, under the principle of reciprocity and based on the favorable recommendations by the
Department of Foreign Affairs and the Philippine Embassy in Turkey respectively dated April 14, 2000
and March 1, 2000, this Office may grant VAT and ad valorem tax exemption to the Embassy of the
Republic of Turkey and its personnel on their local purchases of goods and services.
Hence, the local purchase of one (1) unit Honda City Model 2000, 1.3 LXi M/T, for the personal
use of Ms. Beste Pehlivan, Third Secretary of the Embassy, is exempt from VAT and ad valorem tax.
(ITAD Ruling 64-00 dated April 6, 2000) cdlex
Very truly yours,

Commissioner
April 7, 2000
RP-Korea Art. 5; Art. 7

[DA-048-1-31-96]
0688-88;
022-88

SPEZ, Gateway Business Park,
Javalera, Gen. Trias,
Cavite City
Attention: Junichi Kawaguchi

Assistant Controller
Gentlemen :
This refers to your letter dated December 8, 1999 requesting for and in behalf of Kabool
Electronics Co., Ltd. (KABOOL) an availment of relief from double taxation under the provisions of the
RP-Korea Tax Treaty. LexLib
Documents submitted show that KABOOL, a corporation duly organized and existing under and by
virtue of the laws of Korea and not registered to do business in the Philippines as evidenced by a
certification issued by the Securities and Exchange Commission dated December 16, 1999, with principal
office at 626-38 Kamjung, Kimpo, Kyungki, Korea, entered into a contract for supply of engineering
support services with Luzon Electronics Technology, Inc. (LETI), is a Philippine Economic Zone
Authority (PEZA) registered domestic corporation duly organized and existing under and by virtue of the
laws of the Philippines, with principal office address at Special Export Processing Zone, Gateway
Business Park, Javalera, General Trias, Cavite City, for the setting up of a commercial production of Head
Stack Assemblies for Samsung (hereinafter referred to as HSA) and that KABOOL engineers have
rendered services in the Philippines for 59 days as evidenced by the copies of their passport showing pages
of dates of arrival and departure; that in consideration for the said services, LETI will pay KABOOL the
total amount of US $60,000.
In reply thereto, please be informed that paragraph (1), Article 7 of the RP-Korea Tax Treaty
"Article 7
Business Profits
enterprise may be taxed in the other State but only so much of them as is attributable to that
permanent establishment. cdasia
xxx xxx xxx"
"Article 5
"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, an oil or gas well, a quarry or any other place of extraction of natural
resources; Cdpr
(g) premises used as a sales outlet; and
(h) a warehouse, in relation to a person providing storage facilities for others.
"3. (a) a building site or construction, installation or assembly project or supervisory

activities in connection therewith, constitute a permanent establishment only if such site, project or
activity continues for a period of more than six months.
(b) the furnishing of services including consultancy services by an enterprise through an

employee or other personnel constitute a permanent establishment only if activities of that nature
continue within a Contracting State for a period or periods exceeding in the aggregate 183 days within
any twelve-month period; and
xxx xxx xxx"
Based on the foregoing, the taxability in the Philippines of business profits earned by a Korean
resident shall depend on the existence of a permanent establishment (PE) therein. Such being the case, and
inasmuch as, as represented, KABOOL would perform the engineering assistance to LETI for 59 days
only, KABOOL cannot be considered to have set up a PE here within the meaning of Section 3(b) of
Article 5 of the RP-Korea Tax Treaty. Hence, payments to be made to KABOOL are not subject to
Philippine income tax. cdrep
void.
Very truly yours,
(SGD.) SIXTO S. ESQUIVIAS IV

Deputy Commissioner
April 7, 2000
RP-Germany Article 12
Quasha Ancheta Peña

and Nolasco Lawyers
Don Pablo Building, 114 Amorsolo St.
Makati City, Metro Manila
Attention: Atty. Linda Joy B. Moya
Gentlemen :
This refers to your application for relief from double taxation dated January 07, 2000, requesting
that your client SUMISOLA CORPORATION (SUMISOLA) be authorized to withhold a preferential tax
rate of ten percent (10%) on its royalty payments to ISOLA A. G., pursuant to the RP-Germany Tax
Treaty. cdrep
It is represented that ISOLA A. G. is a non-resident foreign corporation duly organized and existing
under the laws of Germany; that it is not registered as a corporation / partnership in the Philippines as per
certification dated October 27, 1999 issued by the Securities and Exchange Commission (SEC); that
SUMISOLA, on the other hand, is a Philippine Economic Zone Authority (PEZA) registered domestic
corporation duly organized and existing under the laws of the Philippines; that on April 06, 1998, a
Primary Services Agreement was entered into by and between ISOLA A. G. and SUMISOLA whereby
ISOLA A. G. had agreed to supply and make available to SUMISOLA the following: a) Accounting and
financial "know-how" related to the valuation and appraisal services, b) Accounting and Economic Data
Acquisition Scheme, c) Coordinate strategies and advise on management and business operation, d)
Conduct procedural analysis on the nature of the business, e) Training of personnel in Germany and, f)
Provide training materials and facilities to personnel; that in consideration of the aforementioned services,
SUMISOLA shall pay ISOLA A. G. the amount of US$300,000.00 which shall be made in three
installments and; that the Primary Services Agreement complies with the provisions of the Intellectual
Property Code (IPC) as evidenced by the Certificate of Compliance No. 5-1999-00016 dated April 06,
1998, issued by the Intellectual Property Office (IPO).
In reply, please be informed that Article 12 of the RP-Germany Tax Treaty provides as follows:
"Article 12
Royalties
and according to the law of that State, but 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.
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. llcd
including cinematograph 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"
Inasmuch as the payments made by SUMISOLA to ISOLA A. G. are in consideration for the
services involving the transfer of commercial / industrial know-how, and considering further that the
herein Primary Services Agreement complies with the IPC as certified by the IPO, your application is
hereby approved. Hence, the royalty remittances by SUMISOLA to ISOLA A. G. shall be subject to the
preferential tax rate of 10% based on the gross amount of royalties.
it will be disclosed that the facts are different, then this ruling shall be considered null and void. prcd
Very truly yours,

Deputy Commissioner
2000
RP-Japan, Article 12
007-86 003-96
Mr. Yoichi Muramoto

President, MAPLE
Muramoto Audio-Visual Philippines, Inc.
Mactan Export Processing Zone
Lapu-Lapu City, Cebu, Philippines
Sir:
This refers to your application for relief from double taxation dated November 29, 1999, on behalf
of Muramoto Industry Co. Ltd of Japan (MIC), requesting for a preferential tax rate of twenty five percent
(25%) to be withheld on your royalty remittances, pursuant to the RP-Japan Tax Treaty.
It is represented that MIC is a corporation organized and existing under the laws of Japan with no
permanent establishment in the Philippines, as per certification dated December 14, 1999 issued by the
Securities and Exchange Commission; that Muramoto Audio-Visual Philippines, Inc. (MAPLE) is a
corporation organized and existing under the laws of the Philippines and a PEZA-registered Ecozone
Export Enterprise with Registration Certificate No. 90-08, located at Mactan Economic Zone; that
MAPLE entered into a Service Agreement for Technical Advice and Business Support with MIC, whereby
MIC shall render the following services, among others: (1) exclusively provide full assistance and furnish
MAPLE with all recent Technical Advice, Design Cooperation and Business Support for the production
and marketing electronic products, (2) exclusively provide and accept MAPLE to access to MIC's
worldwide intelligence system for least-cost sourcing of raw materials and packaging supplies, testing
procedures and standards including laboratory analysis services, (3) conduct training of production,
quality control and administrative employees, (4) conduct seminars and conference for training of
MAPLE's employees and customers, (5) provide materials including films for training in the fields of
production, quality control and marketing, (6) provide professionals who are experts in all disciplines
necessary for successful advising to MAPLE regarding the Technical Advice, Design Cooperation and
Business Support; that in consideration of said services, MAPLE shall pay MIC fees to be agreed upon by
the parties, to be calculated on the basis of the total sales of each fiscal year but not to exceed two percent
(2%) of the said sales; and that the said Service Agreement is duly registered with the Bureau of Patents,
Trademarks and Technology Transfer (now the Intellectual Property Office) of the Department of Trade
and Industry under Certificate of Registration No. 1773 dated January 12, 1996. cdasia
Under the said Agreement, Technical Advice means the provision of MIC's technical information to
MAPLE with regard to the production of electronic products and related equipment whether orally or in
writing; Design Cooperation, the provision of cooperation in making necessary design drafts with regard
to the manufacturing of electronic products and related equipment in the Philippines from time to time
during the period of the Agreement; and Business Support, all activities with regard to the marketing and
sale of the electronic products as well as the support for contract award activities and information.
"ARTICLE 12
broadcasting;
"3. ...
"4. The term ‘royalties’ as used in this Article means payments of any kind received as a
including cinematographic 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, the right to use,
or scientific experience. (Emphasis supplied) Cdpr
xxx xxx xxx"
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 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. This type of contract thus differs from contracts for the provision of services, in which one
of the parties undertakes to use the customary skills of his calling to execute work himself for the other
party. Thus, payments obtained as consideration for after-sales service, for services rendered by a seller to
the purchaser under a guarantee, for pure technical assistance, or for an opinion given by an engineer, an
advocate or an accountant, do not constitute royalties within the meaning of paragraph 4.
As thus defined by the Service Agreement by and between MAPLE and MIC, the information to be
imparted by MIC falls under the purview of know-how. Such being the case and inasmuch as the said
Agreement has been approved by the Bureau of Patents, Trademarks and Technology Transfer (now the
Intellectual Property Office) of the Department of Trade and Industry, this Office hereby confirms that the
fees arising in the Philippines and payable to MIC by MAPLE, under such Agreement, are subject to the
preferential royalty tax rate of 25%.(BIR Ruling Nos. 003-96 & 007-86)
disclosed that the said facts are different, then this ruling shall be considered null and void. cdtai
Very truly yours,

By:

Deputy Commissioner
April 6, 2000
RP-Singapore Article 5, 7
77-84; 47-97;184-90
Romulo Mabanta Buenaventura

Sayoc & de los Angeles
30/F Citibank Tower
8741 Paseo de Roxas
Makati City
Attention: Atty. Priscilla B. Valer

and
Atty. Jayson L. Fernandez
Gentlemen :
This is in connection with you application for relief from double taxation dated March 21, 2000 on
behalf of your client, Stamford Hospital Management Pte. Ltd. (SHM), requesting confirmation of your
opinion that the amounts received by SHM from Pacific Millennium Management Corporation (PMMC),
Triple-A Properties, Inc. (TPI), and Ms. Melesa D. Chua (Ms. Chua), hereinafter referred to as the "Local
Parties", as consideration for the termination of cancellation of the Agreements described below is not
subject to income tax, and consequently to any withholding tax, in the Philippines by virtue of Article 7 in
relation to Article 5 of the RP-Singapore Tax Treaty. cda
It is represented that SHM is a nonresident foreign corporation organized and existing under and by
virtue of the laws of Singapore with offices at Orchard Road, #11-00 Ngee Am City, Singapore; that it is
engaged in the business of planning, designing, decorating, furnishing, equipping, as well as the
management and operation of serviced apartments; that TPI, a domestic corporation organized and existing
under the laws of the Republic of the Philippines, is the developer and owner of the Millennium Suites
Condominium Project (the Project) which was envisioned to be a serviced apartment complex; that TPI
assigned the rights to manage the Project to PMMC, another domestic corporation; that Ms. Chua is the
majority stockholder of both TPI and PMMC.
It is further represented that on March 11, 1999, SHM entered into the following agreements
relating to the development, operation and management of the Project as a serviced apartment complex
(hereinafter referred to as the "Agreements"):
1. Master Agreement by and among PMMC, TPI, and SHM which sets out the terms on
which the parties will enter into various agreements culminating in the financing,
management and operation of the serviced apartments and the operational area of the
Project. cdphil
2. Pre-Opening Services Agreement by and between PMMC and SHM by virtue of which
SHM was appointed by PMMC as its agent in the management and operation of the
serviced apartments once the Project is completed. Such services will include the
provision of advice on the design, decor, furnishing, equipping, and other matter
affecting the operating efficiency of the serviced apartments.
3. Management Agreement by and between PMMC and SHM by virtue of which SHM
was appointed as operator of the serviced apartments owned by unit owners and the
operational areas owned by PMMC.
4. Option Agreement by and between TPI and SHM by virtue of which SHM was granted
a call option to purchase twenty nine (29) units it the Millennium Suites Condominium
Project.
5. Option Agreement by and between Ms. Chua and SHM by virtue of which SHM was
granted a call option to purchase fifty percent (50%) of Ms. Chua's outstanding shares
in PMMC.
that shortly after the execution of the aforementioned Agreements, SHM on the other hand and the Local
Parties on the other, had a major disagreement with respect to the performance of their respective
obligation under the Agreements; that the parties eventually agreed that it was in their best interest to
settle completely and finally all of their claims and causes of action that each may have against the others
that may have arisen out of or in connection with one, some or all of the Agreements, the Local Parties
agreed to pay SHM the sum of Thirty Million Pesos (P30,000,000.00) to answer for any expenses or
damages which may have been incurred by SHM as a consequence of the premature termination of the
Agreements; that at the time of termination, SHM has performed abroad only preliminary works which
relate to the structuring of the offshore financing aspect of the Project and the review of the concept,
configuration and designs of the serviced apartments.
In reply, please be informed that damages for a breach of contact constitute taxable income to the
recipient thereof in the year received only to the extent that such damages constitute a loss of anticipated
profits and non-taxable to the extent that the same represent a return of capital investment. (BIR Ruling
dated September 8, 1954) cdasia
In view thereof, amounts paid by the Local Parties to SHM in consideration for the termination of
the aforementioned Agreements which do not represent a return of capital or investment, but constitute
loss of profits, are considered to be taxable income in the year received works outside the Philippines prior
to the termination of the Agreements, SHM cannot be considered to have a permanent establishment (PE)
in the Philippines to which its income may be attributable.
In this light, we refer you to Article 7, paragraph 1 of the RP-Singapore Tax Treaty which provides,
viz:
"ARTICLE 7
"BUSINESS PROFITS
xxx xxx xxx"
"ARTICLE 5
"PERMANENT ESTABLISHMENT
"2. The term "permanent establishment" includes especially but is not limited to:
(b) A branch;
(c) An office;
(d) A store or other sales outlet
(e) A factory; prcd
(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

continue (for the same or a connected project) within the outer Contracting State for a period
Under the aforequoted provisions, it is clear that if an enterprise of Singapore does not carry on
business in the Philippines through a PE situated in the latter, the profits of an enterprise of Singapore
shall not be subject to Philippine income tax.
Accordingly, since SHM does not maintain a PE in the Philippines, the amounts it will be receiving
from the Local Parties in consideration for the premature termination of the above-mentioned Agreements,
being considered as constituting loss of profits, will not be subject to income tax or any withholding tax in
the Philippines pursuant to Article 5 and Article 7 of the RP-Singapore Tax Treaty. (BIR Ruling Nos.
77-84 dated April 25, 1984; 47-97 dated April 14, 1997).
disclosed that the said facts are different, then this ruling shall be considered null and void. cdlex
Very truly yours,

Deputy Commissioner
2000
RP-US Article 5, 8
UN-351-10-2-95;
031-95; 49-96

30TH Floor, Citibank Tower Citibank Plaza
8741 Paseo de Roxas, Makati City
Attention: Priscilla B. Valer
Gentlemen :
This refers to your letter dated February 3, 2000 requesting on behalf of your client, Lehman
Brothers, Inc. ("Lehman") confirmation that the fees payable to Lehman by PNOC Exploration
Corporation (PNOC) are not subject to Philippine withholding tax pursuant to Article 8 in relation to
Article 5 of the RP-US Tax Treaty. cdasia
It is represented that Lehman is an investment bank engaged in providing financial services; that it
is organized and existing under the laws of the State of Delaware, U.S.A; that it is not registered to do
business in the Philippines as evidenced by a certification issued by the Securities and Exchange
Commission (SEC) dated February 11, 2000; that Lehman was engaged by PNOC to be its financial
advisor in a proposed acquisition of a stake in a project ("the Project") under a Financial Advisory
Services Agreement (AGREEMENT 1) dated June 23, 1999; that under AGREEMENT 1, Lehman shall
render financial advisory services required by PNOC in order to determine the financial viability and
optimum level of PNOC's participation in the Project, including general business and financial analysis,
transaction feasibility analysis and pricing and valuation of the prospective acquisition; that the
culmination of Lehman's advisory services was the submission to PNOC of a Project Valuation Report at
which time PNOC shall pay Lehman a flat fee; and that except for data gathering which requires
occasional visits to the Philippines, most of Lehman's advisory projects, such as data analysis, valuation
and report preparation were rendered outside the Philippines.
Upon completion of the valuation study, PNOC decided to pursue an actual participation in the
Project; that the parties proposed to sign another Financial Advisory Services Agreement (AGREEMENT
2), which is effective September 1, 1999, for the implementation of the proposed acquisition; that under
AGREEMENT 2, the financial advisory services required of Lehman shall consist of assisting PNOC in
the negotiations and related strategy concerning the acquisition, evaluation of financing, structures and
co-ordinating necessary interaction with government agencies for the implementation of the proposed
acquisition; that in consideration for the advisory services, PNOC will pay Lehman a monthly retainer fee;
that if the proposed acquisition is successfully completed, PNOC shall pay Lehman an agreed flat fee
against which the monthly retainer will be credited; and that it is expected that the aggregate stay of
Lehman's personnel during their occasional visits to the Philippines in connection with the performance of
the financial advisory services under AGREEMENT 1 and AGREEMENT 2 will be approximately 90
days and definitely, the aggregate duration of their stay in the Philippines will be less than 183 days. cda
In reply, please be informed that Article 8 of the RP-US Tax Treaty, states:
Article 8
"1. Business profits of a resident of one of the Contracting States shall be taxable only in
resident has a permanent establishment in that other Contracting State, tax may be imposed by that
attributable to the permanent establishment.
xxx xxx xxx"
On the other hand, Article 5 of the RP-US Tax Treaty provides:
Article 5
"1. For the purposes of this Convention, the term permanent establishment means a fixed
business.
"2. The term fixed place of business includes but is not limited to:
(b) A branch;
(c) An office;
(e) A factory;
(f) A workshop;
(g) A warehouse;
(h) A mine, quarry, or other place of extraction of natural resources; cdphil

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

xxx xxx xxx"
Under the aforementioned provisions, it is clear that if a corporation which is a resident of the
United States does not carry on business in the Philippines through a permanent establishment situated
therein, the profits of the US-resident corporation shall not be subject to Philippine income tax.
In reference to Article 5(j) of the RP-US Tax Treaty, a corporation which is a resident of the United
States may be deemed to have a permanent establishment in the Philippines if the furnishing of services by
such US-resident 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.
Considering that the performance of Lehman's advisory services under AGREEMENT 1 and
AGREEMENT 2 with PNOC will only be for less than an aggregate of 183 days, Lehman cannot be
considered to have a permanent establishment in the Philippines. Hence, service fees paid to Lehman by
PNOC under AGREEMENT 1 and AGREEMENT 2 are not subject to Philippine income tax.
However, the fees paid by PNOC to Lehman for the services rendered in the Philippines are subject
to the 10% value-added tax pursuant to Sec. 108 of the Tax Code. Accordingly, PNOC, being the lessee of
Lehman for the advisory services rendered under AGREEMENT 1 and AGREEMENT 2, shall be
responsible for the payment of VAT on said services in behalf of Lehman by filing a separate VAT
declaration/return and the said VAT declaration/return can be used by PNOC, as evidence in claiming
input tax credit. (Sec. 4.102-1(b), Revenue Regulations No. 7-95) [BIR Ruling No. 49-96 dated April 11,
1996] cdtai
Therefore, while payments made by PNOC to Lehman for services rendered in the Philippines
under AGREEMENT 1 and AGREEMENT 2 are not subject to income taxes in the Philippines, the same
are subject to the 10% value-added tax.
Very truly yours,
Deputy Commissioner
April 6, 2000
Sec. 106 Sec. 108 Sec. 149

BIR-ITAD 34-99 51-99
Royal Thai Embassy

Makati City
Attention: Ms. Apinya Vipattipumiprates

Third Secretary
Gentlemen :
This pertains to your Note No. 40001/317 dated March 13, 2000 which was referred to this Office
by the Department of Foreign Affairs, requesting for a tax free local purchase of one (1) unit Honda CRV
Model 2000, 2.0 A/T, 5-door sedan, 2.0 liter gas, PGM-FI, 4-speed automatic transmission, 150 h.p.,
Cond. St. No. 25 TMB, Engine No. PEWD7-P205062, Frame No. PADRD1830XV105062, ruby red color,
for the personal use of Ms. Apinya Vipattipumiprates, Third Secretary of the Embassy. cdasia
Relations pertinent portions of which reads:
"Article 34
and services
xxx xxx xxx"
Hence, the local purchase of one (1) unit Honda CRV Model 2000, 2.0 A/T, for the personal use of
Ms. Apinya Vipattipumiprates, Third Secretary of the Embassy, is exempt from VAT and ad valorem tax.
(ITAD Ruling 51-99 dated December 23, 1999) cdlex
Very truly yours,

Deputy Commissioner
March 31, 2000

ITAD # 10-00; 34-99; 3-99
Embassy of Malaysia
107 Tordesillas Street,
Salcedo Village,
Makati City
Gentlemen :
This refers to your Note No. BY 27/2000 dated February 10, 2000, which was referred to this
Office by the Department of Foreign Affairs (DFA), requesting for tax exemption on the purchase of one
(1) unit Honda CRV 2.0 A/T, 1998 Model with Engine No. PEWD7-P101177 and Chassis No.
PADRD-1830WV001188 from International Center for Living Aquatic Resources Management Inc.,
(ICLARM), for the personal use of His Excellency M. H. Arshad, Ambassador of Malaysia to the
Philippines. cdrep
In reply, please be informed that pursuant to Article 34 of the Vienna Convention
On Diplomatic Relations, pertinent portions of which read:
"ARTICLE 34
and services
xxx xxx xxx"
under Sections 106(A) and 108, and the ad valorem tax under Section 149, both of the National Internal
However, under the principle of reciprocity, this Office may grant exemptions to the Embassy of
Malaysia or its personnel on their local purchases of goods and/or services it appearing from the lists
submitted by the DFA (dated October 4, 1999 and June 15, 1994) that your Government allows similar
(ITAD No. 10-00 dated January 19, 2000) cdrep
Hence, the purchase of one (1) unit Honda CRV 2.0 A/T, 2000 Model from ICLARM for the
personal use of His Excellency M. H. Arshad, Ambassador of Malaysia to the Philippines, is exempt from
value-added and ad valorem taxes. (ITAD 34-99; 3-99)
Very truly yours,

Deputy Commissioner
March 21, 2000
RP-Singapore Tax Treaty

VAT Ruling 1-99
VAT Ruling 1-90
BIR Ruling 44-99

14TH Floor Multinational
Bancorporation Center
6805 Ayala Avenue, City of Makati

Principal
Tax Services Division
This refers to your letter dated November 3, 1999 requesting for a confirmation of your opinion that
payments for the services rendered by 3M Asia Pacific Pte. Limited (3M Asia) to 3M Philippines ( 3M
Phils.) are not subject to Philippine income and value added taxes and that the same qualify as deductible
business expenses of 3M Phils. Cdpr
It is represented that 3M Asia is a non-resident foreign corporation organized and existing under the
laws of Singapore; that it is not registered either as a corporation/partnership in the Philippines as per
certification dated November 23, 1999 issued by the Securities and Exchange Commission; that 3M Phils.
is a corporation organized and existing under the laws of the Philippines; that 3M Asia and 3M Phils.
entered into a Shared Accounting Services Agreement, whereby 3M Asia shall provide accounting
services to 3M Phils. in the following areas: (1) Procedural overview: (a) General ledger accounting, (b)
Intercompany payable and receivable, (c) Fixed assets, (d) Accounts payable, (e) Employees payable, (f)
Accounts receivable and (g) Corporate reporting and (2) Training services in the following areas: (a)
Introduction to the new Shared Services Centre accounting procedures and the parties respective roles and
responsibilities, (b) Training on new accounting policies, procedures and transaction processing including
any modifications thereon, and (c) Development of communication tools and protocols; that the duration
of the agreement is intended to be continuous; that the initial term shall be two (2) years which shall
include a transition period during which implementation, commissioning and training will be provided by
3M Asia at no cost to 3M Phils; that the agreement shall neither involve the grant of a license for the use
of 3M Asia’s proprietary rights nor will it involve the transfer of technology; that the above services will
be performed entirely by 3M Asia in Singapore except for the delivery of procedure, communication and
training during the implementation period which in no case shall exceed thirty (30) days in the aggregate;
and that in consideration for the services, 3M Phils. agreed to reimburse the actual cost incurred by 3M
Asia in rendering the services without markup or profit element.
In reply, please be informed that Article 5(2)(j) in relation to Article 7(1) of RP-Singapore Tax
Treaty provide as follows:
"Article 5
"Permanent Establishment
"(2) The term "permanent establishment" includes specially but is not limited to:
a) A seat of management;
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 connected project) within the other Contracting State for a period or periods
aggregating more than 183 days." (Emphasis supplied) cdtai
"Article 7
"Business Profits
"(1) The profits of an enterprise of a Contracting State shall be taxable only in that State
establishment situated therein."
In as much as there is no transfer of technology and 3M Asia will perform the service entirely in
Singapore except for the delivery of procedure, communication and training during the implementation
period which in no case shall exceed thirty (30) days in the aggregate, 3M Asia is deemed not to have a
permanent establishment in the Philippines and, as such, the service payments made by 3M Phils. to 3M
Asia are not subject to Philippine income tax. Furthermore, the payments do not constitute income as they
are mere reimbursement of the actual cost and expenses with no mark up or profit element. (BIR Ruling
No. 001-90)
Likewise, the fees under the subject agreement are not subject to the 10% VAT as the said
payments are mere reimbursement of actual cost and expenses, without any mark up or profit element.
This finds support in Section 105 of the Tax Code of 1997 which provides that only a "person who in the
course of trade or business sells, barters, exchanges, leases, goods or properties or renders services, and
any person who imports goods shall be subject to the Value Added Tax (VAT)" (VAT Ruling No. 1-99;
BIR Ruling 44-99)
Finally, the fees paid to 3M Asia being ordinary and necessary business expenses qualify as
deduction from 3M Phils.’ gross income pursuant to Section 34(A)(1) of the Tax Code of 1997. cdtai
would be disclosed that the facts are materially different, then this ruling shall be considered as
automatically revoked.
Very truly yours,

By:

Deputy Commissioner
2000
Articles 5 & 8, RP-Singapore Tax Treaty

Section 34 (A) (1) (a), Tax Code of 1997
110-90
Mary Assumption S. Bautista

Principal, Tax Services
6805 Ayala Avenue 1226 Makati City
Madam:
This refers to your application for relief from double taxation dated September 7, 1999, on behalf
of your client, MONTGOMERY WATSON NEW ZEALAND LIMITED (MWNZ), requesting for
confirmation of your opinion that the charges to be paid by the latter for the services rendered by
MONTGOMERY WATSON AMERICAS, INC. (MWAI) are not subject to income tax, and that said
charges are deductible business expenses of MWNZ, pursuant to the RP-US Tax Treaty and the National
Internal Revenue Code (Tax Code) of 1997. cdasia
It is represented that MWNZ is a foreign corporation organized and existing under the laws of New
Zealand; that it was authorized by the Securities and Exchange Commission on February 5, 1998 to
establish a branch office in the Philippines and to engage in the business of providing construction,
planning, and design of project delivery systems, operations management, and effective/innovative
solutions to problems relating to water, wastewater, industrial treatment, drainage, flood control, dam,
reservoir and other infrastructure development, taking into account the need to protect, conserve and
preserve the land, water and air surroundings, among others; that MWAI is a corporation organized under
the laws of the State of California, United States of America (USA), with no permanent establishment in
the Philippines, as per certification dated August 5, 1999 issued by the Securities and Exchange
Commission; that a subcontractor agreement was entered into by and between MWNZ (Philippine Branch)
and MWAI, whereby MWAI shall provide assistance to the said branch office with the design and
planning of a water supply and infrastructure program relative to the Program Management Assignment
with Maynilad Water Services Inc.; that the said services shall be performed by MWAI mostly in the
USA, and in case the work is to be done in the Philippines, the stay of the MWAI's employees shall not
exceed 183 days for the entire duration of the project; and that as consideration for services rendered,
MWAI shall charge MWNZ for its employees time at standard hourly rates and invoiced monthly for the
total hours loaned in US dollars. llcd
"Article 8
"BUSINESS PROFITS
"(1) Business profits of a resident of one of the Contracting States shall be taxable only in
resident has a permanent establishment in that other Contracting State, tax may be imposed by that
attributable to the permanent establishment."(Emphasis supplied)
Moreover, Article 5(1) and (2) of the same treaty provides, viz:
"Article 5
"PERMANENT ESTABLISHMENT
"(1) For the purposes of this Convention, the term 'permanent establishment' means a fixed
business.
"(2) The term 'fixed place of business' includes but is not limited to:
(b) A branch;
(c) An office;
(e) A factory;
(f) A workshop;
(g) A warehouse;
(h) A mine, quarry, or other place of extraction of natural resources;
connection therewith, provided such site, project or activity continues for a period of more
than 183 days; and Cdpr

or periods aggregating more than 183 days."(Emphasis supplied)
Considering that the services to be performed by MWAI's personnel under the said Subcontractor
Agreement will be performed mostly in the USA, and in case it should be performed in the Philippines, the
same shall not exceed an aggregate period of 183 days, MWAI does not have a permanent establishment in
the Philippines to which the fees or income could be attributable.
Such being the case, the amount to paid by MWNZ (Phil. Branch) are not subject to Philippine
income tax and consequently to the 35% withholding tax prescribed under Section 28(B)(1) in relation
Section 57(A) of the Tax Code of 1997. (BIR Ruling No. 110-90)
Furthermore, Section 34 (A)(1)(a) of the same Code provides that there shall be allowed as
year in carrying on or which are directly attributable to, the development, management, operation and/or
conduct of the trade, business or exercise of a profession.
Since the payments of MWNZ (Phil. Branch) to MWAI are "directly attributable to the conduct of
trade or business" of MWNZ being incurred in connection with its contract with Maynilad Water Services
Inc. relative to the said Program Management Assignment, the same may be claimed as deductible
expenses of MWNZ (Phil. Branch).
disclosed that the said facts are different, then this ruling shall be considered null and void. cdasia
Very truly yours,
(SGD.) BEETHOVEN L. RUALO

Commissioner
March 15, 2000
Section 106 Section 107, 108 ITAD 1-00
Royal Embassy of Cambodia

Manila, Philippines
Gentlemen :
This refers to your Note Verbale E.A. 06/2000 dated January 19, 2000 which was referred to this
Office by the Department of Foreign Affairs requesting for the issuance of a value-added tax (VAT)
Exemption Certificate. prcd
"ARTICLE 34
(a) indirect taxes of a kind which are normally incorporated in the price of the goods
and services
xxx xxx xxx"
value-added tax (VAT) on their local purchase and importation of goods. In other words, purchase and
importation by the Royal Embassy of Cambodia of goods and services shall be subject to the value-added
tax prescribed under Section 106, 107 and 108 of the National Internal Revenue Code of 1997. LibLex
However, under the principle of reciprocity, since your Government allows tax exemption to the
Philippine Embassy on its purchase and importation of goods pursuant to Articles 58 (Non-Taxable
Supplies for Diplomatic Missions and International Organizations) and 74 (Refunds to Diplomatic
Missions and International Organizations) of your Law on Taxation and in reference to Department of
Foreign Affairs (DFA) Office of Protocol Indorsement letter no. 3734, this Office may likewise grant tax
exemption to your embassy on its purchase and importation of goods under similar conditions with those
stated under Article 58 and 74 of your Law on Taxation (ITAD No. 1-00 dated January 5, 2000).
Hence, the Royal Embassy of Cambodia is entitled to VAT exemptions on its local purchase and
importation of goods as abovestated. However, the VAT exemption of the official personnel of your
Embassy is only limited to their importation of goods for personal use and does not include the purchase
of local goods as no similar exemption on purchase of local goods is granted to Embassy personnel under
Article 74 of your Law on Taxation.
Very truly yours,

By:
Deputy Commissioner
VAT EXEMPTION CERTIFICATE

No. 2000- ______
This is to certify that ____________________ the ROYAL EMBASSY OF CAMBODIA is exempted from
value-added tax (VAT) on its purchase and importation of goods in the Philippines in accordance with the
principle of reciprocity and pursuant to ITAD No. ___________ dated ______________.
To date, the Kingdom of Cambodia allows similar exemption to the Philippine Embassy on its purchase
and importation of goods in their country pursuant to the provisions of the Law on Taxation of the Kingdom of
Cambodia and in reference to Department of Foreign Affairs (DFA) Office of Protocol Indorsement letter no.
3734.
However, the exemption is limited to those goods pursuant to the provisions of Article 58 (Non-Taxable
Supplies for Diplomatic Missions and International Organizations) and 74 (Refunds to Diplomatic Missions and
International Organizations) of the Law on Taxation of the Kingdom of Cambodia. llcd
This certification is being issued based on the foregoing and shall be valid until December 31, 2000.
SGD.) SIXTO S. ESQUIVIAS IV
Deputy Commissioner
Date of Issue: ________________
March 13, 2000
RP-US Art. 14 (2)

ITAD 52-99
SyCip Salazar Hernandez & Gatmaitan

105 Paseo de Roxas
1200 Makati City
Attention: Atty. Hector M. de Leon Jr.
Atty. Carina C. Laforteza
Atty. Cresencio T. Meneses
Gentlemen :
This refers to your letter dated January 26, 2000 requesting for a ruling exempting your client,
Morgan Guaranty International Finance Corporation ("MGIFC") from Philippine tax on any gain that it
may derive from its sale of 20,209,958 shares of stock of Bank of the Philippine Islands ("the
Corporation"), in favor of BPI Capital Corporation ("BPI Capital") pursuant to the provisions of Article 14
(2) of the RP-US Tax Treaty. cdtai
It is represented that MGIFC is a corporation organized and existing under the laws of the State of
Delaware, U.S.A. with address at Newark, Delaware, U.S.A.; that it is not licensed to do business in the
Philippines as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange
Commission dated December 2, 1999; that BPI Capital is a Philippine corporation organized and existing
under the laws of the Philippines with address at Ayala Avenue, Makati City; that the Corporation is also a
domestic corporation organized and existing under the Philippine laws with address at BPI Bldg., Ayala
corner Paseo de Roxas Avenues, Makati City; that MGIFC owned 20,622,958 shares in the Corporation
with a par value of P10.00 per share which represents approximately two and a half percent (2.5%) of the
entire outstanding capital of the Corporation; and that on December 20, 1999, MGIFC sold 20,209,958 of
its shares with an aggregate par value of PHP202,099,580.00 in favor of BPI Capital.
Please be informed that Article 14 of the RP-US Tax Treaty, states:
"Article 14
Capital Gains
alienator is a resident. cdasia
On the other hand, the Reservation Clause of the RP-US Tax Treaty, in pertinent part, provides:
"Article 1
"(1) Notwithstanding the provisions of Article 14 of the Convention relating to capital gains,
both the Philippines and the United States may tax gain from the disposition of an interest in a
corporation if its assets consists principally of real property interest located in that country. Likewise,
both countries may tax gain from the disposition of an interest in a partnership, trust or estate to the
extent that the gain is attributable to a real property interest in one of the countries. The term "real
real property is located.
the Philippines. "Principally" means more than 50% of the entire assets in terms of value (Sec. 2 Revenue
Regulations No. 4-86). cdll
The value of the real property interest of the Corporation located in the Philippines as appearing on
its interim financial statements as of September 30, 1999 is only 3% of its total assets, which is less than
50% of the value of its total assets.
In reply, please be informed that gains which will be realized by MGIFC from the sale of its shares
of stock in the Corporation to BPI Capital shall be taxable only in the United States, pursuant to Article 14
(2) in relation to the Reservation Clause of the RP-US Tax Treaty. Hence, said gain will not be subject to
Philippine tax.
However, notwithstanding this exemption, the sale of shares of stock is subject to the documentary
stamp tax in accordance with Section 176 of the Tax Code, as amended.
void. LexLib
Very truly yours,

By:

Deputy Commissioner
March 13, 2000
RP-US Art. 14 (2)

ITAD 52-99
SyCip Salazar Hernandez & Gatmaitan

105 Paseo de Roxas
1200 Makati City
Attention: Atty. Hector M. de Leon Jr.

Atty. Carina C. Laforteza
Atty. Cresencio T. Meneses
Gentlemen :
This refers to your letter dated January 26, 2000 requesting for a ruling exempting your client, J.P.
Morgan Overseas Capital Corporation ("JPMOCC") from Philippine tax on any gain that it may derive
from its sale of 80,250,503 shares of stock of Bank of the Philippine Islands ("the Corporation"), in favor
of BPI Capital Corporation ("BPI Capital") pursuant to the provisions of Article 14 (2) of the RP-US Tax
Treaty.
It is represented that JPMOCC is a corporation organized and existing under the laws of the State of
Delaware, U.S.A. with address at 229 South State St. Dover, Delaware, U.S.A.; that it` is not licensed to
do business in the Philippines as evidenced by a Certificate of Non-Registration issued by the Securities
and Exchange Commission dated December 2, 1999; that BPI Capital is a Philippine corporation
organized and existing under the laws of the Philippines with address at Ayala Avenue, Makati City; that
the Corporation is also a domestic corporation organized and existing under the Philippine laws with
address at BPI Bldg., Ayala corner Paseo de Roxas Avenues, Makati City; that JPMOCC owned
80,250,503 shares in the Corporation with a par value of P10.00 per share which represents approximately
nine point nine percent (9.9%) of the entire outstanding capital of the Corporation; and that on December
21, 1999, JPMOCC sold its 80,250,503 shares with an aggregate par value of PHP802,505,030.00 in favor
of BPI Capital.
Please be informed that Article 14 of the RP-US Tax Treaty, states:
"Article 14
Capital Gains
provisions of Article 13. cda
"Article 1
"(1) Notwithstanding the provisions of Article 14 of the Convention relating to capital gains,
both the Philippines and the United States may tax gain from the disposition of an interest in a
corporation if its assets consists principally of real property interest located in that country. Likewise,
both countries may tax gain from the disposition of an interest in a partnership, trust or estate to the
extent that the gain is attributable to a real property interest in one of the countries. The term "real
real property is located. cdlex
the Philippines. "Principally" means more than 50% of the entire assets in terms of value (Sec. 2 Revenue
The value of the real property interest of the Corporation located in the Philippines as appearing on
its interim financial statements as of September 30, 1999 is only 3% of its total assets, which is less than
50% of the value of its total assets.
In reply, please be informed that gains which will be realized by JPMOCC from the sale of its
shares of stock in the Corporation to BPI Capital shall be taxable only in the United States, pursuant to
Article 14 (2) in relation to the Reservation Clause of the RP-US Tax Treaty. Hence, said gain will not be
subject to Philippine tax.
However, notwithstanding this exemption, the sale of shares of stock is subject to the documentary
stamp tax in accordance with Section 176 of the Tax Code, as amended.
void. cdrep
Very truly yours,

By:

Deputy Commissioner
April 7, 2000
Sec. 106 Sec. 108

ITAD 1-99
Embassy of the Republic of Indonesia

Metro Manila, Philippines
Attention: Mr. Yudhistiranto Sungadi

Counsellor, Political Department
Gentlemen :
This refers to your letter dated February 01, 2000 requesting for exemption from value-added tax
(VAT) on the purchase of one (1) unit of 2000 HONDA CIVIC LXI, with Chassis no.
PADEK3520YV-203114 and Motor/engine No. P6DD1-P503111, for the personal use of Yudhistiranto
Sungadi, Embassy of the Republic of Indonesia. cdlex
"Article 34
and services;
xxx xxx xxx"
value-added tax (VAT) on their 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.
the Republic of Indonesia 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
Hence, the local purchase of one (1) unit of 2000 HONDA CIVIC LXI, with Chassis No.
PADEK3520YV-203114 and Motor/engine No. P6DD1-P503111, for the personal use of Mr.
Yudhistiranto Sungadi is exempt from VAT. ( ITAD Ruling 1-99 dated June 24, 1999) cdlex
Very truly yours,

Deputy Commissioner
March 7, 2000
Section 106
Section 108
Section 149
ITAD 4-99
DA-177-99
British Embassy
Manila, Philippines
Attention: Mr. A R M Dent

Management Officer
Gentlemen :
This refers to your Note No. 05-00 dated January 13, 2000 requesting for a tax free purchase of one
(1) unit Honda CRV 2.0 A/T, 2000 Model with Engine No. PEWD7-P205144 and Chassis No. PADRD
183XV105141 for the personal use of Ms. Angela Trott Charpentier, Third Secretary Immigration of the
British Embassy, Manila. LexLib
In reply, please be informed that pursuant to Article 43 of the Vienna Convention

On Diplomatic Relations, pertinent portions of which reads:
"ARTICLE 34
and services
xxx xxx xxx"
under Sections 106 (A) and 108 and ad valorem tax prescribed under Section 149 of the National Internal
Revenue Code of 1997. cdasia
However, under the principle of reciprocity, this Office may grant exemptions to the British
submitted by the Department of Foreign Affairs dated October 4, 1999 that your Government allows
country. ( ITAD No. 4-99 dated July 8, 1999)
Hence, the local purchase of one (1) unit Honda CRV 2.0 A/T, 2000 Model for the personal use of
Ms. Angela Trott Charpentier, Third Secretary Immigration of the British Embassy, Manila is exempt
from value-added tax and ad valorem tax.
Very truly yours,

Deputy Commissioner
March 8, 2000
Precision Springs Manila, Inc.

LISP 2, Bo. Real, Calamba, Laguna
Attention: Ms. Era M. Dela Cerna

Accounting Manager
Gentlemen :
This refers to your letter dated January 20, 2000 applying for a tax treaty relief on dividend
payment pursuant to Article 10 of the RP-Japan Tax Treaty. LexLib
It is represented that your company, Precision Springs Manila, Inc. (Precision Manila) is a
non-pioneer PEZA-registered enterprise operating in Bo. Real, Calamba, Laguna; that Precision Springs
Co., Ltd. (Precision Japan), is a non-resident foreign corporation organized and existing under the laws of
Japan, with head office address at 15, 3-Chome, Shiohama, Ichikawa City, Chiba Prefecture, Japan; that as
of March 31, 1999, Precision Japan owns 57,999,995 shares of stock (with a par value of P1.00 per share)
which represents approximately 99.9% of the total capital stock of Precision Manila; that on January 10,
2000, Precision Manila's Board of Directors declared cash dividends amounting to Eight Million Seven
Hundred Fifty One Thousand One Hundred Eleven & 11/100 Pesos (Ph8,751,111.11) as evidenced by
Secretary's Certificate dated January 25, 2000. cdll
"Article 10
(Dividends)
"(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the
"(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 provisions of this paragraph shall not affect the taxation of the company in respect
of the profits out of which the dividends are paid. cdrep
"(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.
In view of the foregoing, and since Precision Japan owns 99.9% of the total outstanding stocks of
Precision Manila as of record date, the cash dividends payable by Precision Manila to Precision Japan are
subject to the 10% preferential withholding tax under Article 10 (2) (a) of the RP-Japan Tax Treaty.
null and void if upon investigation it will be disclosed that the facts are different. LexLib
Very truly yours,

By:

Deputy Commissioner
March 7, 2000
Art. 13, RP-US Art. 12, RP-Netherlands 129-98
Quisumbing Torres Law Firm

11TH Floor, Pacific Star Building
Makati Ave. Cor. Sen. Gil J. Puyat Ave.
1200 Makati City
Attention: Atty. Shennan A. Sy
Gentlemen :
This refers to your application for tax treaty relief dated October 29, 1999 on behalf of your client,
Dekalb Genetics Corporation (Dekalb), to avail of the 15% final withholding tax on royalties pursuant to
RP-US Tax Treaty.
It is represented that Dekalb is a non-resident foreign corporation organized and existing under the
laws of the State of Delaware, U.S.A.; that Ayala Seeds Corporation (ASC) is a domestic corporation
organized and existing under Philippine laws; that Dekalb is primarily engaged in the business of
researching, developing, testing, producing, conditioning and marketing hybrid corn seeds; that on
December 30, 1998, Dekalb entered into a License, Production and Distribution Agreement (LPDA) with
ASC whereby Dekalb granted ASC a non-transferable license and right to the use of parental corn seeds,
the right to purchase from Dekalb hybrid corn seeds and to obtain from Dekalb technical know-how and
information and assistance relating to behavior, characteristics, developments and potential of the
foundation and commercial seeds; that in consideration for all the grants, licenses, production and sales
right and technical assistance provided under the LPDA, ASC will pay royalties to Dekalb amounting to
20% of the Net Sales Revenue of commercial seeds for each license variety and 11.25% of the Net Sales
Revenue of commercial seeds for certain variety. Cdpr
[Art. 13, paragraph (2)(b)(iii)], the tax imposable on royalties derived by a resident of the United States
from 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. Corollarily, Article 12(b) of
the RP-Netherlands Tax Treaty provides that royalties arising in the Philippines and paid to a resident of
Netherlands may be taxed in the Philippines but the tax so charged shall not exceed 15 per cent of the
gross amount of the royalties in cases other than royalties paid by an enterprise registered in preferred
areas of activities in the Philippines.
Such being the case and since ASC is not registered and engaged in preferred areas of activities in
the Philippines, royalties arising in the Philippines and payable to Dekalb are subject to Philippine tax at
the rate of 15% pursuant to Article 13(2)(b)(iii) of the RP-US Tax Treaty in relation to Article 12(b) of the
RP-Netherlands Tax Treaty. (BIR Ruling 129-98) LibLex
Moreover the said royalties based on the net sales shall be subject to 10% value-added tax (VAT)
pursuant to Section 108(A)(1) and (3) of the Tax Code and that ASC shall, before making payment of
royalties to Dekalb, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate
VAT return for and in behalf of Dekalb. The duly validated VAT declaration/return is sufficient evidence
for ASC in claiming input tax credit.(Section 4.110-3(b) of Revenue Regulations No. 7-95)
considered null and void. Cdpr
Very truly yours,

Deputy Commissioner
March 7, 2000
Sec. 107
Sec. 129
Embassy of the Republic of Argentine

6th Floor, ACT Tower, 135 S. G. Puyat Avenue,
Attention: Mr. Jose Maria Venere

Counsellor
Gentlemen :
This refers to your letter dated February 15, 1999 inquiring on how much taxes will be paid by a
prospective non-privilege buyer of your car, a 1994 Model ISUZU Trooper. cdll
In this connection, we would like to inform you of the provisions which govern the imposition of
Philippine tax on imported automobiles. Sec 129 of the National Internal Revenue Code of 1997 (NIRC)
"Sec. 129. Goods Subject to Excise Taxes. — Excise taxes apply to goods manufactured or
produces in the Philippines for domestic sale or consumption or for any other disposition and to
things imported. The excise tax imposed herein shall be in addition to the value-added tax imposed
under Title IV. (emphasis supplied)
xxx xxx xxx
On the subsequent sale/transfer of tax exempt automobiles, Section 7(d) of Revenue Regulations
No. 14-97 provides that the value of the automobile at the time of sale, transfer, or exchange should be
based on its depreciated value of 10% each year but in no case shall the allowable charge for depreciation
will be more than 50% of the original cost or value. cdphil
Moreover, Section 107, of the NIRC provides as follows:
"SEC. 107. Value-added Tax on Importation of Goods. —
"(A) In General. — There shall be levied, assessed and collected on every importation of
goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau
of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from customs
custody: Provided, That where the customs duties are determined on the basis of the quantity or
volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any."
"(B) Transfer of Goods by Tax-exempt Persons. — In the case of tax-free importation of

goods into the Philippines by persons entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the
purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for
any internal revenue tax on such importation. The tax due on such importation shall constitute a lien
on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof."
(emphasis supplied) cda
In view of this, the non-privilege/non-exempt buyer of your car will have to pay for the VAT and
excise taxes due on the importation of the car.
As regards the computation of the tax due, please be informed that your letter has been forwarded
to the Excise Tax Service, which has proper jurisdiction over the case. Any further communication
regarding excise tax should be addressed to Mr. Leonardo B. Albar, Assistant Commissioner, Excise Tax
Service.
Very truly yours,

Deputy Commissioner
March 2, 2000
Sec. 106, 108, 149

333-92
ITAD 34-99
VAT 00-08
Pepito A. Castro
Comptroller
Pilipinas Transport Industries, Inc.
EDSA Cor. Madison St.,
Mandaluyong City
Sir:
This refers to your letter dated April 23, 1999 requesting for clarification on the following matters
in connection with the intention of the Embassy of Spain to purchase a tax-exempt Suzuki VITARA:
1. Whether the Embassy of Spain is a tax-exempt entity or not.
2. If the answer is in the affirmative, what are the taxes that they are exempted from. cdasia
In reply, please be informed that pursuant to Art. 34 of the Vienna Convention on Diplomatic
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of goods and
services
xxx xxx xxx"
under Sections 106 and 108, and ad valorem tax under Section 149, both of the National Internal Revenue
Code of 1997. (BIR Memo dated June 19, 1994; BIR Ruling 333-92 dated October 27, 1992)
However, under the principle of reciprocity, such sales may be treated as exempt, provided that the
embassy of the foreign state or the members of diplomatic mission purchasing the said products can
submit to the Commissioner of Internal Revenue or his duly authorized representative, a copy of the
special legislation or international agreement showing that the said foreign government grants similar tax
exemption to the Philippine Embassy or its personnel in the purchases of goods and services in that
foreign country. (VAT Ruling No. 42-98) cdtai
Relative to the foregoing, the list dated October 4, 1999, submitted by the Office of the Protocol of
the Department of Foreign Affairs confirms that the Embassy of Spain is entitled to VAT exemption on
the basis of reciprocity. Consequently, suppliers of VAT exempt embassies are entitled to zero-rating on
their transactions with the said embassies. This being the case, your company may apply for the effective
zero-rating with this Office on your actual transaction with the Embassy of Spain. (Vat Ruling 08-00)
Exemption from excise taxes may also be granted to embassies on the basis of reciprocity, provided
there is a confirmation from the Department of Foreign Affairs that the home country of the embassy
grants similar tax exemptions to the Philippine embassy in their country.
For your information and guidance. cdrep
Very truly yours,

Deputy Commissioner
February 10, 2000
Art. XIV, Phil. Consti. Section 30, NIRC FDO 149-95

511-88
Commission on Filipinos Overseas

Citigold Center, 1345 Pres. Quirino Avenue
cor. South Superhighway, Manila, Philippines
Attention: Jose Z. Molano, Jr.
Gentlemen :
This refers to your letter dated October 7, 1999 seeking the opinion of this Office on the tax
obligations of the Philippine School in Doha, Inc., (PSD) located in Doha, State of Qatar. cdrep
It is represented that PSD is a non-stock, non-profit organization duly registered with the Securities
and Exchange Commission (SEC) established under the laws of the Philippines and the existing guidelines
and regulations prescribed by the Department of Education Culture and Sports (DECS) and the
Department of Foreign Affairs (DFA) for overseas Philippine schools; that it is a Philippine educational
institution offering the DECS’ prescribed school curriculum on pre-school, elementary and secondary
education to children of the members of the Filipino community in Qatar as well as to other nationalities.
In reply, please be informed that par. 3, Section 4, Article XIV of the Philippine Constitution
provides:
"All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties . . ." LibLex
Non-stock, non-profit educational institutions are exempt from taxes on all their revenues and
assets used actually, directly and exclusively for educational purposes. They shall however, be subject to
internal revenue taxes on income from trade, business or other activity the conduct of which is not related
to the exercise or performance by such educational institution of its educational purpose or function. (Sec.
2 Finance Department Order No. 137-87 as amended by Finance Department Order No. 92-88 and 149-95)
Such being the case, the Philippine School in Doha, Inc. being a non-stock, non-profit educational
institution, is exempt from taxes and duties on all its revenues and assets used actually, directly and
exclusively for educational purposes. (BIR Ruling No. 511-88 dated October 19, 1988) However,
notwithstanding such exemption, the income of whatever kind and character of the said institution from
any of its properties, real or personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under the Tax Code of 1997. (Section 30,
NIRC of 1997)
For your information and guidance. Cdpr
Very truly yours,

By:

Deputy Commissioner
February 24, 2000
Sec. 106
Sec. 108
333-92
ITAD 34-99
Embassy of the United States of America

Attention: Mr. Jonathan M. Perrezous
Third Secretary
Gentlemen :
This refers to your letter dated November 23 1999, requesting for exemption from value-added tax
(VAT) on the purchase of one (1) unit of 1993 MAZDA PROTÉGÉ 4dr Sedan, for the personal use of
Jonathan M. Perrezous, Third Secretary, Embassy of the United States of America.
"Article 34
and services; prcd
xxx xxx xxx"
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, both of the National Internal Revenue Code of 1997.
the United States of America or its personnel on their local purchases of goods and/or services it appearing
Hence, the local purchase of one (1) unit of 1993 MAZDA PROTÉGÉ 4dr Sedan, for the personal
use of Mr. Jonathan M. Perrezous is exempt from VAT and ad valorem taxes. (BIR Memo dated June 19,
1994; BIR Ruling 333-92 dated October 27, 1992) prcd
Very truly yours,

Deputy Commissioner
February 22, 2000
Joaquin Cunanan & Company

6805 Ayala Avenue
1226 Makati City
Attention: Ms. Mary A.S. Bautista-Villareal

Principal
Sir:
This refers to your letter dated December 1, 1999 on behalf of Shindengen Electric Manufacturing
Company Ltd. (SEMCL), requesting for a confirmation of your opinion that the dividends to be paid and
remitted by Shindengen Philippine Corporation (SPC) to SEMCL is subject to the preferential tax rate of
ten per cent (10%) pursuant to the RP-Japan Tax Treaty. prcd
It is represented that SEMCL is a non-resident foreign corporation, duly organized and existing
under the laws of Japan with principal office address at New Ohtemachi Bldg., 2-1, Ohtemachi 2 -chome,
Chiyoda-ku, Tokyo 100-0004, Japan; that it is not registered as a corporation/partnership in the Philippines
as per certification dated December 2, 1999 issued by the Securities and Exchange Commission; that SPC
is a corporation duly organized and existing under the laws of the Philippines; that SEMCL holds one
hundred percent (100%) of the capital stock of SPC; that on October 9, 1999, the Board of Directors of
SPC passed and approved the declaration of cash dividends of two hundred (P200.00) pesos per share of
stock to be paid on December 31, 1999 to stockholders on record at the close of business on December 31,
1998.
"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. cdphil
"2. However, such dividends may also be taxed in the Contracting State of which the company
xxx xxx xxx"
In view of the foregoing, and since SEMCL holds one hundred per cent (100%) of the capital stock
of SPC, your application for a preferential tax treaty rate of 10% to be withheld by SPC on its dividend
remittances to SEMCL is hereby approved. (BIR Ruling No. ITAD 53-99)
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. cdrep
Very truly yours,

Deputy Commissioner
February 17, 2000
249-89
United Nations Children's Fund (UNICEF)

6th Floor, NEDA sa Makati Building
106 Amorsolo St, Legaspi Village
Gentlemen :
This refers to your letters dated November 10 and 12 1999 which were referred to this Office by the
Department of Foreign Affairs requesting for the issuance of a tax exemption certificate on the purchase of
seventeen (17) units of TOYOTA HI-LUX Double Cab Pick-Up. cdtai
It is represented that the said transaction has prior importation approval from the Department of
Foreign Affairs (DFA) in its letter no. 29958 dated October 8, 1999 but instead UNICEF decided to
procure the aforementioned vehicles locally and tax free directly from Toyota Motors Philippines Corp.
In reply, please be informed that the Article VI(A) of the Agreement between the UNICEF and the
Government of the Philippines dated November 20, 1948 provides as follows:
"The Fund, its assets, property, income and its operations and transactions, of whatsoever
nature, shall be immune from all taxes, fees, tolls, or duties imposed by the Government or by any
political sub-division thereof or by any other public authority in the Republic of the Philippines. The
Fund shall also be immune from liability for the collection or payment of any tax, fee, toll, or duty
imposed by the Government or any political sub-division thereof or by any other public authority."
Moreover, under Article VII of the same Agreement, it is provided that the UNICEF and its
personnel shall enjoy the privileges and immunities contained in the General Assembly of the United
Nations dated February 13, 1946 to which the Philippines is a member. Such privileges and immunities
also include the exemption from taxation. (Article II Section 7, Convention on the Privileges and
Immunities of the United Nations) LexLib
Such being the case, your request is hereby granted. The United Nations Children’s Fund
(UNICEF) is entitled to tax exemption on its purchase of 17 units of TOYOTA HI-LUX Double Cab
Pick-Up. (BIR Ruling No. 249-89 dated December 12, 1989)
It is hereby understood that this exemption applies only on vehicles purchased under UNICEF's
name.
Very truly yours,

By:

Deputy Commissioner
February 4, 2000
Ericsson Telecommunication, Inc.

10th Floor Octagon Building, San Miguel Avenue
Ortigas Center, Pasig City 1600
Attention: Atty. Maria Theresa B. Ramos

Tax Specialist
Finance Division
Madam:
This refers to your letter dated August 4, 1999, requesting for a confirmation of your opinion that
interest payments to a resident of Singapore is subject to the preferential withholding tax rate of 15% as
provided under the RP-Singapore Tax Treaty. cdrep
It is represented that Ericsson Treasury Services Asia Pte. Ltd (ETS) is a foreign corporation
organized and existing under the laws of Singapore without a permanent establishment in the Philippines;
that it is not registered either as a corporation/partnership nor licensed to do business in the Philippines as
per certification dated August 4, 1999 issued by the Securities and Exchange Commission; that Ericsson
Telecommunication, Inc. (ETI) is a corporation organized and existing under the laws of the Philippines;
that by virtue of a Loan Agreement made by and between ETS and ETI dated June 1, 1999, ETS made a
loan to ETI in the amount of P700,000,000 to finance ETI's projects and other business operations; and
that repayments on the loan will be made on the 1st of June 2000 subject to interest at a rate of 50bp plus
lender’s funding cost. LexLib
"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 percent 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.
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
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.cdlex
xxx xxx xxx"
Such being the case, the interest income to be remitted by ETI to ETS relative to the
aforementioned loan shall be subject to the preferential tax rate of 15% Philippine income tax based on the
gross amount of the interest. (BIR Ruling Nos. 534-98, 142-95)
investigation it will be disclosed that the facts are different then this ruling shall be null and void. llcd
Very truly yours,

Deputy Commissioner
February 15, 2000
RP-Japan, Art. 12
DA-031-1-20-97
DA-263-7-19-96
Tosoh Polyvin Corporation

LIMA Technology Center, SEZ
Lipa City, Batangas
Attention: Ms. Ruby P. Dones

Finance and Accounting Head
Gentlemen :
This refers to your application for tax treaty relief in behalf of Tosoh Polyvin Corporation (TPC)
requesting for a ruling on the correct tax rate on royalties pursuant to RP-Japan Tax Treaty.
It is represented that Plas-Tech Corporation (PTC-Japan) is a non-resident foreign corporation

organized and existing under the laws of Japan with business address at 5-11-13, Koto-ku, Tokyo
135-0042, Japan; that TPC is a domestic corporation organized and existing under Philippine laws and
duly registered as an Ecozone Export Enterprise at Philippine Economic Zone Authority (PEZA) under
Certificate of Registration No. 98-047 and engaged in the manufacture of polyvinyl chloride compounds;
that on April 26, 1999, TPC entered into a Licensing Agreement with PTC-Japan effective retroactively on
September 9, 1998; that the said Agreement allows TPC to establish a vinylchloridate compound
manufacturing factory using the technological know-how provided by PTC-Japan; that TPC is also
allowed to sell its manufactured goods in other countries other than Japan; that under the Agreement TPC
will pay PTC-Japan the following fees:
1. License fee for basic engineering package. This package describes the necessary
technical information to design and construct the factory; cdphil
2. License fee for operation manual. This manual provides all necessary technical
information needed to operate, maintain and ensure the quality control standards of the
factory;
3. Compensation for technical and additional technical assistance. This includes per diem,
travel and transportation fee and other actual expenses;
4. Running royalty (quarterly and yearly) based on earnings of TPC through its sale of the
manufactured compounds.
In reply, please be informed that Article 12 of the RP-Japan Tax Treaty provides that:
"Article 12
(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting State
(2) However, such royalties may also be taxed in the Contracting State in which they arise, and
broadcasting;
(b) 25 per cent of the gross amount of the royalties in all other cases. prcd
(3) ...
(4) The term "royalties" as used in this Article means payments of any kind received as a
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."
Accordingly, the above-mentioned license fees for basic engineering package and for operation
manual paid by TPC to PTC-Japan pursuant to their Licensing Agreement fall within the definition of
"royalties" under the above-quoted provision of RP-Japan Tax Treaty. Likewise, the compensation for
technical and additional technical assistance paid by TPC to PTC-Japan is considered embraced within the
meaning of the term "royalties" since the fee is being paid for the dispatch of the technical personnel
without which the transfer of know-how would not be possible.(BIR Rulings No. DA-031-1-20-97 and
DA-263-7-19-96)
Such being the case, the license fee for basic engineering package, license fee for operation manual,
the compensation for technical and additional technical assistance, the quarterly royalty of 2% of the
difference between TPC's net sales and costs of raw materials and the yearly royalty of 4.75% of TPC's
earnings before interest and income taxes paid by TPC to PTC-Japan pursuant to their Licensing
Agreement are subject to 25% royalty rate under the RP-Japan Tax Treaty. cdasia
and void.
Very truly yours,

By:

Deputy Commissioner
February 10, 2000
Secs. 106, 108 & 149 NIRC

10-00
The Embassy of Malaysia

Manila, Philippines
Gentlemen :
This refers to your Note No. 155/99 dated October 25, 1999, which was referred to this Office by
the Department of Foreign Affairs, requesting for the issuance of value-added tax (VAT) exemption
certificate on payments for the repair works made by F. Tiotioen Construction on the Embassy’s premises
and related facilities, commencing in the first week of October 1999 and expected to be completed in
January 2000, amounting to P4,256,150.00.
"Article 34
services cdtai
xxx xxx xxx"
VAT and ad valorem taxes on its local purchases of goods and services. In other words, purchases by the
Embassy of goods and services shall be subject to VAT prescribed under Sections 106 and 108, and ad
valorem tax under Section 149, both of the National Internal Revenue Code of 1997.
Malaysia or its personnel on their local purchases of goods and services, it appearing from the list
submitted by the Department of Foreign Affairs (dated October 4, 1999) that your Government allows
country.
Hence, the Embassy of Malaysia is entitled to VAT exemption on their local purchase of goods and
services, and consequently, from the 10 percent VAT chargeable against the contract price of the repair
works performed by F. Tiotioen Construction for the Embassy amounting to P425,615.00. Cdpr
Very truly yours,

Deputy Commissioner
2000
Mr. Wilfrido L. San

President
Anscor Insurance Brokers, Inc.
Penthouse, Manila Bank Building
# 6772 Ayala Avenue, Makati City 1229
Sir:
This refers to your letter dated November 18, 1999 requesting, on behalf of Aon Overseas Holding,
Ltd. (AON), for the issuance of a tax clearance or exemption certificate in connection with the assignment
of AON of its common shares to Anscor Insurance Brokers, Inc.(AIB), pursuant to the RP-UK Tax Treaty.
llcd
It represented that AON is a corporation duly organized and existing under the laws of Great
Britain, with office address at 6 Braham Street, London E1 8ED, and having no permanent establishment
in the Philippines, as per certification dated August 24, 1999 issued by the Securities and Exchange
Commission; that AIB is a corporation duly organized and existing under the laws of the Philippines; that
AON was the registered owner of 50,000 shares of the capital stock issued by AIB; that on February 9,
1999, AON and AIB executed a Deed of Assignment whereby AON, as assignor, agreed to transfer, assign
and convey all of its rights, title and interest over the said 50,000 shares to AIB; that as consideration for
the assignment of the said shares, AIB paid AON the amount P5,064,000.00; and that the said transaction
resulted in the redemption of the said shares by AIB. cdtai
Based on the foregoing representation, it is your opinion that the said assignment of shares of stock
by AON to AIB is not subject to the Philippine capital gains tax under the Tax Code of 1997, pursuant to
Article 12 paragraph 4 of the RP-UK Tax Treaty.
"Article 12
"Gain from the Alienation of Property
"1. Capital 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. Capital 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 in the other Contracting State for the purpose of performing professional
services, including 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.LibLex
"3. Notwithstanding the provisions of paragraph (2) of this Article, capital gains derived by a
resident of a Contracting State from the alienation of ships and aircraft operated in
international traffic and movable property pertaining to the operation of such ships and aircraft
shall be taxable only in that Contracting State.
"4. Capital gains from the alienation of any property 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.
xxx xxx xxx"
It is clear from the aforequoted provision that the capital gains from the alienation of any property
other than those mentioned in paragraphs 1, 2 and 3 of Article 12 shall be taxable only in the State where
the alienator is a resident. Inasmuch as the assignment or transfer of the subject shares of stock is not
among those mentioned in said paragraphs 1, 2 and 3, the gains derived by AON, which is a resident of the
United Kingdom (UK), from the assignment of its shares of stock to AIB are not subject to the capital
gains tax imposed under Section 28 (B)(5)(c), but are subject to tax only in UK. (BIR Ruling No. 011-82)
However, a certificate of authority to register the said transaction in the books of AIB must be
secured. Thus, AON, being a nonresident foreign corporation, is required to file, but is not required to pay
the capital gains tax, a Capital Gains Tax Return (BIR Form No. 1707) accompanied by copies of the Deed
of Assignment and this ruling, with Revenue District Office No. 51 - Pasay (RDO 51), in order for the
latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of AIB.
Moreover, Section 176 of the National Internal Revenue Code of 1997 (Tax Code) provides, viz:
"Sec. 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or
Transfer of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. — On all sales, or
agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of
obligation, or shares or certificates of stock in any association, company, or corporation, or transfer of
such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum
or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such
due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the
future transfer of any due-bill, certificate of obligation or stock, there shall be collected a
documentary stamp tax of One peso and fifty centavos (P1.50) on each Two hundred pesos (P200), or
fractional part thereof, of the par value of such due-bill, certificate of obligation or stock: Provided,
That only one tax shall be collected on each sale or transfer of stock or securities from one person to
another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or
delivered in pursuance of such sale or transfer: and Provided, further, That in the case of stock
without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to
twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said stock."
LexLib
The same Code provides that the corresponding documentary stamp taxes shall be levied, collected
and paid, for and in respect of the transactions so had or accomplished, by the person making, signing,
issuing, accepting, or transferring the document, instrument or paper wherever the same is made, signed,
issued, accepted or transferred when the obligation or right arises from Philippines sources or the property
is situated in the Philippines. Thus, the burden of paying the documentary stamp tax is placed upon the
parties to the contract and leaves the tax to be paid indifferently by either party, and accordingly, the party
assuming payment of said tax under the contract becomes directly liable therefor. But if for one reason or
another, the said tax is not paid, both parties to the contract may be made liable to the tax.
In view of the foregoing and based on the Deed of Assignment, the documentary stamp tax
(including penalties thereto, if there are any) on the said transaction must be paid and the corresponding
return thereon be filed by AIB in accordance with the provisions of the Tax Code. However, upon failure
of AIB to do the same, AON may also be held liable to the tax.
AIB can register in the Stock and Transfer Book the shares from AON to AIB.
it will be disclosed that the facts are different, then this ruling shall be null and void. cdll
Very truly yours,

By:

Deputy Commissioner
2000
Article 11, RP-Germany Tax Treaty

Article 11, RP-France Tax Treaty
024-80 216-89

Attorneys at Law
30th Floor, Citibank Tower
Citibank Plaza
8741 Paseo de Roxas, Makati City
Attention: Atty. Jayson L. Fernandez
Atty. Priscilla B. Valer
Gentlemen :
This is in connection with your application for relief from double taxation dated June 14, 1999, on
behalf of your client, Apo Cement Corporation (hereinafter referred to as "APO"), requesting confirmation
of your opinion that the interest to be paid by APO to Bayerische Hypo-und Vereinsbank (hereinafter
referred to as "BHV") is not subject to income tax, pursuant to the RP-Germany and RP-France Tax
Treaties. cdrep
It is represented that APO is a corporation organized and existing under the laws of the Philippines;
that it is engaged in the business of, among others, manufacturing and selling of cement, limestone and its
allied products; that as part of its expansion program, APO entered into various contracts with several
German and French companies for the supply of machinery and equipment necessary for the manufacture
of cement products, including supervision and engineering services in connection therewith; that to
finance its obligation under the said contracts, APO entered into five (5) loan agreements with BHV,
Munich and one (1) with BHV, France; that BHV, Munich has its principal place of business at
Kardinal-Faulhaber-Sisal Strabe 1, D-80333 Munich, Germany, and that BHV, France, at 34, Rue
Pasquier, Paris, France; that neither BHV, Munich nor BHV, France have any permanent establishment in
the Philippines, as per certification issued by the Securities and Exchange Commission dated July 9, 1999;
that the said loan agreements with BHV, Munich are insured with the ECA Hermes Kreditversicherungs
AG (hereinafter referred to as "Hermes Kredit") of Germany; that the said loan agreement with BHV,
France is registered with the Compagnie Francaise d'Assurance pour le Commerce Extériur SA
(hereinafter referred to as "COFACE"); that all of the six (6) loan agreements are guaranteed by JG
Summit Holdings, Inc.; and that pursuant to the said agreements, interests will accrue to BHV, Munich
and BHV, France.
I. On the loan agreements with BHV, Munich insured with Hermes Kredit
Article 11 of the RP-Germany Tax Treaty provides, viz:
"Article 11
"Interest
"1. Interest arising in a Contracting State and paid to a resident of the other Contracting
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 cdtai
(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 State. LibLex
xxx xxx xxx"
In view of this provision, interest arising from the Philippines shall be exempt from tax in the
Philippines if it is derived in respect of a loan insured by, among others, Hermes Deckung.
As recognized by this Office in BIR Ruling No. 216-89, Hermes Kredit (as stated in the said loan
agreements) is the same as "Hermes Deckung." This fact was later on confirmed by the Embassy of the
Federal Republic of Germany in the Philippines by stating in its letter dated December 14, 1999 that the
said loan agreements are insured by the Federal Republic of Germany as represented by Hermes Kredit.
Such being the case, the interest payments to be remitted by APO to BHV, Munich, pursuant to the same
loan agreements, shall not be subject to Philippine income tax and, consequently, to withholding tax
imposed under the Tax Code of 1997. llcd
II. On the loan agreement with BHV, France insured with COFACE
Article 11 of the RP-France Tax Treaty provides, viz:
"Article 11
"INTEREST
"1. Interest arising in a Contracting State and paid to a resident of the other Contracting
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 amount of the interest.
"3. Notwithstanding the provisions of paragraph 2,
(a) Interest arising in a Contracting State and paid to a resident of the other
Contracting State in respect of a bond, debenture or other similar obligation of the government
of the first-mentioned Contracting State or a political subdivision or local authority thereof
shall, provided that the interest is beneficially owned by a resident of the other Contracting
State, be taxable only in that other Contracting State;
(b) Interest arising in a Contracting State and paid to a resident of the other
Contracting State shall be taxable only in that other Contracting State if it is paid in respect of
a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by:
(i) in the case of France, the Banque francaise du commerce extériour BFCE
or the Compagnie francaise d' assurance pour le commerce extériur COFACE; and
(ii) in the case of the Philippines, the Central Bank of the Philippines or such
lending institution as is specified and agreed in letters exchanged between the
competent authorities of the Contracting States; prcd
xxx xxx xxx"
In view of the foregoing provisions and considering that the loan agreement is insured with
COFACE, the interest payments to be remitted by APO in favor of BHV, France shall be taxable only in
France and thus, not subject to Philippine income tax and, consequently, to withholding tax imposed under
the Tax Code of 1997. (BIR Ruling No. 024-80)
In view of all the foregoing, interest payments to be remitted by APO pursuant to the loan
agreements with BHV, Munich insured with Hermes Kredit, and with BHV, France insured with
COFACE, shall not be subject to Philippine income tax. Consequently, no income tax shall be withheld
therefrom.
Very truly yours,

By:

Deputy Commissioner
February 10, 2000
RP-Singapore Art. 5 (1) and (2) (j);

SEC. 34 (A) (1) 1997 tax code
110-90; 174-92; DA-147-4-7-97


Gentlemen :
This refers to your letter dated June 8, 1999 on behalf of Jardine Lloyd Thompson Pte., Ltd. (JLT)
requesting for a confirmation of your opinion that the services paid by Jardine Aboitiz Insurance Brokers,
Inc. (JAIB) to JLT are not subject to Philippine income tax and consequently to withholding tax. LexLib
It is represented that JLT is a limited liability corporation duly organized and existing under the
laws of Singapore; that it is neither registered as a corporation nor as a partnership in the Philippines as
per Securities and Exchange Commission's certification dated June 28, 1999; that it entered into a
Management Service Agreement with JAIB, a domestic corporation and is primarily engaged in the
insurance brokerage business.
Under such agreement JLT shall provide for its provision, upon JAIB's request, various
management support services which aimed at improving JAIB's insurance brokerage activities in the
Philippines. Where portion of the services will have to be rendered in the Philippines through JLT's
employees or personnel, it is agreed that such activities will not exceed 183 days during the entire duration
of the Agreement.
In reply, please be informed that Article 7(1) in relation to Article 5(1) and (2)(j) of the
RP-Singapore tax treaty provides:
"Article 7
(Business Profits)
"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. cdll
2. The term permanent establishment includes especially but is not limited to:
a) ...
b) ...
c) ...
d) ...
e) ...
f) ...
g) ...
h) ...
i) ...
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.
Accordingly, this Office hereby confirms that the service fees paid by JAIB to JLT are not subject
to income tax and withholding tax under the above-mentioned provisions. Further, such fees are
considered ordinary and necessary/expenses considering the nature of services rendered under the
provision of Chapter VII, Section 34 (A) (1) of the 1997 tax code of the Philippines which reads as
follows:
"CHAPTER VII
(Allowable Deductions)
Sec. 34. Deduction from Gross Income — Except for taxpayers earning compensation
income arising from personal services rendered under an employer-employee relationship where no
deductions shall be allowed under this Section other than under Subsection (M) hereof, in computing
taxable income subject to income tax under Sections 24 (A); 25(A); 26; 27(A), (B) and (C); and
28(A)(1), there shall be allowed the following deductions from gross income:
(A) Expenses
(1) Ordinary and Necessary Trade, Business or Professional Expenses
xxx xxx xxx"
void. Cdpr
Very truly yours,

Commissioner
February 10, 2000
Art. 13, RP-Netherlands Tax Treaty ITAD 17-99
Picazo Buyco Tan Fider & Santos

8th, 6th and 4th Floors Singapore Airlines Bldg.
138 H.V. Dela Costa St.
Attention: Atty. Gemma M. Santos
Madam:
This refers to your letter dated October 15, 1999 requesting a ruling to the effect that sale by
Holland Pacific B.V. (HPBV) of it shares of stock in Metro Pacific Asset Holdings, Inc. (MPAH) and
Metro Pacific Holdings, Inc. (MPHI), formerly F.P. Metro Holdings, Inc., is not subject to capital gain tax
in the Philippines pursuant to RP-Netherlands Tax Treaty. cdlex
It is represented that HPBV is a non-resident foreign corporation duly organized and existing under
the laws of the Netherland; that HPBV is not registered as a corporation or a partnership in the Philippines
per Securities and Exchange Commission certification dated October 12, 1999; that HPBV owns Two
Million Four Hundred Thirty Six Thousand One Hundred Sixty (2,436,160) common shares of MPHI, a
Philippine Corporation, having a par value of one hundred pesos (P100) per share and comprising 26.71%
of the outstanding capital stock of MPHI; that HPBV acquired the MPHI shares by way of subscription out
of an increase in authorized capital stock of MPHI; that HPBV likewise owns One Hundred Million (
100,000,000) common shares of MPAH, having a par value of (P1.00) per share and comprising 40% of
the outstanding capital stock of MPAH ; that on December 01, 1999 HPBV sold all of its shareholdings in
MPHI and MPAH (collectively, the subject shares) to Intalink B.V. a corporation duly organized and
existing under the laws of Netherlands.
"Article 13
"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.
permanent establishment which an enterprise of one of the States has in the other State, or of
movable property pertaining to a fixed based 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 or 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." LibLex
It is clear from the aforequoted provisions of the RP-Netherlands Tax Treaty that capital gains from
the alienation of any property other than those mentioned in paragraphs 1, 2 and 3 shall be taxable only in
the State where the alienator is a resident. Considering that the sale of shares of stock is not among those
mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by HPBV from the sale of its shares
of stock in MPHI and MPAH, shall not be subject to Philippine income tax under Section 28(B)(5)(c) of
the Tax Code, as amended, but are subject to tax only in the Netherlands.
However, the said sale by HPBV to Intalink B.V. is subject to documentary stamp tax in
accordance with Section 176 of the Tax Code; as amended.
This ruling is being issued on the basis of the foregoing facts as represented, However, if upon
void. cdlex
Very truly yours,

By:

Deputy Commissioner
February 9, 2000
Sec. 106 Sec. 108

BIR Ruling 333-92
ITAD Ruling 34-99
The Embassy of Portugal

14D Trafalgar Plaza, Dela Costa Street
Salcedo Village, Makati City,
Attention: H.E. Joâo Henrique Araujo Brito Camâra

Ambassador
Gentlemen :
This refers to your letter dated December 29, 1999 requesting for exemption from value added tax
(VAT) on the local purchase of one (1) unit TOYOTA TAMARAW FX REVO GLX-DIESEL M/T with
Chassis No. LF80-8003302 and Engine No. 2L-9568657, 1999 Model for H.E. JOÂO HENRIQUE
ARAUJO BRITO CÂMARA, Ambassador of the Embassy of Portugal. cdtai
"ARTICLE 34
services;
xxx xxx xxx"
Code of 1997.
Portugal or its personnel on their local purchases of goods and/or services it appearing from the list
Hence, the local purchase of one (1) TOYOTA TAMARAW FX REVO GLX-DIESEL M/T, for the
personal use of H.E. JOÂO HENRIQUE ARAUJO BRITO CÂMARA is exempt from VAT and ad
valorem taxes. (BIR Memo dated June 19, 1994; BIR Ruling No. 333-92 dated October 27, 1992; ITAD
Ruling No. 34-99 dated October 18, 1999) cdtai
Very truly yours,

Deputy Commissioner
February 9, 2000
Sec. 106 Sec. 108

BIR Ruling 333-92
ITAD Ruling 34-99
The Embassy of Portugal

14D Trafalgar Plaza, Dela Costa Street
Salcedo Village, Makati City,
Attention: H.E. Joâo Henrique Araujo Brito Camâra

Ambassador
Gentlemen :
This refers to your letter dated December 29, 1999 requesting for exemption from value added tax
(VAT) on the local purchase of one (1) unit TOYOTA TAMARAW FX REVO GLX-DIESEL M/T with
Chassis No. LF80-8003302 and Engine No. 2L-9568657, 1999 Model for H.E. JOÂO HENRIQUE
ARAUJO BRITO CÂMARA, Ambassador of the Embassy of Portugal. cdll
"ARTICLE 34
services;
xxx xxx xxx"
Code of 1997. cda
Portugal or its personnel on their local purchases of goods and/or services it appearing from the list
Hence, the local purchase of one (1) TOYOTA TAMARAW FX REVO GLX-DIESEL M/T, for the
personal use of H.E. JOÂO HENRIQUE ARAUJO BRITO CÂMARA is exempt from VAT and ad
valorem taxes. (BIR Memo dated June 19, 1994; BIR Ruling No. 333-92 dated October 27, 1992; ITAD
Ruling No. 34-99 dated October 18, 1999)
Very truly yours,

Deputy Commissioner
February 4, 2000
RP-Spain Article 13
007-96
Abello Concepcion Regala & Cruz

ACCRA Building, 122 Gamboa Street.
Legaspi Village, Makati City
Attention: Atty. Aleli Angela G. Quirino

and
Atty. Ruby Rose J. Yusi
Gentlemen :
This refers to your letter dated November 29,1999 requesting confirmation of your opinion to the
effect that the assignment and transfer by Union Fenosa Inversiones S.A. (UFINSA) to Union Fenosa
Desarrollo y Accion Exterior, S.A. (UFACEX) of its shares in First Philippine Union Fenosa, Inc. (FPUF)
is not subject to capital gains tax pursuant to the RP-Spain Tax Treaty. LexLib
It is represented that UFINSA is a non-resident foreign corporation duly organized and existing
under the laws of Spain; that it is not registered either as a corporation/partnership in the Philippines as per
certification dated December 13, 1999 issued by the Securities and Exchange Commission; that FPUF is a
corporation duly organized and existing under the laws of the Philippines; that UFACEX, a subsidiary of
UFINSA, is a non-resident foreign corporation organized and existing under the laws of Spain; that
UFINSA is the stockholder of record of forty percent (40%) of the outstanding capital stock of FPUF
equivalent to One Thousand Six Hundred Ninety Eight (1,598) Class "A" Common shares of stock and
Seven Million Nine Hundred Ninety Three Thousand Six Hundred (7,993,600) Class "B" Preferred
Redeemable shares of stock, with a par value of One Hundred Pesos (P100.00) per share; that on
November 29, 1999, by virtue of the Deed of Assignment of Shares executed by UFINSA and UFACEX,
UFINSA transferred and assigned to UFACEX all its shares in FPUF pursuant to a reorganization plan.
In reply, please be informed that Article 13 of the RP-Spain Tax Treaty, provides as follows:
"Article 13
Capital Gains
"(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
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 derived by an enterprise of a Contracting State 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. LibLex
"(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 interest in a partnership or trust, the property of which consists principally of
immovable property situated in a Contracting State, may be taxed in that State. (Italics
supplied)
"(4) Gains from the alienation of any property other than those mentioned in paragraphs 1,2 and 3
shall be taxable only in the Contracting State of which the alienator is a resident." (Emphasis
supplied)
the gains which will be realized by UFINSA from the transfer of its shares of stock in FPUF to UFACEX
shall be taxable only in Spain. However, under the aforequoted provision of paragraph 3 supra, the
Philippines may tax the gains derived from the disposition of interest in a corporation if its entire assets
consist principally of real property interest located in the Philippines. "Real Property Interest" means
interest on 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 Audited Financial Statement of FPUF as of June 30, 1999 disclosed that it does
not own real properties.
Accordingly, your opinion that the assignment and transfer by Union Fenosa Inversiones S.A.
(UFINSA) of its shares in First Philippine Union Fenosa, Inc. (FPUF) to Union Fenosa Desarrollo y
Accion Exterior, S.A. (UFACEX) is not subject to Philippine income tax is hereby confirmed. However,
the Deed of Assignment of Shares shall be subject to the documentary stamp tax imposed under Section
176 of the Tax Code of 1997. (BIR Ruling No. 007-96 Dated January 18, 1996) prcd
Very truly yours,

By:

Deputy Commissioner
2000
Philippine Long Distance Telephone Company

Ramon Cojuanco Building
Attention: Atty. Rene G. Bañez

FVP-Support Services and Tax Sector
Sir:
This refers to your letter dated March 12, 1999 requesting for confirmation of the value-added tax
exemption on the telecommunication services being rendered by the Philippine Long Distance Telephone
Company (PLDT) to foreign embassies. cdtai
In reply, please be informed that pursuant to Art. 34 of the Vienna Convention on Diplomatic
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of 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 VAT prescribed under Section 106 and 108 of the
However, under the principle of reciprocity, such sales may be treated as exempt, provided that the
embassy of the foreign state or the members of diplomatic mission purchasing the said products can
submit to the Commissioner of Internal Revenue or his duly authorized representative, a copy of the
special legislation or international agreement showing that the said foreign government grants similar tax
exemption to the Philippine Embassy or its personnel in the purchases of goods and services in that
foreign country. (VAT Ruling No. 42-98) Cdpr
In accordance with the listing dated October 4, 1999, prepared by the Office of Protocol of the
Department of Foreign Affairs, the following diplomatic missions are entitled to VAT exemptions in the
Philippines on the basis of reciprocity:
1. Embassy of the Argentine Republic

2. Embassy of Australia
3. Embassy of the Republic of Austria
4. Embassy of the People’s Republic of Bangladesh
5. Royal Belgian Embassy
6. Embassy of the Federative Republic of Brazil
7. Embassy of Brunei Darusalam
8. Canadian Embassy
9. Embassy of the Republic of Chile
10. Embassy of the People’s Republic of China
11. Embassy of the Czech Republic
12. Royal Danish Embassy
13. Embassy of the Arab Republic of Egypt
14. Embassy of the France
15. Embassy of the Federal Republic of Germany
16. Embassy of the Holy See (Apostolic Nunciature))
17. Embassy of the Republic of India
18. Embassy of the Republic of Indonesia
19. Embassy of the Islamic Republic of Iran
20. Embassy of the Republic of Iraq
21. Embassy of the State of Israel
22. Embassy of the Republic of Italy
23. Embassy of Japan
24. Embassy of the Republic of Korea
25. The People’s Bureau of the Great Socialist People’s Libyan Arab Janhiriya
26. Embassy of Malaysia
27. Embassy of the United Mexican States
28. Embassy of the Union of Myanmar
29. Royal Netherlands Embassy
30. Embassy of Federal Republic of Nigeria
31. Royal Norwegian Embassy
32. Embassy of the Islamic Republic of Pakistan
33. Embassy of the State of Qatar
34. Embassy of Romania
35. Embassy of the Russian Federation
36. Royal Embassy of Saudi Arabia
37. Embassy of the Republic of Singapore
38. Embassy of Spain
39. Embassy of the Democratic Socialist Republic of Sri Lanka
40. Embassy of Sweden
41. Embassy of the Swiss Confederation
42. Royal Thai Embassy
43. Embassy of the Republic of Turkey
44. Embassy of the United Arab Emirates
45. Embassy of the United States of America
46. Embassy of the United Kingdom of Great Britain and Northern Island
47. Embassy of the Republic of Venezuela
48. Embassy of the Socialist Republic of Vietnam
On the other hand, the following diplomatic missions are not entitled to VAT exemptions in the
Philippines, it appearing that they are not included in the list of diplomatic missions entitled to VAT
exemption in the Philippines on the basis of reciprocity prepared by the Office of the Protocol of the
Department of Foreign Affairs:
1. Embassy of Colombia
2. Embassy of Cuba
3. Embassy of Finland
4. Embassy of the Islamic Republic of India
5. Embassy of the Hashemite Kingdom of Jordan
6. Embassy of New Zealand
7. Embassy of Panama
8. Embassy of Papua New Guinea
9. Embassy of the Yugoslavia Socialist Federal Republic
However, it is noteworthy to state that the amounts paid for overseas dispatch, messages or
conversation originating from the Philippines by any embassy and consular office of a foreign government
are exempt from the 10% overseas communication tax imposed under Sec. 120 of the Tax Code of 1997.
LexLib
For your guidance and reference.
Very truly yours,

By:

Deputy Commissioner
February 4, 2000
Sec. 106 Sec. 108

ITAD #12-99 333-92
Embassy of Italy
6/F Zeta Building,
191 Salcedo Street,
Legaspi Village,
Makati City
Attention: H.E. ANDREAS FERRARESE

Charge' d'Affaires a.i.
Gentlemen :
This refers to your letter dated October 4, 1999 requesting for a tax-free local purchase of one (1)
unit TOYOTA TAMARAW FX REVO DLX; 1999 Model, 2,400 cc, 4 cylinder, Model
LS80L-GRMRSM, color white for the official use of the Embassy of Italy. prcd
"ARTICLE 34
services
xxx xxx xxx"
Italy 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. cdrep
Hence, the local purchase of one (1) unit TOYOTA TAMARAW FX REVO DLX, for the official
use of the Embassy of Italy is exempt from VAT and ad valorem taxes. (BIR Memo dated June 19, 1994;
ITAD Ruling 12-99 dated July 26, 1999; BIR Ruling 333-92 dated October 27, 1992)
Very truly yours,

Deputy Commissioner
February 4, 2000
Sec. 106 Sec. 108, Sec 149

ITAD #34-99 333-92
Canadian Embassy
Ninth Floor,
Allied Bank Center
6754 Ayala Avenue
Makati City
Attention: Mr. Ron Anderson

Second Secretary and Consul
Gentlemen :
This refers to your letter dated January 25, 2000 requesting for a tax-free local purchase of one (1)
unit Honda Accord Sedan, 2000 Model for the personal use of Mr. Ron Anderson, Second Secretary and
Consul of the Canadian Embassy. cdtai
"ARTICLE 34
services
xxx xxx xxx"
Code of 1997.
However, under the principle of reciprocity, this Office may grant exemptions to the Canadian
Hence, the local purchase of one (1) Honda Accord Sedan 2000 Model, for the personal use of Mr.
Ron Anderson is exempt from VAT and ad valorem taxes. (ITAD Ruling No. 34-99 dated October 18,
1999; BIR Ruling 333-92 dated October 27, 1992) cdlex
Very truly yours,

Deputy Commissioner
February 3, 2000
Section 106 (A) Section 108 Section 149

BIR RULING-333-99
DA-177-99
ITAD-3-99 ITAD-34-99
Embassy of the Russian Federation

Makati City
Attention: Mr. Sergei Y . Sorokin
Gentlemen :
This refers to your letter dated December 20, 1999 indorsed by the Department of Foreign Affairs
(DFA) requesting for exemption from payment of taxes on the purchase of one (1) unit of locally
purchased 1999 Honda CRV 2,0 A/T (5 door sedan, gas, 2.0lt., PGM-F1, 5-speed automatic transmission,
150 hp) with Condi. St. No. 01 TBL, engine no. PEWD7-P204694, Frame No. PADRD 1830XV104687,
and color Heather Mist Silver for the official use of the Embassy of the Russian Federation. cdasia
"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 and
services
xxx xxx xxx"
Embassy of goods and/or services shall be subject to the value added tax prescribed under Section 106 (A)
and 108 and ad valorem tax prescribed under the National Internal Revenue Code of 1977.
the Russian Federation or its personnel on their local purchases of goods and/or services it appearing from
Philippine Embassy and its personnel on their purchase of goods and services in your country. (BIR
Ruling 333-92; VAT Ruling No. DA-177-99; ITAD Ruling 3-99; 34-99) cdlex
Such being the case, the local purchase of one (1) Honda CRV 2,0 A/T, for the use of the Embassy
of the Russian Federation is exempt from value added tax and ad valorem tax.
Very truly yours,

Deputy Commissioner
February 2, 2000
P-Malaysia Article 11
057-97 142-95

14th Floor, Multinational Bancorporation Center
6805 Ayala Avenue
Makati City 1226
SUBJECT : Kuok Philippine Properties, Inc. (KPPI)
Gentlemen :
This refers to your letter dated March 29, 1999, requesting for confirmation that interest payments
on convertible bond issued by Kuok Philippines Properties, Inc. (KPPI) in favor of Rhinestone Limited
(Rhinestone) are subject to the preferential tax rate of 15% pursuant to the RP-Malaysia Tax Treaty.
It is represented that KPPI is a realty corporation organized and existing under the laws of
Philippines; that Rhinestone is non-resident foreign corporation organized and existing under the laws of
Malaysia, without a permanent establishment in the Philippines per Securities and Exchange Commission
Certification of Non-Registration dated March 23, 1999; that on January 26, 1999, KPPI and Rhinestone
entered into a subscription agreement wherein KPPI issued convertible unsecured bonds in favor of
Rhinestone amounting to US $50,000,000.00 which shall be due in the year 2002; that the said bonds are
subject to the payment of interest at the rate of 12% per annum of which 8% per annum is payable to
quarterly in arrears and the balance of 4% per annum is accrued and compounded quarterly in arrears and
payable upon conversion or redemption of the bonds, whichever is earlier. The subscription agreement
provides that they are in registered form in unit denominations of US$1,000; that the bonds may be
transferred by delivery of the certificate of bonds which are duly completed , signed and registered with
the office of KPPI; and that the Bonds may, upon request of Rhinestone, be listed on the Philippine Stock
Exchange or such other internationally recognized stock exchange.
In reply, please be informed that Article 11 of the RP-Malaysia Tax Treaty, provides as follows:
"Article 11
"2. However, such interest may be taxed in the Contracting State in which it arises, and according
to the laws of the 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.
"3. ...
"4. ...
"5. ...
"6. The term "interest" as used in this Article means income from Government securities, bonds
and 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 according to the taxation laws of the Contracting State in which the
income arises.
xxx xxx xxx"
Accordingly, your opinion that the interest payments on the convertible unsecured bonds issued by
KPPI in favor of Rhinestone shall be subject to the preferential tax rate of 15% pursuant to the
aforementioned provisions of the RP-Malaysia Tax Treaty is hereby confirmed. However, with respect to
the taxation of the interest income derived by subsequent bond holders who are residents of other
countries where (a) the Philippines has no tax treaties, the same shall be governed by the pertinent
provisions of the NIRC; or (b) the Philippines has a tax treaty, the same shall be subject to the tax rate
provided in the said treaty. In addition, the bonds shall be subject to the documentary stamp tax imposed
under Section 180 of the Tax Code, as amended.
void.
Very truly yours,

By:

Deputy Commissioner
February 2, 2000
RP-UK Art. 11 (2) (a) (ii)

072-85
ITAD 25-99
Viva Productions, Inc.

3RD Floor, Viva Entertainment Center
334 E. Rodriguez Sr. Ave., New Manila,
Quezon City
Attention: Ms. Marcia Gina L. Lopez

Legal Counsel
Gentlemen :
This refers to your request dated October 19, 1998 for confirmation/ruling on the application for
preferential tax rate to be withheld from royalty remittance of Viva Productions, Inc. (VPI) to Polygram
Film International Limited (Polygram) pursuant to the RP-UK Tax Treaty. llcd
It is represented that VPI is a domestic corporation organized and existing under the laws of the
Philippines engaged in the business of producing and distributing motion pictures for theatrical and
non-theatrical exhibitions in the Philippines with office address at 3rd Flr. VIVA Entertainment Center,
344 E. Rodriguez Sr. Ave., New Manila, Quezon City; that Polygram is a non-resident foreign corporation
existing under the laws of United Kingdom with office address at I Sussex Place, London W6 9XS; that
Polygram is not engaged in trade or business in the Philippines per Securities and Exchange Commission
certification dated September 16, 1999; that VPI and Polygram entered into a distribution agreement on
April 22, 1997, giving VPI sole and exclusive license to exploit the Rights to the films owned by Polygram
; and that VPI agreed to pay Polygram as follows:
1. Non-returnable Cash Advances:
a) US$105,000 for the film entitled "The Gingerbread Man"
b) US$25,000 for the film entitled "Bodycount"
c) US$45,000 for the film entitled "The Big Lebowski"
d) US$40,000 for the film entitled "Shakespeare’s Sister" llcd
Payable as follows:
30% of the Advance for each film on the execution of the agreement and 70% of
the Advance for each film not later than five days after the date of Polygram notice for
such Film.
2. Division of Gross Receipts:
a) 60% of Theatrical and non-Theatrical Gross Receipts after recoupment

Theatrical Expenses and Advances;
b) 25% of Videogram Rental Income and 20% of Videogram Sell-through Income
after recoupment of Theatrical Expenses and Advances; and
c) 70% of Television Income after recoupment of Theatrical Expenses and

Advances.
In reply, please be informed that Article 11(2)(a)(ii) of the RP-UK Tax Treaty provides as follows:
"Article 11
(Royalties)
"1. Royalties arising in a Contracting State which are derived and beneficially owned by a resident
of the other Contracting State may be taxed in that other State. cdasia
"2. Such royalties may also be taxed in the Contracting State in which they arise, and according to
the law of that State. However, that tax so charged shall not exceed:
a) 15 per cent of the gross amount of the royalties, where the royalties are paid:
(i) by an enterprise registered with the Philippine Board of Investments and

engaged in preferred areas of activity or
(ii) in respect of cinematograph films and films or tapes for television or radio
broadcasting,
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 payment of any kind received as a
work ( including cinematograph films, and 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
industrial, commercial or scientific experience. cdtai
Considering that the royalties paid by VPI to Polygram were in respect of cinematograph films and
films or tapes for television broadcasting, the royalty fees consisting of the Advances and the Division of
Gross Receipts are subject to the Philippine tax at the rate of 15% of the gross amount of the royalties.
Moreover, under Section 108 of the National Internal Revenue Code of 1997, the royalty payments
to be remitted by VPI is subject to ten percent (10%) value-added tax (VAT). Section 4.102-1(b) of
Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 6-97, provides that:
is sufficient evidence in claiming input credit by the licensee".(ITAD 25-99 dated September 15,
1999)
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. cdrep
Very truly yours,

By:

Deputy Commissioner
February 2, 2000
RP-Singapore, Art. 10 010-84
Rohm Electronics Philippines, Inc.

People’s Technology Complex
Carmona 4116, Cavite
Attention: Mr. Minoru Tabata

General Manager/Director
Gentlemen :
This refers to your application for tax treaty relief to avail of the 15% withholding tax rate on
dividend remittances of Rohm Electronics Philippines, Inc. (REPI) to Rohm Electronics Asia Pte., Ltd.
(Rohm Asia) pursuant to RP-Singapore Tax Treaty. cdll
It is represented that Rohm Asia is a non-resident foreign corporation organized and existing under
the laws of Singapore with business address at 9 Temasek Boulevard #20-02, Suntec Tower 2 Singapore
038989; that REPI is a domestic corporation organized and existing under Philippine laws with business
address at People’s Technology Complex, Carmona 4116, Cavite; that on March 31, 1999 the Board of
Directors of REPI declared cash dividends in the amount of PHP496,174,000.00 to its stockholders of
records as of even date; that said dividend is payable on July 29, 1999 and October 29, 1999; that at the
time of the declaration of said dividends, Rohm Asia owns 1,960,000 shares out of the total 9,800,000
shares of REPI or 20% shareholdings.
In reply, please be informed that Article 10 (1) (2) of the RP-Singapore Tax treaty states that:
"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
(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 Cdpr
(b) in all other cases, 25 per cent 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."
Since Rohm Asia is the recipient and the beneficial owner of the dividends and owns 20% of the
outstanding shares of the voting stock of the paying company (REPI) as evidenced by the Secretary’s
Certificate dated July 23, 1999, the said cash dividends in the amount of PHP99,234,800.00 out of the
total PHP496,174,000.00 (shown in the Audited Financial Statement of REPI as of March 31, 1999) are
subject to 15% final withholding tax rate pursuant to the above-quoted provision of RP-Singapore Tax
Treaty.(BIR Ruling No. 010-84)
and void. Cdpr
Very truly yours,

By:

Deputy Commissioner
February 2, 2000
RP-Japan, Art. 11&4

142-95


Principal
Gentlemen :
This refers to your application, on behalf of your client Dai-ichi Kangyo Bank Limited of
Hongkong (DKB-HK), for the availment of the 15% preferential tax treaty rate regarding the interest
payments on the loan obtained by Isuzu Autoparts Manufacturing Corporation (IAMC) from DKB-HK.
It is represented that DKB-HK is a branch of Dai-ichi Kangyo Bank Limited of Japan

(DKB-Japan), and as such it is a non-resident foreign corporation organized and existing under the laws of
Japan with office address at 31/F Glouester Tower, II Pedder St., Central Hongkong, while IAMC is a
domestic corporation with business address at 114 North Main Ave., - Phase III Special Economic Zone,
Laguna Technopark, Biñan, Laguna; that DKB-HK has local representative in the Philippines, the Dai-ichi
Kangyo Bank Limited-Manila; that on September 28, 1998, IAMC obtained a loan of JPY200,000,000
from DKB-HK; the said loan is payable in three installment within 2 years and 3 months as follows:
Dec. 29, 1999 - JPY 66,700,000
Sept. 28, 2000 - JPY 66,700,000
Dec. 28, 2000 - JPY 66,600,000
that the interest rate of such loan is "Lender’s funding cost + 0.75%"; that DKB-HK is the recipient of the
interest payment made by IAMC. cdlex
In reply, please be informed that Article 11 of the RP-Japan Tax Treaty states that:
"Article 11
(1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may
(2) However, such interest may also be taxed in the Contracting State in which it arises, and
(a) 10 percent of the gross amount of the interest if the interest is paid in respect of
Government Securities, or bonds or debentures; cdtai
(b) 15 per cent of the gross amount of the interest in all other cases."
Corollary to the above-quoted provision is Art. 4 of the same treaty which provides that:
"Article 4
(1) For the purposes of this Convention, the term "resident of a Contracting State" means
any person who, under the laws of that Contracting State, is liable to tax therein by reason of his
domicile, residence, place of head or main office, place of incorporation or any other criterion of a
in respect only of income from sources therein."
Since it is clear from the language of the said treaty that resident of Japan includes any person who
is liable to tax in Japan by reason of its place of head or main office or place of incorporation, DKB-HK is
entitled to the benefit of the said provision being a branch of DKB-Japan whose main or head office is in
Japan. Accordingly, the applicable rate on the interest payment on the loan obtained by IAMC from
DKB-HK is 15% considering that DKB-HK is the recipient and also the beneficial owner of such interest
and considering further that the interest income was not generated from government securities, bonds or
debentures (BIR Ruling 142-95). cdtai
This ruling is being issued on the basis of facts as represented. However, if upon investigation it
will be disclosed that the facts are different, then this ruling shall be considered as null and void.
Very truly yours,

Deputy Commissioner
January 27, 2000
RP-UK Article 12
NIRC – Sec. 175 Sec. 176
[DA-041-1-27-97]
Castillo Laman Tan Pantaleon & San Jose

The Valero Tower
122 Valero Street, Salcedo Village
1227 Makati City
Attention: Atty. Maria Victoria D. Sarmiento

Atty. Virgina B. Viray
Gentlemen :
This refers to your letter dated September 10, 1999 requesting in behalf of your client, Glaxo Group
Ltd. (GGL), for confirmation of your opinion as follows:
1. that the capital gains derived by GGL from its assignment of shares of stock of Duncan
Pharmaceuticals Philippines Inc. (DPPI) to Glaxo Wellcome Philippines Inc. (GWPI) is
not subject to Philippine Income Tax and consequently, to Withholding Tax; Cdpr
2. that the transfer of shares of stock by GGL to GWPI is subject to documentary stamp
tax of P1.50 for every P200.00 of the par value of the DPPI stock, or a fraction thereof;
and
3. that the issuance of shares of stock of GWPI in exchange for shares of stock of DPPI is
subject to documentary stamp tax on original issuance of stock at P2.00 for every
P200.00 of the par value of the GWPI shares or a fraction thereof.
It is represented that GGL is a corporation organized and existing under the laws of the United
Kingdom with no permanent establishment in the Philippines as evidenced by a Certificate of
Non-Registration dated August 18, 1999 issued by the Securities and Exchange Commission; that GGL is
the registered owner of 1,066,113 shares in DPPI, a corporation organized and existing under Philippine
laws; that on August 2, 1999, GGL executed a Deed of Assignment covering all its 1,066,113 shares
(inclusive of 6 qualifying shares held by its nominee directors) in DPPI with a total book value of
P191,409,251.00 in favor of GWPI, a corporation organized and existing under the Philippines laws; and
that in exchange of such transfer, GWPI issued its 4,530,611 shares to GGL.
"Article 12
(1) Capital 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. prcd
(2) Capital gains from the alienation of movable property forming part of the business
Contracting State in the other Contracting State for the purpose of performing professional services,
including such gains from the alienation of such a permanent (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) of this Article, capital gains derived by a
only in that Contracting State. LibLex
(4) Capital gains from the alienation of any property other than those mentioned in
alienator is a resident. (Emphasis supplied)
(5) The provision of paragraph (4) of this Article shall not affect the right of a Contracting
State to levy according to its own law a tax on capital gains from the alienation of movable property
derived by an individual who is a resident of the other Contracting State and has been a resident of the
Contracting State at any time during the six years immediately preceding the alienation of the
property."
Applying the foregoing provisions and based on the documents presented to support the application
of GGL, this Office confirms that the transfer made by GGL in favor of GWPI covering the shares of stock
in DPPI is not subject to the capital gains tax.
Moreover, this Office also confirms that transfer of shares of stock of GGL in DPPI in favor of
GWPI, and the issuance of GWPI shares in exchange of DPPI share are subject to documentary stamp tax
under Sections 176 and 175 of the Tax Code, respectively.
it will be disclosed that the facts are different, then this ruling shall be null and void. (BIR Ruling
[DA-041-1-27-97]) cdphil
Very truly yours,

Deputy Commissioner
February 1, 2000
RP-Netherlands, Art. 10
ITAD 28-99
DA-055-2-2-96
UN-009-1-4-95
Castillo Laman Tan Pantaleon & San Jose Law Offices

The Valero Tower, 122 Valero St., Salcedo Village, 1227
Makati City
Attention: Atty. Dina D. Lucenario

and
Atty. Virginia B. Viray
Gentlemen :
This refers to your application for tax treaty relief dated October 28, 1999 on behalf of your clients,
Carrier Air Conditioning Philippines Inc. (CACPI) and Carrier HVACR Investments B.V. (HVACR)
requesting confirmation of your opinion that the cash dividends declared by CACPI in favor of HVACR is
subject to final withholding tax at the preferential tax rate of 10% pursuant to Article 10 (2)(a) of the
RP-Netherlands Tax Treaty. It is also requested that said rate will likewise apply to future declaration of
cash dividend under the same circumstances and conditions. LexLib
It is represented that HVACR is a foreign corporation organized and existing under the laws of
Netherlands with principal office at Herengracht 548 1017GC Amsterdam, The Netherlands, while CACPI
is a domestic corporation duly organized and existing under Philippine Laws, with business address at KM
20 East Service Road South Superhighway, Alabang, Muntinlupa, Metro Manila; that on September 23,
1999, the Board of Directors of CACPI declared cash dividends out of its retained earnings in the amount
of PHP42,000,000.00 to its stockholders of record as of said date; that as of even date, HVACR owns
69,995 shares out of a total 70,000 shares of CACPI.
In reply, please be informed that Article 10 of the RP-Netherlands Tax Treaty declares:
"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. cdphil
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
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."
Accordingly, your opinion that the PHP42,000,000.00 cash dividends, as shown in the Secretary’s
Certificate dated October 26, 1999, declared by CACPI in favor of HVACR is subject to 10% preferential
tax rate pursuant to the RP-Netherlands Tax Treaty is hereby confirmed considering that recipient
HVACR is the beneficial owner of the dividends which holds directly 99.99% of the capital of
CACPI.(BIR Rulings No. ITAD 28-99, DA-055-2-2-96 and UN-009-1-4-95).
As requested, this ruling shall likewise apply to future declaration of cash dividends by CACPI in
favor of HVACR for as long as the facts and the conditions under the above-stated treaty are complied
with e.g. that HVACR holds at least 10% of the capital of CACPI.
This ruling is being issued based on facts as represented. However, if upon investigation, it will be
discovered or disclosed that the facts are different, then this ruling shall be considered as null and void. LexLib
Very truly yours,

By:

Deputy Commissioner
October 8, 1999
RP-Japan, Art. 7 (1), Art. 5 (8)

023-95
SGV & Co.
6760 Ayala Avenue
Makati City
Attention: Mr. C.P. Noel & Mr. E.P. Guevara

Tax Division
Gentlemen :
This refers to your letter dated May 12, 1999 requesting confirmation of your opinion on the
following issues:
1. Mitsubishi Heavy Industries, Ltd. (MHI-Japan) does not have a permanent

establishment in the Philippines.
2. Business profits of MHI-Japan from its subcontract of the Maintenance Agreement of

the EDSA Metro Rail Transit (MRT-3) are not subject to Philippine income tax under
the RP-Japan Tax Treaty. llcd
3. The profits of Mitsubishi Heavy Industries Philippines, Inc. (MHI-Phil) and/or TES
Philippines, Inc. (TES Phil) from the subcontract of the Maintenance Agreement are
subject to ordinary corporate income tax under Section 27 (A) of the Tax Code.
It is represented that under the Build-Lease-and-Transfer Contract on the MRT-3 entered into by
and between Metro Rail Transit Corporation (MRTC) and the Department of Transportation and
Communications (DOTC) dated August 8, 1997, MRTC is obliged, among others to service, repair and
maintain the MRT-3; that for the said purpose, MRTC entered into a Maintenance Agreement on the
MRT-3 with Sumitomo Corporation of Japan (Sumitomo), which subcontracted the same to MHI-Japan;
that MHI-Japan is a corporation organized and existing under the laws of Japan with no permanent
establishment in the Philippines as per certification issued by Securities and Exchange Commission (SEC)
dated May 18, 1999; that MHI-Japan subcontracted the same obligation to MHI-Phil who in turn
subcontracted the actual maintenance work to TES Phil for a period of 10 years; that MHI-Phil is a
subsidiary of MHI-Japan, a corporation organized and existing under the laws of the Philippines while
TES Phil is a domestic corporation likewise organized and existing under the laws of the Philippines. In
your letter dated September 27, 1999, you mentioned that, in the alternative, depending on such technical
requirements, which are still being studied, MHI-Japan is considering whether it will directly subcontract
the maintenance of MRT-3 to TES Phil, instead of to MHI-Phil, that in the aforementioned transactions,
the business profits of MHI-Japan will not be subject to Philippine income tax under the RP-Japan Tax
Treaty; that even under this alternative arrangement, MHI-Japan will not be deemed to have a permanent
establishment in the Philippines; that since there is an existing tax treaty between the Philippines and
Japan, the taxation of the payments to be derived by MHI-Japan from the subcontract of the Maintenance
Agreement on the MRT-3 shall be governed by the RP-Japan Tax Treaty. cdlex
In reply, please be informed that Article 7, Paragraph 1 of the RP-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."
After a study of the facts represented in your letters, this Office hereby confirms your opinion that:
In both alternative arrangements, since MHI-Japan has no fixed place of business nor legal presence
in the Philippines, then it has no permanent establishment. While it has a subsidiary in the Philippines,
MHI-Phil, the same does not constitute a permanent establishment pursuant to Article 5, Paragraph 8 of
the RP-Japan Tax Treaty, to wit:
"Article 5
(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."
In BIR Ruling No. 023-95 dated February 14, 1995, the aforecited tax treaty provision was referred
to when it was ruled that a mere subsidiary corporation in the Philippines controlled by a foreign
corporation does not constitute a permanent establishment of the foreign corporation within the
Philippines. Accordingly, MHI-Phil being a subsidiary, does not constitute a permanent establishment of
MHI-Japan. cdphil
In view thereof, this Office is of the opinion, and so holds, that since MHI-Japan has no permanent
establishment in the Philippines, the business profits received by MHI-Japan are not subject to Philippine
income tax.
Finally, since MHI-Phil and TES Phil are both domestic corporations, then any profits they will
derive from the subcontract of the Maintenance Agreement on MRT-3 are subject to ordinary corporate
income tax under Section 27 (A) of the Tax Code.
This ruling is issued on the basis of the foregoing facts as represented. If however, upon
investigation, it will be disclosed that the facts are different from what have been represented, then this
ruling shall be considered null and void.
Very truly yours,

By:

Deputy Commissioner
January 31, 2000
RP-Japan Article 11 142-95
SJC Land Service Corporation

Lot 11-Carmelry Industrial Park, Canlubang
Calamba, Laguna
Attention: Ms. Andrea V. Suelto

General Affairs Managers
Madam:
This refers to your letter dated August 11, 1999, requesting a ruling to the effect that the interest
income to be remitted by SJC Land Service Corporation (SJC-LSC) to Sekisui Jushi Corporation (SJC)
shall be subject to preferential tax rate of fifteen percent (15%) withhold pursuant to the RP-Japan Tax
Treaty. Cdpr
It is represented that SJC is a non-resident foreign corporation duly organized and existing under
the laws of Japan; that it is not registered either as a corporation/partnership in the Philippines as per
certification dated September 28, 1999 issued by the Securities and Exchange Commission; that SJC-LSC
is a corporation duly organized and existing under the laws of the Philippines; that SJC is the stockholder
of record of forty per cent of the outstanding capital stock of SJC-LSC equivalent to Seventy Nine
Thousand Nine Hundred Ninety Nine (79,999) shares of stock, with aggregate par value of Thirty Two
Million and Three Hundred Ninety Eight Thousand Seven Hundred Eighty Five Pesos (32,398,785.00);
that on 20th day of December 1998, a Loan Agreement was entered into by and between SJC and
SJC-LSC whereby the former made a loan to the latter in the amount of JP¥164,220,402 payable within a
period of one (1) year at an interest rate of 1.25% per annum on the outstanding balance of the principal
and that payment shall be made by capital increase or long term loan.
"Article 11
"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; cdrep
xxx xxx xxx"
Such being the case, the interest to be remitted by SJC-LSC to SJC relative to the aforementioned
loan shall be subject to the preferential tax rate of 15% Philippine income/withholding tax in accordance
with the aforequoted provision in the RP-Japan Tax Treaty.(BIR Ruling No. 142-95 dated 13 September
1995).
investigation, it will be disclosed that the facts are different then this ruling shall be null and void. cdrep
Very truly yours,

Deputy Commissioner
January 28, 2000
RP-Japan - Art. 10 ITAD 8-99
NCCI Marine Inc.

1511 Marcelo St.,
Ermita Manila
Attention: Mr. Panfilo W. Castro, Jr.

President
Gentlemen :
This refers to your application for relief from double taxation dated August 30, 1999 on behalf of
TATSUMI MARINE CO., LTD. (TATSUMI), requesting for a preferential tax rate of ten per cent (10%)
to be withheld on dividend remittances by NCCI MARINE INC. (NCCI), pursuant to the RP-Japan Tax
Treaty.
It is represented that TATSUMI is a non-resident foreign corporation duly organized and existing
under the laws of Japan; that it is not registered either as a corporation/partnership in the Philippines as per
certification dated August 12, 1999 issued by the Securities and Exchanged Commission; that NCCI is a
corporation duly organized and existing under the laws of the Philippines; that TATSUMI holds forty per
cent (40%) of the total subscribed and paid-up capital of NCCI; that on July 01, 1997, the Board of
Directors of NCCI passed and approved the declaration of cash dividend equivalent to 10% of the paid-up
capital of the corporation payable to all shareholders of record as of July 01, 1997. cdll
"Article 10
(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the
(2) However, such dividends may also be taxed in the Contracting State of which the company
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".
In view of the foregoing, your application is hereby approved. Hence, the preferential tax rate to be
withheld by NCCI MARINE INC. on its dividend remittances to TATSUMI MARINE CO., LTD., is ten
per cent (10%) considering that the latter holds forty per cent (40%) of the shares of the former. (BIR
Ruling 08-99 dated July 20, 1999)
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. LibLex
Very truly yours,

By:
Deputy Commissioner
January 28, 2000
RP-Singapore Art. 12 (2) (C); (4); and (5);

Art. 7 (1) L; 131-97; 079-91; 002-90; 075-88


Gentlemen :
This refers to your application for relief from double taxation dated June 8, 1999, on behalf of
Jardine Lloyd Thompson Asia Pte., Ltd. (JLTA) of Singapore, requesting for confirmation if the annual
license fees paid by Jardine Aboitiz Insurance Brokers (JAIB) to JLTA are subject to the preferential tax
rate of 25%. LexLib
It is represented that JLTA is a limited liability corporation duly organized and existing under the
laws of Singapore; that it is neither registered as a corporation nor as a partnership in the Philippines as
per Securities and Exchange Commission's certification dated June 28, 1999; that it entered into a Master
Software License Agreement with JAIB, a corporation organized and existing under Philippine laws and is
primarily engaged in the insurance brokerage business.
Under such agreement JLTA has granted personal, non-transferable, non-assignable and
non-exclusive license to use for its own administrative purposes only in the Philippines. For the rights
granted to JAIB, JLTA shall be paid as license fees for the use of the licensed software which should be
due and payable within 30 days after the date of the invoice from JLTA. The first scheduled software was
the Broker On-Line Support System (BOSS SYSTEM) which covers indefinite period subject to either
party. the annual license fee payable to JLTA for the use of BOSS SYSTEM is US $36,000.00.
In reply, please be informed that Article 12 (2)(c); (4); and (5) of the RP-Singapore tax treaty
provides:
"Article 12
(Royalties)
1. Royalties arising in a Contracting State and paid to a resident of the other Contracting 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:
a) ...
b) ...
c) in all other cases, 25 per cent of the gross amount of the royalties. cdasia
3. ...
4. The provisions of paragraph 1 and 2 of this Article shall not apply if the recipient 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 State professional 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 a case, the provisions of Article 7 or Article 14
of this Agreement, as the case may be, shall apply. cdrep
5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a
political subdivision, a local authority, statutory authority, or a resident of that State. Where,
however, the person paying the royalties whether he is a resident of a Contracting State or not,
has in a Contracting State a permanent establishment in connection with which the contract
under which the royalties are paid was concluded, and such royalties are borne by such
permanent establishment, then such royalties shall be deemed to arise in the Contracting State
in which the permanent establishment is situated.
Article 7
(Business Profits)
Accordingly, this Office hereby confirms that the annual license fees paid by JAIB to JLTA are
subject to the preferential tax rate of 25% and that it should also be subject to 10% VAT where JAIB shall
be responsible to withhold from JLTA 10% VAT and remit to BIR on behalf of JLTA. A duly validated
VAT declaration/return shall be sufficient evidence for JAIB to use the input tax as credit against its
output VAT liability. cdphil
Further, royalty payment to a Singapore Licensor which JLTA shall be subject to income tax and
consequently to withholding tax at 25% preferential tax rate.
void. cda
Very truly yours,

Commissioner
January 28, 2000
RP-Japan Art. 11 (2) 142-95029-99
Itabashi Seiki Philippines, Inc.

Lot 1, 1A, 3 & 5, Blk. 16, Phase IV
Cavite Export Processing Zone
Rosario, Cavite
Attention: Ms. Cilda B. Puyod

Fin. & Adm. Manager
Gentlemen :
This refers to your letter dated February 12, 1999 requesting for a ruling on the correct withholding
tax rate for the interest payments to be made by Itabashi Seiki Philippines, Inc. (ISPI), a domestic
corporation, to Itabashi Seiki Company, Ltd. (ISC) pursuant to the RP-Japan tax treaty.
It appears that ISC 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 a partnership in the Philippines per Certificate
of Non-Registration from the Securities and Exchange Commission dated June 8, 1999; that a Loan
Agreement was executed by ISC, as creditor, and ISPI, as debtor, on August 3, 1998 in the amount of Two
Million Four Hundred Thousand U.S. Dollars (US$2,400,000.00); that the loan bears interest at a rate of
three and 25/100 (3.25%) percent per annum on the outstanding principal ; and that the loan is payable in
eight (8) years. cdtai
"Article 11
government securities, or bonds or debentures;
(b) 15 percent of the gross amount of the interest in all other cases cdll
"3. ...
"4. ...
Based on the foregoing, the applicable withholding tax rate shall be 15% of the gross amount of the
interest payment since the payee (ISC) is the beneficial owner of the interest income received from ISPI
and the interest income was not generated from government securities, bonds or debentures. (BIR Ruling
No. 142-95 dated September 13, 1995)
void. cdlex
Very truly yours,

By:

Deputy Commissioner
January 28, 2000
RP-Japan Article 12 UN-234-8-2-94

14TH Floor Multinational Bancorporation Center Building
Attention: Mr. Alexander B. Cabrera

Partner
Gentlemen :
This is in connection with your application for relief from double taxation dated May 11, 1999,
requesting for a preferential tax rate of 25% to be withheld on royalty remittances by your client, DAIHO
(PHILS.) INCORPORATED (DPI) to DAIHO INDUSTRIAL CO., LTD (DIC), pursuant to the RP-Japan
Tax Treaty. prcd
It is represented that DIC is a non-resident foreign corporation duly organized and existing under
the laws of Japan, with principal office at 1-3-7, Dainichi-cho, Moriguchi, Osaka, Japan; that DIC has no
permanent establishment in the Philippines as evidenced by its Certificate of Non-Registration from the
Securities and Exchange Commission (SEC) dated March 16, 1999; that DPI is registered in the Philippine
Economic Zone Authority (PEZA) with Certificate of Registration No. 98-033; that DPI is a domestic
corporation duly registered with the SEC with office address at 102 North Science Avenue, Laguna
Technopark, Biñan, Laguna; that on November 1, 1998 DPI entered into a Technical Service Agreement
with DIC whereby DIC granted DPI the license to use the professional techniques and know-how relative
to consumer's electric and electronic products, automobiles and office information devices; that in
consideration of the said services, DPI shall pay DIC an amount equivalent to 5% on the ex-factory price
of the products manufactured and sold or used by DPI.
"Article 12
2. However, such royalties may also be taxed in the Contracting State in which they arise and
a) 15 per cent of the gross amount of the royalties if the royalties are paid in respect
broadcasting; cdll
3. ...
4. The term "royalties" as used in this Article means payment of any kind received as a
any patent, trade mark, design or model, plan secret formula or process, or for the use of, or
xxx xxx xxx"
Such being the case, the royalty payments paid by DPI to DIC shall be subject to 10% withholding
tax based on the gross amount of royalties. (BIR Ruling UN-23-8-2-94)
This ruling is issued based on the facts as represented. However, if upon investigation it will be
disclosed that the facts are different, then this ruling shall be considered null and void. cdlex
Very truly yours,

By:

Deputy Commissioner
January 28, 2000
RP-Japan Article 12
UN-234-8-2-94
Itabashi Seiki Philippines, Inc.
Lot 1,1A 3 Block 16 Phase IV
Cavite Export Processing Zone
Rosario, Cavite
Attention: Ms. Cilda B. Puyod

Finance and Administrative Manager
Gentlemen :
This refers to your application for relief from double taxation on behalf of ITABASHI SEIKI CO.,
LTD (ISCL) requesting for a preferential tax treaty rate of 25% on royalty payments made by ITABASHI
SEIKI PHILIPPINES, INC. (ISPI) pursuant to the RP-Japan Tax Treaty. Cdpr
It is represented that ISCL is a non-resident foreign corporation duly organized and existing under
the laws of Japan with principal office at 45-17 Ikebukuro Honcho 4-Chome, Toshima-Ku, Tokyo, Japan;
that ISCL has no permanent establishment here in the Philippines as per certification dated June 8, 1999
issued by the Securities and Exchange Commission; that ISPI is a domestic corporation with office address
at Lot 1, 1A 3 Block 16, Phase IV, Cavite Export Processing Zone, Rosario, Cavite and registered as a
Zone Export Enterprise with Certificate of Registration No. 95-06 at Export Processing Zone Authority
(EPZA) on January 2, 1995; that on October 18, 1998, ISCL entered into Technological Transfer
Agreement and Assistance Agreement with ISPI which shall be valid and effective for three (3) years from
its execution, whereby ISCL granted the right to use the technical information and know-how pertaining to
the manufacture and assembly of printed wiring boards, improvement of sales and management of the ISPI
business; that in consideration of the said services, ISPI shall pay ISCL a basic fee rate equivalent to
single-sided product sales unit price x 2% plus single-sided product sales quantity at US$0.4 from October
1998 to September 1999.
"Article 12
2. However, such royalties may also be taxed in the Contracting State in which they arise and
a) 15 per cent of the gross amount of the royalties if the royalties are paid in respect
broadcasting; llcd
3. ...
4. The term "royalties" as used in this Article means payment of any kind received as a
any patent, trade mark, design or model, plan secret formula or process, or for the use of, or
xxx xxx xxx"
Such being the case, the royalty payments paid by ISPI to ISCL shall be subject to 25% withholding
tax based on the gross amount of royalties.
This ruling is issued based on the facts as represented. However, if upon investigation it will be
disclosed that the facts are different, then this ruling shall be considered null and void. cda
Very truly yours,

By:

Deputy Commissioner
January 28, 2000
142-95

14TH Floor Multinational Bancorporation Center Building

Partner
Gentlemen :
This refers to your letter dated May 7, 1999 requesting confirmation of your opinion that the
interest payments of Daiho (Phils.), Inc. (DPI) to Asia Daiho Pte. Ltd. (Asia Daiho) is subject to the
preferential tax treaty rate of 15% withholding tax pursuant to the provisions of Article 11 of the
RP-Singapore Tax Treaty. prcd
It is represented that Asia Daiho is a non-resident foreign corporation organized and existing under
the laws of Singapore with principal office at No. 14 Woodlands Loop, Woodlands East Industrial Estate,
Singapore; that Asia Daiho has no permanent establishment in the Philippines as evidenced by Certificate
of Non-Registration from Securities and Exchange Commission dated 10 May 1999; that DPI is a
corporation duly organized and existing under the laws of the Philippines; that on January 26,1999, DPI
entered into a Loan Agreement with Asia Daiho for the amount of US$2,325,000.00; that the loan has a
term of five (5) years effective from 26 January 1999 to 26 January 2004; that the interest rate shall be
seven percent (7%) per annum; and that said loan will be used mainly to finance DPI procurement of
additional machinery and equipment.
In reply, please be informed that Article 11 of the RP-Singapore 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
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. cdtai
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
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 the purposes of this Article."
Accordingly, your opinion that the interest payments made by DPI to Asia Daiho are subject only to
the 15% preferential tax rate is hereby confirmed. (BIR Ruling No. 142-95 dated September 13, 1995).
void.
Very truly yours,
By:

Deputy Commissioner
January 28, 2000
RP-Japan, Art. 11 DA-359-98 UN-014-1-9-95


Principal
Gentlemen :
This refers to your application for the availment of the preferential tax treaty rate of 15% final
withholding tax relative to the interest payments on the loan obtained by your client TDK Philippines
Corporation (TDK-Phils.) from TDK Corporation of Japan (TDK- Japan). LibLex
It is represented that TDK-Japan is a nonresident foreign corporation organized and existing under
the laws of Japan with office address at 1-31-1 Nihonbashi, Chuo-ku, 103 Tokyo, Japan, while TDK-Phils.
is a domestic corporation organized and existing under Philippine laws with business address at 119 East
Service Ave., Special Export Processing Zone, Laguna Technopark, Biñan, 4024 Laguna; that on July 24,
1998, TDK-Phils obtained a loan of THIRTEEN MILLION U.S. DOLLARS (US$13,000,000.00) from
TDK-Japan to be used as operating funds; that the loan is payable on July 23, 1999; that the interest rate
on the said loan will be the Floating Rate as defined in the Agreement plus 0.20 percent/annum on each
interest payment date; that the interest payment date shall be on January 25, 1999 and July 23, 1999.
In reply, please be informed that Art. 11 of the RP-Japan Tax Treaty states that:
"Article 11
Government securities, or bonds or debentures; cdtai
(b) 15 percent of the gross amount of the interest in all other cases."
Accordingly, the interest payments on the loan obtained by TDK-Phils. from TDK-Japan are
subject only to 15% preferential tax rate pursuant to the above-quoted provision of the RP-Japan Tax
Treaty considering that the recipient-payee is the beneficial owner of the interest and the interest income
was not generated from Government securities, bonds or debentures.(BIR Rulings No. DA-359-98 and
UN-014-1-9-95).
investigation, it will be discovered or disclosed that the facts are different, then this ruling shall be
considered as null and void. Cdpr
Very truly yours,

By:

Deputy Commissioner
2000
RP-Netherlands, Art. 13 Sec. 176, NIRC 213-97, 9-96,
86-96
Asia Link B.V.

1580 Princeton Street
Wack-Wack Village
Mandaluyong City
Attention: Manuel Z. Gonzalez

Attorney-in-fact
Gentlemen :
This refers to your letter dated April 12, 1999 requesting on behalf of your client, Asia Link B.V.,
(Asia Link), for confirmation of your opinion that Asia Link's gain from the sale of shares in Smart
Communications, Inc. (Smart), in favor of Nippon Telegraph and Telephone Corporation (NTT) is exempt
from Philippine tax pursuant to Article 13 (4) of the RP-Netherlands Tax Treaty. cdlex
It is represented that Asia Link is a corporation duly organized and existing under the laws of the
Netherlands; that under a Deed of Absolute Sale dated March 26, 1999, Asia Link sold to NTT, a
corporation organized and existing under the laws of Japan 429,187,928 shares of stock in Smart, a
corporation organized and existing under the laws of the Philippines.
"Article 13
"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.
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.
cda
"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." (Emphasis
supplied).
In view of above-quoted provisions of the RP-Netherlands Tax Treaty and considering that sale of
shares of stock is not among those mentioned in said paragraphs 1, 2 and 3 of Article 13 of the tax treaty,
the gains that may be derived by Asia Link, which is a resident of Netherlands, from the sale of its shares
of stock in Smart, a domestic corporation, shall not be subject to Philippine income tax under Section 28
(B) (5) (c) of the Tax Code, as amended, but are subject to tax only in the Netherlands.
However, the sale by Asia Link of its shares of stock in Smart is subject to the documentary stamp
tax in accordance with Section 176 of the Tax Code, as amended by Republic Act No. 7660. cdphil
investigation, it will be disclosed that the facts are materially different, then this ruling shall be considered
as automatically revoked. (BIR Ruling DA-213-97 dated May 29, 1997; BIR Ruling No. 009-96 dated
January 23, 1996 and BIR Ruling DA-086-96 dated February 27, 1996)
Very truly yours,

By:

Deputy Commissioner
January 28, 2000
RP-Singapore Article 13 100-94261-89
Seriña & Garcia Law Offices

122 Calbayog Street
Mandaluyong City 1550
Attention: Atty. Agnes P. Seriñas-Garcia
Gentlemen :
This refers to your letter dated August 14, 1999, requesting confirmation on behalf of your clients
Lim Kee Liew and Leong Lai Heng, that gains derived from the transfer of your clients’ shares of stocks
in two Philippine companies are not subject to tax pursuant to the RP-Singapore Tax Treaty. cdtai
It is represented that Lim Kee Liew and Leong Lai Heng, hereinafter referred to as the SELLERS,
are non-resident citizens; that both sellers are subscribers to the capital stock of Asian Micro
Manufacturing Philippines, Inc. (AMMPI) and ACI Industries, Inc. (ACI); that AMMPI and ACI are
corporations duly organized and existing under Philippine laws; that AMMPI has an authorized capital
stock of P 10,000,000.00 divided into 100,000 shares with a par value of P 100.00 per share, out of which
P 7,265,800.00 had been subscribed and paid-up; that ACI Industries has an authorized capital stock of P
5,000,000.00 divided into 50,000 shares with a par value of P 100.00 per share, out of which P
1,250,000.00 had been subscribed and paid-up; that Mr. Lim subscribed to 36,328 shares and 2,500 share
of the capital stocks of AMMPI and ACI, respectively, while Mdm. Leong subscribed to 36,327 shares of
the 2,500 shares of the capital stocks of AMMPI and ACI, respectively; that on August 4, 1999 both
SELLERS favor of Asian Micro Holdings Pte Ltd. (AMH), a Singaporean company, for and in
consideration of shares in AMH equivalent to P 3,290,951.00 for Mr. Lim's, 36,328 shares in AMMPI and
2,499 shares in ACI; that the assets of AMMPI and ACI, as shown in their audited Balance Sheets dated
June 30, 1999, do not consist principally of immovable property located in the Philippines; and that the
Schedules of the Property and Equipment accounts for both corporations as of June 30, 1999 show that
neither own any real property in the Philippines. prcd
In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty, provides as follows:
"Article 13
"1. Gains from the alienation of immovable property may be taxed in the Contracting State in
which such property is situated.
permanent establishment which an enterprise of a Contracting State has in the other
Contracting State or a movable property pertaining to a fixed base available to a resident of a
services, including such gains from the alienation of such permanent establishment (alone or
together with the whole enterprise) or of such a fixed base may be taxed in the other State.
However, gains derived by an enterprise of a Contracting State.
"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 form 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.
"4. Gains from the alienation of any property, other than those mentioned in paragraphs 1, 2, and
3, shall be taxable only in the Contracting State of which the alienator is a resident. cdlex
Considering that the properties of both AMMPI and ACI do not consist principally of immovable
property located in the Philippines, the gains from the alienation of the shares of both companies are
taxable only in Singapore.
Accordingly, your opinion that the gains derived from the transfer of the subject shares of stocks
are not subject to Philippine tax, is hereby confirmed.
void. cdll
Very truly yours,

By:

Deputy Commissioner
January 25, 2000
RP-Singapore Article 7 [UN-014-1-9-95]

Special Export Processing Zone,
Gateway Business Park,
Javalera, Gen. Trias,
Cavite City
Attention: Mr. Takaaki Fukushima

Comptroller
Gentlemen :
This refers to your letter dated June 10, 1999, on behalf of HITACHI METALS, LTD., (HITACHI)
requesting for a preferential tax treaty rate of fifteen percent (15%) to be withheld on interests payments to
LUZON ELECTRONICS TECHNOLOGY, INC., (LET) pursuant to the RP-Japan Tax Treaty. llcd
It is represented that HITACHI is a non-resident foreign corporation duly organized and existing
under the laws of Japan, with principal office at 1-2, 2-Chrome, Marunouchi, Chiyoda-Ku, Tokyo 100,
Japan; that it has no permanent establishment in the Philippines as evidenced by the Certificate of
Non-Registration from Securities and Exchange Commission (SEC) dated August 25, 1999; that LET is a
domestic corporation duly organized and existing under the laws of the Philippines and duly registered
with the Philippine Economic Zone Authority with Certificate of Registration No. 95-121 dated November
14, 1995; that on June 15, 1998, the first Loan Agreement was entered into by and between HITACHI and
LET, whereby the former will provide the latter the amount of One Billion Six Hundred Fifty Million
Japanese Yen ¥1,650,000,000.00; that LET shall pay interest on the first Loan outstanding from time to
time on each Interest Payment Date for the Interest Period then ending based on the Quarterly Interest Rate
as set on the Interest Rate Setting Date; that on July 30, 1999 and April 12, 1999, the second and third
Loan Agreement was entered into by and between HITACHI and LET, in the amount of One Billion Two
Hundred Million Japanese Yen ¥1,200,000,000.00 and Seven Hundred Eighty Million Japanese Yen
¥780,000,000.00 respectively; that LET shall pay interest on the second and third Loans less any
withholding tax without need of demand within ten (10) days after the end of each interest period at the
applicable rate. prcd
"Article 11
"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
investment incentive 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. cdasia
"4. ...
"5. The term "interest" as used on this Article means income from debt-claims of every kind,
debentures.
xxx xxx xxx"
Such being the case, the interest income to be remitted by LET to HITACHI relative to the
aforementioned loan shall be subject to the preferential tax rate of 15%.
void. Cdpr
Very truly yours,

By:

Deputy Commissioner
January 25, 2000
RP-Japan, Art. 11&4

142-95


Principal
Gentlemen :
This refers to your application, on behalf of your client Dai-ichi Kangyo Bank Limited of
Hongkong (DKB-HK) for the availment of the 15% preferential tax treaty rate regarding the interest
payments received by DKB-HK from Philippine Mining Service Corporation (PMSC) pursuant to
RP-Japan Tax Treaty. Cdpr
It is represented that DKB-HK is a branch of Dai-ichi Kangyo Bank Limited of Japan

(DKB-Japan), and as such it is a non-resident foreign corporation organized and existing under the laws of
Japan with office address at 31/F Glouester Tower, II Pedder St., Central Hongkong, while PMSC is a
domestic corporation with business address at 11th Floor, Allied Bank Center, 6754 Ayala Avenue,
Makati City; that DKB-HK has local representative in the Philippines, the Dai-ichi Kangyo Bank
Limited-Manila; that on December 22, 1998, PMSC obtained a loan of US$1,200,000 from DKB-HK
which is payable on June 30, 1999; that the interest will be payable on "Payment Date at 0.5% p.a. over
the Bank’s funding cost, calculated on the basis of actual number of day elapsed in a 360-days year"; that
DKB-HK is the recipient of the interest payment made by PMSC.
"Article 11
Government Securities, or bonds or debentures; llcd
Corollary to the above-quoted provision is Art. 4 of the same treaty which provides that:
"Article 4
(1) For the purposes of this Convention, the term "resident of a Contracting State" means
any person who, under the laws of that Contracting State, is liable to tax therein by reason of his
domicile, residence, place of head or main office, place of incorporation or any other criterion of a
in respect only of income from sources therein."
Since it is clear from the language of the said treaty that resident of Japan includes any person who
is liable to tax in Japan by reason of its place of head or main office or place of incorporation, DKB-HK is
entitled to the benefit of the said provision being a branch of DKB-Japan whose main or head office is in
Japan. Accordingly, the applicable rate on the interest payment on the loan obtained by PMSC from
DKB-HK is 15% considering that DKB-HK is the recipient and also the beneficial owner of such interest
and considering further that the interest income was not generated from government securities, bonds or
debentures (BIR Ruling 142-95). Cdpr
This ruling is being issued on the basis of facts as represented. However, if upon investigation it
will be disclosed that the facts are different, then this ruling shall be considered as null and void.
Very truly yours,

Deputy Commissioner
January 25, 2000
RP-Japan, Art. 11 UN-014-1-9-95 138-94


Principal
Gentlemen :
This has reference to your application for availment of the 15% final withholding tax rate on
interest payments made by your client GNF (Philippines) Inc. (GNF) to Nikko Gould Foil Company, Ltd.
(Nikko) pursuant to RP-Japan Tax Treaty. cdtai
It is represented that Nikko is a non-resident foreign corporation organized and existing under the
laws of Japan with business address at 10-1 Toranomon 2-Chome Minato-ku, Tokyo 105-8407 Japan; that
GNF is a domestic corporation organized and existing under Philippine laws with business address at 117
East Science Avenue, Special Export Processing Zone, Laguna Technopark, Biñan, Laguna; that on April
28, 1999, GNF obtained a loan of US $8,000,000.00 from Nikko; that the said loan is effective for three
(3) years from the date of initial advance and subject to interest at LIBOR rate per annum based on the
outstanding balance.
"Article 11
(2) However, such interest may also be taxed in that Contracting State in which it arises, and
(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;
Considering that Nikko is the recipient and the beneficial owner of the interest payment made by
GNF and since the interest income was not generated from government securities, bonds and debentures,
the applicable withholding tax rate is 15% of the total amount of the interest payment. (BIR Ruling Nos.
UN-014-1-9-95 and 138-94).
This ruling is being issued on the basis of facts as represented. However, if upon investigation, it
will be disclosed or discovered that the facts are different, then this ruling shall be considered null and
void. cdrep
Very truly yours,

By:

Deputy Commissioner
2000
Sec 106
Sec 108
BIR Ruling 333-92
ITAD Ruling 34-99
Embassy of the United States of America

Attention: Mr. William E. Reynolds

Chief, Office of Regional Procurement/USAID
Gentlemen :
This refers to your letter dated November 29, 1999 requesting for exemption from value added tax
(VAT) on the local purchase of one (1) unit TOYOTA TAMARAW FX Revo with Chassis No.
KF80-8009292 and Engine No. 7K-027-7403, 1999 Model from Toyota Manila Bay Corp. to Mr. William
E. Reynolds, Chief, Office of Regional Procurement/USAID, Embassy of the United States of America. cdrep
"ARTICLE 34
services
xxx xxx xxx"
Code of 1997.
the United States of America or its personnel on their local purchases of goods and/or services it appearing
exemption to Philippine Embassy personnel on their purchase of goods and services in your country. llcd
Hence, the local purchase of one (1) TOYOTA TAMARAW FX Revo, for the personal use of Mr.
William E. Reynolds is exempt from VAT and ad valorem taxes. (BIR Memo dated June 19, 1994; BIR
Ruling No. 333-92 dated October 27, 1992; ITAD Ruling No. 34-99 dated October 18, 1999)
Very truly yours,

Deputy Commissioner
2000
RP-US Article 14
UN-074-2-22-95

6760 Ayala Avenue,
1226 Makati City
Attention: C.P. Noel

Tax Division
Gentlemen :
This refers to your letter dated December 8, 1999 requesting confirmation of your opinion that
gains that may be realized by your client, Goodyear Tire and Rubber Company (Goodyear), from the
proposed transfer of its shares of stock in Philippine Rubber Project Corporation (PRPC) are not subject to
Philippine income tax pursuant to Article 14(2) in relation to Article I of the Reservation Clause of the
RP-US Tax Treaty. cdtai
It is represented that Goodyear is a non-resident foreign corporation duly organized and existing
under the laws of Ohio in the United States; that PRPC is a domestic corporation organized and existing
under Philippine laws with the following capital structure:
Name of Stockholder Nationality No. of Shares

Goodyear Tire and Rubber Co. American 90,000
S.D. McDonald American 4
Lim Wee How Malaysian 11,244
James R. Bugansky American 11,244
German Lichauco Filipino 4
Jonathan Dean American 4
————
TOTAL 112,500
That the individual shareholders are holding the shares in-trust for Goodyear, that your client,
Goodyear transferred their total shareholding to Philippine Rubber Producers Cooperative, a cooperative
duly registered with the Cooperative Development Authority; that based on the balance sheets of PRPC
dated November 25, 1999, its real properties in the Philippines amount to P615,656.10 as against its total
assets of P44,107,648.00 which shows that the real property is less than 50% of the carrying value of the
total assets.
In reply, please be informed that Article 14 of the RP-US Tax Treaty, states:
"ARTICLE 14
provisions of Article 13. LexLib
"Article I
(1) Notwithstanding the provisions of Article 14 relating to capital gains, both the United
consists principally of real property interest located in that country. Likewise, both countries may tax
gain from the disposition of an interest in a partnership, trust or estate to the extent that the gain is
have the meaning it has under the law of the country in which the underlying real property is located.
cdtai
the Philippines. "Principally" means more than 50% of the entire assets in terms of value (Sec. 2, Revenue
The value of the real property interest of the Corporation located in the Philippines as appearing in
its balance sheets as of November 25, 1999 is less than 50% of the value of its total assets.
Such being the case, the gains which will be realized by Goodyear from the sale of its shares of
stock in the PRPC to Philippine Rubber Producers Cooperative shall be taxable only in the United States
pursuant to the aforequoted provision of the RP-US Tax Treaty. Said gain will not be subject to Philippine
income tax. cdlex
However, the said transfer of shares of stock shall be subject to the documentary stamp tax imposed
under Sec. 176 of the Tax Code of 1997.
Very truly yours,

Deputy Commissioner
January 19, 2000
Section 106
Section 108
206-93
Royal Belgian Embassy

Gentlemen :
This refers to your Note Verbale No. A.72/871 dated October 28, 1999 requesting for the issuance
of an updated Certificate of Tax Exemption from value-added tax (VAT) on your local purchase of goods
and rental services. cdrep
"ARTICLE 34
services
xxx xxx xxx
However, under the principle of reciprocity, this Office may grant exemptions to your embassy or
Department of Foreign Affairs dated October 4, 1999 that your Government allows similar exemption to
Philippine Embassy personnel on their purchase of goods and services in your country (BIR Ruling No.
206-93 dated May 11, 1993). cdasia
Hence, the Royal Belgian Embassy is entitled to VAT exemptions on their purchase of local goods
and/or services.
Very truly yours,

Deputy Commissioner
January 19, 2000
Section 106
Section 108
206-93
Embassy of Malaysia
Manila, Philippines
Gentlemen :
This refers to your Note No. BY 114/99 dated August 4, 1999, which was referred to this Bureau by
the Department of Foreign Affair seeking confirmation of your opinion that your Office is exempted from
service tax. This service tax refers to the tax levied on consumers for specific goods purchased and/or
services rendered. LexLib
"ARTICLE 34
services
xxx xxx xxx"
However, under the principle of reciprocity, this Office may grant exemptions to your embassy or
Department of Foreign Affairs dated February 1, 1999 that your Government allows similar exemption to
Philippine Embassy personnel on their purchase of goods and services in your country (BIR Ruling No.
206-93 dated May 11, 1993). llcd
Hence, the Embassy of Malaysia is entitled to VAT exemptions on their purchase of local goods
and/or services.
Very truly yours,

By:

Deputy Commissioner
January 13, 2000
RP-Japan Art. 10 DA-055-2-2-96
Filplas Company Inc.

Rm. 411 Solmac Building
34 Banaue cor. Dapitan Sts.,
Quezon City
Attention: Mr. Enrique John Tan

President
Gentlemen :
This refers to your letter dated August 11, 1999 requesting for a ruling on the correct amount of tax
to be withheld by Filplas Company Inc. (Filplas) on its dividend remittances to Itochu Corporation of
Tokyo, Japan (Itochu-Japan). llcd
It is represented that Itochu-Japan is organized and existing under the laws of Japan; that it was
duly licensed to engage in trade or business in the Philippines through its Manila branch under Securities
and Exchange Commission License No. 507 dated May 19, 1967; that Filplas is a local company with
business address at Solmac Bldg. 34 Banaue cor. Dapitan Sts. in Quezon City; that Itochu-Japan holds
40% of Filplas outstanding capital; that investments to Filplas came directly from Tokyo, Japan; and that
Filplas is planning to declare dividends to its stockholders as of March 31, 1999.
"Article 10
(Dividends)
company which holds directly at least 25 percent either of the voting shares of the company
months immediately preceding the date of payment of the dividends; llcd
(b) ...
In view of the foregoing, and since Itochu-Japan holds forty percent (40%) of the outstanding
capital of Filplas, the dividend remittance to Itochu-Japan is subject to the preferential tax treaty rate of
ten percent (10%) notwithstanding the fact that Itochu has a Philippine branch. This proceeds from the fact
that the investment in Filplas was made independently by Itochu-Japan and not by the Philippine branch.
This being the case, the dividend income cannot be attributed as an ordinary consequence of Itochu's trade
or business in the Philippines (Marubeni Corporation vs. Commissioner of Internal Revenue and Court of
Tax Appeals, G.R. No. 76573, September 14, 1989, 177 SCRA, 500).
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. cda
Very truly yours,

By:

Deputy Commissioner
January 19, 2000
RP-Denmark Art. 12 (2)

ITAD 25-99 131-97
Viva Records Corporation

4th Floor, Viva Entertainment Center
334 E. Rodriguez Sr. Ave., New Manila,
Quezon City
Attention: Ms. Maria Rita R. Bonifacio

Legal Counsel
Gentlemen :
This refers to your letter dated April 8, 1999, requesting for confirmation/ruling on the application
of preferential tax rate to be withheld from royalty remittance of Viva Records Corporation (VRC) to
Mega Records Scandinavia A/S (Mega Records) pursuant to the RP-Denmark Tax Treaty. cda
It is represented that VRC is a domestic corporation organized and existing under the laws of the
Philippines with office address at 4th Flr. VIVA Entertainment Center, 334 E. Rodriguez Sr. Ave., New
Manila, Quezon City; that Mega Records is a non-resident foreign corporation existing under the laws of
Denmark with office address at Indiakaj No. 1, Copenhagen, Denmark DK-2100; that Mega Records is not
engaged in trade or business in the Philippines as per Securities and Exchange Commission certification
dated April 9, 1999; that VRC and Mega Records entered into a license agreement for VRC's use in the
Philippines of master recording of musical works owned and controlled by Mega Records; and that VRC
agreed to pay Mega Records as follows:
1. Advances consisting of the following amounts which shall be non-refundable but

recoupable against Royalties payable hereunder.
Each year’s Advance shall be payable irrespective of the level of recoupment of

the advance paid in preceding years.
Year One $50,000 (fifty thousand) payable on signature

Year Two $70,000 (seventy thousand) payable on or
before 15th September 1998
Year Three $75,000 (seventy five thousand) payable on
or before 15th September 1999
2. Royalties
Singles 20% of PPD (Published Price to Dealers)
EPS 20% of PPD
Albums 24% of PPD
Videograms 24% of PPD
In-house Compilations 24% of PPD
In reply, please be informed that Article 12 (2) of the RP-Denmark Tax Treaty effective January 1,
1998 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. Cdpr
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
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.
Considering that the recipient, Mega Records, is the beneficial owner of royalties arising in the
Philippines, the royalty fees consisting of the Advance and Royalties paid by VRC are subject to the
Philippine tax at the rate of 15% of the gross amount of the royalties.
to be remitted by VRC is subject to ten percent (10%) value-added tax (VAT). Section 4.102-1(b) of
Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 6-97, provides that:
is sufficient evidence in claiming input credit by the licensee." (ITAD 25-99 dated September 15,
1999) LibLex
Very truly yours,

By:

Deputy Commissioner
January 20, 2000
RP-Japan Article 12
234-94

6805 Ayala Avenue
1226 Makati City
Madam:
This refers to your letter dated June 14, 1999 on behalf of your client, NEC Computer Storage
Phils. Inc. (NEC-CSP), requesting confirmation of your opinion that the royalty payments to NEC
Corporation (NEC) which is a resident of Japan is subject to the preferential tax rate of 25% pursuant to
Article 12 of the RP-Japan tax treaty. prcd
It is represented that NEC is a non-resident foreign corporation duly organized and existing under
the laws of Japan, with principal office at 7-1 Sheba 5-chome, Minato-Ku, Tokyo 108-8001 Japan; that
NEC has no permanent establishment in the Philippines as evidenced by its Certificate of
Non-Registration from the Securities and Exchange Commission (SEC) dated August 5, 1999; that NEC
entered into a “Sub-Licensing Agreement" with NEC-CSP, a corporation duly registered with the SEC and
Philippine Economic Zone Authority (PEZA) with office address at 100 Phase 4-Special Economic Zone
Laguna Technopark, Biñan, Laguna, Philippines; that in the said agreement, NEC granted NEC-CSP the
license to use in the Philippines IBM’s technical information related to IBM hard disk drives such as
“Capricorn”, “Titan” and “Janus”; that in consideration, NEC-CSP agrees to pay NEC the technology
royalty of two percent (2%) in 1998 and three (3%) in 1999 and the years following, on all Capricorn,
Titan, Janus and other IBM hard disk drives sold by NEC-CSP; that in addition, a lump-sum royalty for
each type of product; to wit: for Capricorn US$21,250,000.00, payable in fifty one (51) months from
September 1, 1998 to November 30, 2002 at US$416,666.67 per month; for Titan US$20,000,000.00,
payable in 60 months from September 1, 1998 to August 31, 2003 at US$333,333.33 per month; and for
Janus US$20,000,000.00, payable in two installments, US$13 million by the end of August 1999 and
US$7 million within sixty days after the receipt of NEC's invoice; and that the sub-licensing agreement is
duly registered with the Intellectual Property Office of the Department of Trade and Industry under
Certificate of Compliance No. 5-1999-000-38 dated November 5, 1998. cdll
In reply, please be informed that pertinent portions of Article 12 of the RP-Japan Tax Treaty read as
follows:
"Article 12
"1) Royalties arising in a Contracting State and paid to a resident of the other Contracting State
"2) However, such royalties may also be taxed in the Contracting State in which they arise, and
"a) 15 per cent of the gross amount of the royalties if the royalties are paid in respect
broadcasting;
"b) 25 per cent of the gross amount of the royalties in all other cases.
"xxx xxx xxx
"3) The term royalties as used in this Article means payment of any kind received as a
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. cdtai
"xxx xxx xxx
Accordingly, the royalty remittances by NEC-CSP to NEC including the two percent (2%) royalty
fee in 1998 and three percent (3%) in 1999 and the years following, the lump-sum royalty payments
totaling US$61,250,000.00 payable in installment from September 1, 1998 to August 31, 2003 and all
other royalty payments to be agreed upon between the two parties on other products to be manufactured
under this sub-licensing agreement shall be subject to the preferential tax rate of 25% Philippine
income/withholding tax in accordance with the aforequoted provision of the RP-Japan Tax Treaty.
void. cdtai
Very truly yours,

Deputy Commissioner
January 19, 2000
RP-Japan Art. 10 Art. 12
174-95 026-94 ITAD 25-99
APTi-Philippines, Inc.
5th Floor Citibank-Frabelle Bldg.
Madrigal Business Park,
Alabang-Zapote Road,
Muntinlupa City
Attention: Ms. Shiela Marie Carpio-Ma

AVP-Finance/Admin
Gentlemen :
This refers to your letter dated August 9 1999 requesting to use/apply the preferential tax treaty
rates to be withheld on dividend and royalty payments of APTi-Phils. Inc. to Advanced Peripherals
Technologies Inc. (APTi) pursuant to the RP-Japan Tax Treaty. cdlex
It is represented that APti is a non-resident foreign corporation duly organized and existing under
the laws of Japan; that it is neither registered as a corporation nor as a partnership in the Philippines as per
Securities and Exchange Commission's certification dated August 5, 1999; that it owns 131,508 shares or
ninety-four percent (94%) of the issued and outstanding capital stocks of APTi-Phils. Inc., a domestic
corporation duly organized and existing under the laws of the Philippines, and registered with the Board of
Investments (BOI) under Certificate of Registration No. EP95-322 dated December 21, 1995; that on June
23, 1999, the Board of Directors of APTi-Phils. Inc. passed and approved a resolution declaring a cash
dividend equivalent to ten percent (10%) in favor of all stockholders of record as of March 31, 1999,
payable as soon as practicable after completion of the APTi-Phils. Inc. audited financial statements; that
such cash dividend shall be set off against the sub-contracting fees or any other payables due from APTi.
prcd
Furthermore, APTi entered into Technology Transfer Agreement with APTi Phils. Inc. in June 1998
duly registered with the Intellectual Property Office under Certificate of Compliance No. 5-1998-00061
dated August 3, 1998; that APTi will provide technical information with respect to the research and
development of printer and other computer peripherals microcodes, device drivers and software support;
and that APTi-Phils. Inc. shall APTi a royalty in an amount equivalent to five percent (5%) of its net sales
in case the customer is a person or entity other than APTi.
In reply, please be informed that Articles 10 and 12 of the RP-Japan Tax Treaty provide among
others the following:
"Article 10
other Contracting State may be taxed in that other Contracting State. prcd
company which holds directly at least 25 percent either of the voting shares of the company
(b) 25 percent of the gross amount of the dividends in all other cases.
xxx xxx xxx
on the dividends paid by a company, being a resident of the Philippines, registered with the
investment incentives laws of the Philippines to a resident of Japan, who is the beneficial
owner of the dividends, shall not exceed 10 percent of the gross amount of the dividends.
(emphasis supplied) prcd
xxx xxx xxx
"Article 12
according to the laws of that Contracting State, but if he recipient is the beneficial owner of
broadcasting;
on the royalties paid by a company, being a resident of the Philippines, registered with the
investment incentives laws of the Philippines to a resident of Japan, who is the beneficial
owner of the royalties, shall not exceed 10 percent of the gross amount of the royalties.
(emphasis supplied)
Considering that APTi-Phils. Inc. is a resident company of the Philippines registered with the Board
of Investments and engaged in preferred pioneer areas of investments under the investments incentives
laws of the Philippines, its dividend and royalty payments to APTi shall both be subject to the preferential
tax treaty rate of ten percent (10%) which shall be deducted from the gross amount of the dividends and/or
royalties in accordance with the aforementioned provisions of the RP-Japan Tax Treaty. (BIR Ruling
26-94 and 174-95) cdasia
to be remitted by APTi-Phils. Inc. is subject to ten percent (10%) value-added tax (VAT). Sec 4.102-1(b)
of Revenue Regulations No. 7-95 as amended by Revenue Regulations No. 6-97, provides that:
"The VAT on rental and or royalties payable to non-resident foreign corporations or owners
of VAT on such rentals and or royalties in behalf of the non-resident foreign corporation or owner by
filing a separate VAT declaration return for this purpose. The duly validated VAT declaration return
is sufficient evidence in claiming input credit by the licensee." (ITAD 25-99 dated September 15,
199)
This ruling is being issued on the basis of the foregoing facts as presented. However if upon
void. prcd
Very truly yours,

By:

Deputy Commissioner
January 19, 2000
RP-Japan Art. 12 Art. 11

142-95
Mr. Kunihiko Azuma

President & General Manager
FCC (Philippines) Corporation
106 North Science Avenue, Laguna Technopark
Biñan, Laguna
Sir:
This refers to your letter dated July 30, 1999 requesting a ruling to the effect that the interest and
royalty payments to be remitted by FCC (Philippines) Corporation (FCC-Phils.) to FCC Company Ltd. of
Japan (FCC-Japan) shall be subject to preferential tax rate of fifteen per cent (15%) and twenty-five
percent (25%) respectively, pursuant to the RP-Japan Tax Treaty.
It is represented that FCC-Japan is a non-resident foreign corporation, duly organized and existing
under the laws of Japan with principal address at No. 7000-36 Technoland, Hosea-Cho Inasa-Gun,
Shizuoka Prefecture, 431-13, Japan; that it is not registered either as a corporation/partnership in the
Philippines as per certification dated July 20, 1999 issued by the Securities and Exchange Commission;
that FCC-Phils. is a corporation duly organized and existing under the laws of the Philippines; that
FCC-Phils. is registered with the Export Processing Zone Authority (EPZA) as an Export Enterprise per
Certificate of Registration No. 93-55 dated November 15, 1993; that both entered into a License
Agreement dated November 4, 1994; that FCC-Japan granted a non-exclusive and non-transferable right
and license to use the Industrial Property Rights and Technical Information in order to manufacture and
seek the Products and Parts in the territory in accordance with the provisions of the agreement; that
FCC-Phils agreed to pay the three percent (3%) of the difference between the net sales price actually
charged by FCC-Phils. to purchasers of its Products and the gross sales price actually charged by
FCC-Japan for the Parts sold to FCC-Phils.; that both entered into various Loan Agreement whereby
FCC-Japan granted loans to FCC-Phils. amounting to JP¥340,000,000 dated September 19, 1994,
JP¥110,000,000 dated November 8, 1996 and JP¥90,000,000 dated August 8, 1995; that the loans have a
cumulative amount of JP¥540,000,000 payable within within five years on semi-annual installments
subject to 4.7% interest per annum; and that the said loan were acquired to finance the acquisition of
various machinery and equipment for company's operation. LexLib
In reply, please be informed of the following:
1. For Royalties:
Article 12 of the RP-Japan Tax Treaty provides, viz:
"Article 12
broadcasting;
"xxx xxx xxx
"4) The term royalties as used in this Article means payments of any kind received as a
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
"xxx xxx xxx.
Applying the foregoing provision, the preferential tax rate to be withheld by FCC-Phils. on its
royalty payments to FCC-Japan shall be twenty-five percent (25%). (BIR Ruling No. UN-417-27-95) LibLex
2. For Interest:
Article 11 of the RP-Japan Tax Treaty provides, viz:
"Article 11
"1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may
"2) However, such interest may also be taxed in the Contracting State in which they arises, and
"a) 10 per cent of the gross amount of the interest if the interest is paid in respect if
"xxx xxx xxx
"5) The term "interest" as used in this Article means income from debt-claims of every kind,
debentures." cdasia
"xxx xxx xxx.
Applying the foregoing provision, the preferential tax rate to be withheld by FCC-Phils. on its
interest payments to FCC-Japan shall be fifteen percent (15%) pursuant to RP-Japan Tax Treaty. (ITAD
Ruling No. 40-99, dated November 3, 1999)
In view of all the foregoing, FCC-Phils. should withhold 25% and 15% on its royalty and interest
payments, respectively, to FCC-Japan pursuant to RP-Japan Tax Treaty.
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. LexLib
Very truly yours,

Deputy Commissioner
January 19, 2000
RP-Netherlands Article 10 ITAD-32-99
Unilever Philippines, Inc.

Manila, Philippines
Attention: Ms. Anna Maria B. Torres

Senior Financial Accountant
Madam:
This refers to your letter dated November 16, 1999, requesting for the renewal of the authority
previously granted by this Office on October 7, 1999 relative to the availment of the preferential tax treaty
rate of ten per cent (10%) on dividends paid to Mavibel B. V. pursuant to paragraph (2)(a) Article 10 of
the RP-Netherlands Tax Treaty. Cdpr
It is represented that MAVIBEL B.V. is a non-resident foreign corporation with business address at
Weena 455,3013 AL Rotterdam, The Netherlands, with no permanent establishment here in the
Philippines per certification dated July 1, 1999 issued by the Securities and Exchange Commission; that
UNILEVER PHILIPPINES, INC. is a domestic corporation with principal office at 1351 United Nations
Avenue, Manila, Philippines; that UNILEVER PHILIPPINES, INC. is wholly owned by MAVIBEL B.V.
holding 4,918,515 common shares of stock with a total par value of P 245,925,750; that on October 25,
1999, UNILEVER PHILIPPINES, INC. declared cash dividends of P200,000,000.00 out of the retained
earnings of the corporation payable to stockholders in proportion to their respective shares as of December
31, 1998.
In reply, please be informed that pursuant to Article 10 paragraph 2(a) of RP-Netherlands Tax
Treaty provides, viz:
"Article 10
DIVIDENDS
cent of the capital of the company paying the dividends;
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. Cdpr
xxx xxx xxx"
Such being the case, your request for the renewal of your previous authority to avail the preferential
tax treaty rate of 10% on the dividends under consideration is hereby granted. The said tax should be
withheld by Unilever Philippines, Inc. before actual remittance. (ITAD Ruling No. 32-99 dated October 7,
1999)
As requested, this ruling shall likewise apply to future declaration of cash dividends by UNILEVER
PHILIPPINES, INC. in favor of MAVIBEL B. V. for as long as the facts and the conditions under the
above-stated treaty are complied with e.g. that MAVIBEL B.V. holds at least 10% of the capital of
UNILEVER PHILIPPINES, INC.
void. cdrep
Very truly yours,
By:

Deputy Commissioner
2000
Sec. 24 (B)
Sec. 32 (B) (7) (a)
130-95
144-94
Embajada De Panama
Room 501, Victoria Building
Ermita, Manila
Attention: Mr. Patrick Parsons

Consul
Gentlemen :
This refers to your letter dated June 04, 1999, requesting for information on whether Section 24 (B)
of Republic Act 8424 (Rate of Tax on Certain Passive Income) (1) Interests, Royalties, Prizes, and Other
Winnings; (2) Cash and/or Property Dividends is applicable to Diplomatic and Consular Missions in the
Philippines. cdtai
In reply, please be informed that pursuant to Section 32 (B)(7)(a) of the Tax Code of 1997, as
amended, "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 governments, and (iii)
international or regional financing institutions established by foreign governments", and (c) "prizes and
awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or
civic achievement but only if: (i) the recipient was selected without any action on his part to enter the
contest or proceeding; and (ii) the recipient is not required to render substantial future services as a
condition to receiving the prize or award" shall not be included in gross income and shall be EXEMPT
from taxation.
Since diplomatic and consular Missions fall within the purview of the term “foreign government”
as contemplated in the aforequoted provision of the Tax Code, interests on the bank deposits of foreign
embassies as well as cash and/or property dividends, are exempt from income tax and consequently from
the final withholding tax. [BIR Ruling No. 130-95]
However, the interest income on the personal deposits of the personnel of that Embassy is subject
to income tax in accordance with Sec. 24(B)(1) of the Tax Code of 1997. [BIR Ruling No. 130-95]
Moreover, Article 34 of the Vienna Convention on Diplomatic Relations of 1961 exempts

diplomatic agents from all dues and taxes, personal or real, national, regional or municipal, but are
nevertheless subject to the dues and taxes on private income having its source in the receiving State and
capital taxes on investments made in commercial undertakings in the receiving State, e.g., royalties, etc.
However, under the principle of reciprocity, this Office may grant tax exemption to the Embassy of a
Foreign State and to the members of diplomatic missions on those taxes, dues or charges falling under
paragraphs (a) to (f) of Article 34 of the Vienna Convention, provided that they can submit to the
Commissioner of Internal Revenue or his duly authorized representative a copy of the special legislation or
international agreement showing that the said foreign government allows similar tax exemptions to the
Philippine Embassy or its personnel in that foreign country. Thus, upon the certification by the
Department of Foreign Affairs that a certain tax exemption is granted to the Philippine Embassy and its
personnel in a particular host country, the same privilege will also be accorded to the latter’s Embassy and
its personnel in the Philippines. [BIR Ruling No. 087-97 dated August 5, 1997] llcd
Very truly yours,
By:

Deputy Commissioner
January 11, 2000
RP-Australia
002-90
C.L. Manabat & Co.

Penthouse, Salamin Building
Makati City
Attention: Mr. Jose C. Leynes

Partner
Gentlemen :
This refers to your letter dated November 29, 1999 stating that Dyno Nobel Asia Pacific Ltd.
(DNA) is a company organized and existing under the laws of Australia; that on January 1, 1999, the
company entered into a Management Agreement with its affiliate in the Philippines, Dyno Nobel
Philippines, Inc. (DNP); that under the said agreement, DNA shall render certain services to DNP related
to management and marketing operations of DNP; that DNA does not have any office or branch in the
Philippines; that the services that will be provided by DNA under the agreement will be performed
through its personnel who will be sent to the Philippines form time to time; that said personnel will not
stay in the Philippines for a period beyond six (6) months in the aggregate in any taxable year; that for its
services, DNA will be paid by DNP an annual fee equivalent of US%500,000; that you are of the view that
the management fees received by DNA under the above agreement is not subject to Philippine income tax
by virtue of the tax treaty between the Philippines and Australia; that under the treaty, business profits
derived in the Philippines by an Australian resident are taxable only in Australia; and that said profits
should not be taxed in the Philippines unless the Australian resident has a permanent establishment in the
Philippines. Cdpr
Based on the foregoing, you now request for a ruling to the effect that the said management fees is
not subject to Philippine income tax.
In reply, please be informed that in BIR Ruling No. 002-90 dated January 4, 1999, management
fees are treated as business profits or ordinary income of a foreign national. Thus under Article 7(1) of the
RP-Australia Tax Treaty 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.
In connection therewith, Article 5 of the RP-Australia Tax Treaty defines the term "permanent
establishment" to mean a fixed place of business of an enterprise is wholly or partially carried on.
The term likewise encompasses a place of management, a branch, an office, a factory, a workshop,
an oil or gas well, a quarry or any other place of extraction of natural resources; a warehouse, in relation to
a person providing storage facilities for others; and premises used for the purpose of selling goods or
merchandise.
The term likewise is deemed to include a building site or construction or installation project or
supervisory service activities in connection therewith if it lasts more than six months; an assembly or
installation project which exists for more than three months.
Likewise, the term includes a person acting in a Contracting State on behalf of an enterprise of the
other Contracting State (other than an agent of an independent status to whom paragraph 7 applies) shall
be deemed to be a permanent establishment in the first-mentioned State if: a) he has and habitually
exercises in that State an authority to conclude contract on behalf of the enterprise, unless the activities of
such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of
business, would not make this fixed place of business a permanent establishment under the provisions of
that paragraph; 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.
Such being the case, and since DNA does not have a permanent establishment in the Philippines
and as represented the furnishing of services through its employees is for a period aggregating not more
than six months in any taxable year, this Office is of the opinion, and hereby holds, that the management
fees received by DNA from DNP under their Management Agreement is not subject to Philippine income
tax. (BIR Ruling No. 002-90 dated January 4, 1990) cdlex
void.
Very truly yours,
By:

Deputy Commissioner
January 5, 2000
Section 106
Section 108
206-93
Embassy of the Lao People's

Democratic Republic
Manila, Philippines
Gentlemen :
This refers to your Note No. 189/ALM.99 dated November 26, 1999, which was referred to this
Office by the Department of Foreign Affairs requesting for the issuance of a Tax Exemption Certificate
for the rental charges on room accommodation at the Manila Westin Plaza Hotel for the Lao delegation to
the 3rd ASEAN Informal Summit held from November 24 to 28, 1999. cdrep
"ARTICLE 34
"a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services
xxx xxx xxx"
value-added tax (VAT) on its local purchase of goods and services. In other words, purchases by the
Embassy of the Lao People’s Democratic Republic 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, under the principle of reciprocity, this Office may grant tax exemption to your embassy
since your Government allows similar exemption to Philippine Embassy personnel on their purchase of
goods and services in your country (BIR Ruling 206-93 dated May 11, 1993). cdlex
Hence, the Embassy of the Lao People’s Democratic Republic is entitled to VAT exemptions on
their local purchase of goods and/or services.
Very truly yours,
By:

Deputy Commissioner
Endnotes
1 (Popup - Popup)
1. Paragraph 20, p. 141, Commentaries on Article 11 (Interest), Model Tax Convention on Income and on
Capital, June 1998 Condensed Version.
2 (Popup - Popup)
2. Paragraph 21, p. 142, supra; REFER also to The UNITED NATIONS Model Double Taxation Convention
between Developed and Developing Countries [New York, 1980], p. 131.

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December 26, 2000

ITAD RULING NO. 201-00

RP-Japan Article 13 ITAD 40-00

Bengzon Narciso Cudala Jimenez

Attention: Jose V.E. Jimenez

Gains from the Alienation of Property

"xxx xxx xxx

xxx xxx xxx"

Very truly yours,

Commissioner of Internal Revenue

(SGD.) LILIAN B. HEFTI

ITAD RULING NO. 200-00

Sec- 32 (B) (6) (c)

Quisumbing Fernando & Javellana

Attention: Atty. Emmanuel Q. Fernando

1. CAVCIC Caisse d'allocation Vieillesse from Les Cadres de I'industrie et du Commerce

2. Notwithstanding the provisions of paragraph 1, social security pensions paid by a social

"Sec. 32. Gross Income. —

xxx xxx xxx

xxx xxx xxx

(6) Retirement Benefits, Pensions, Gratuities, etc. —

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Very truly yours,

(SGD.) DAKILA B. FONACIER

ITAD RULING NO. 199-00

Castro Cadiz & Carag Law Offices

Attention: Attys. Othelo C. Carag

No. of Shares Paid-In Additional Paid-In

You are now requesting for a confirmation of your opinion that:

GAINS FROM THE ALIENATION OF PROPERTY

1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6,

3. Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of

Commissioner of Internal Revenue

(SGD.) LILIAN B. HEFTI

ITAD RULING NO. 198-00

Sycip Gorres Velayo & Co.

Attention: Rita Asuncion S. Fernandez

"xxx xxx xxx"

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

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"(B) Tax on Nonresident Foreign Corporation. —

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Very truly yours,

Commissioner of Internal Revenue

(SGD.) LILIAN B. HEFTI

ITAD RULING NO. 197-00

RP-Malaysia Art. 5 & 7

Roxas Delos Reyes Laurel & Soriano

Attention: Anna Melissa L. Rosario

Moreover, Article 5 of the above treaty provides as follows:

7. The fact that a company which is a resident of a Contracting State controls or is

Very truly yours,

Commissioner of Internal Revenue

(SGD.) LILIAN B. HEFTI

ITAD RULING NO. 196-00

Attention: Mr. Thomas Wohlfarth

"(i) in connection with the sale on credit of any industrial commercial or

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

"xxx xxx xxx