October 17, 2003 ITAD RULING NO. 157-03 Art. 10, RP-UK BIR Ruling No. ITAD 122-03 Joaquin Cunanan & Company 29th Floor Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: George J, Lavadia Principal Gentlemen : This refers to your letter dated August 12, 2003 on behalf of your client PIC Philippines, inc. (PIC) applying for 15% preferential tax rate on the interest payments made to Pig Improvement Group, Ltd. (PIG Ltd.) pursuant to Article 10 of the RP-UK tax treaty. It is represented that PIG Ltd. is a nonresident foreign corporation duly organized under the laws of the United Kingdom of Great Britain with principal address located in Fyfield Wick, Abingdon, Oxfordzhire 0X13 SNA; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the business in the Philippines as evidenced by the Certificate of Non-Registration issued by the Securities and Exchange Commission on October 23, 2001; that PIC is a domestic corporation duly organized and existing under the laws of the Philippines with principal address located at Unit 402, The Centerprint, Julia Vargas cor. Garnet Drive, Dr. Ortigas, Pasig City; that on August 6, 1998, PIC loaned the amount of Six Hundred Thousand British Pounds (£600,000) from PIG Ltd. by virtue of a Loan Agreement subject to 7.5% interest per annum up to May 31, 1999 and 5% per annum thereafter; and that under the said Agreement, interest shall be payable upon receipt of the invoice. In reply, please be informed that Article 10 of the RP-UK tax treaty provides: “Article 10 INTEREST 1. Interest arising in a Contracting State which is derived and beneficially owned by 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 law of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the interest. 3. Notwithstanding the provisions of paragraph 2 of this Article, the tax charged in the Contracting State in which the interest arises shall not exceed 10 per cent of the gross amount of the interest is paid by a company in respect ofthe public issue of bonds, debentures or similar obligations. 4... 5. The term ‘interest’ as used in this Article means income from Goverment securities, bonds or debentures, including premiums and prizes attaching to such securities, whether or not secured by mortgage and whether or not copying a right to participate in profits, and other debt claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article. 790 100000." Based on the aforequoted provisions, the interest payments will be taxed at a preferential rate of not exceeding ten per cent (10%) if the interest is paid by a company in respect of the public issues of bonds, debentures and similar obligations and, in all other cases, fifteen per cent (15%) of the gross amount of the interest. Such being the case, this Office confirms your opinion and so holds that the interest payments by PIC to PIG Ltd. under the aforementioned Loan Agreement are subject to 15% tax based on the gross amount of the interest pursuant to Article 10 of the RP-UK tax treaty. (B/R Ruling No. ITAD 122-03 dated August 11, 2003) Finally, the Loan Agreement executed by PIG Ltd. and PIC is subject to documentary stamp tax imposed under Section 180 of the Tax Code of 1997. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service