2001 ITAD Rulings

December 26, 2001
ITAD RULING NO. 130-01
RP-US — Article 14 & Reservation Clause

NIRC — Sec. 28 (B) (5) (c) & 176
BIR Ruling No. ITAD-166-00
Castillo Laman Tan Pantaleon

& San Jose Law Offices
The Valero Tower, 122 Valero Street,
Salcedo Village, 1227 Makati City
Attention: Atty. Eva Policar-Bautista

Atty. J. Gregson A. Castillo
Atty. Nini Priscilla D. Sison
Gentlemen :
This refers to your letter dated November 06, 2001 on behalf of your client,
BRIDGESTONE/FIRESTONE, INC. ("BFI"), requesting confirmation that the transfer of shares in
Philtread Holdings Corporation ("Philtread") from BFI to BRIDGESTONE/FIRESTONE NORTH
AMERICAN TIRE, LLC ("BFNAT"), pursuant to a merger of BFI into BFNAT, is a tax-exempt
transaction.
It is represented that BFI is a non-resident foreign corporation duly organized and existing under
the laws of the State of Ohio with principal office at City of Akron, Summit Country, Ohio, U.S.A.; that it
is not registered either as a corporation or as a partnership licensed to engage business in the Philippines
per Certificate of Non-registration issued by the Securities and Exchange Commission (SEC) dated
October 22, 2001; that Philtread, formerly registered under the name of Philtread Tire & Rubber
Corporation per SEC Registration Certificate No. 998 dated March 22, 2001, is a corporation duly
organized and existing under the laws of the Philippines; that its shares of stock are listed in the Philippine
Stock Exchange; that BFI owns Thirteen Million One Hundred Thirty-Seven Thousand and Two Hundred
Eighty-Six (13,137,286) shares of stock in Philtread with a par value of P1.00 per share; that BFNAT, on
the other hand is a non-resident foreign corporation duly organized and existing under the laws of the State
of Delaware, U.S.A.; that BFI and BFNAT wish to enter into a merger in accordance with the laws of the
States of Ohio and Delaware, with BFNAT as the surviving entity; that by virtue of the merger of BFI into
BFNAT, all the rights, privileges, powers, properties, assets and liabilities of BFI will be automatically
transferred to BFNAT and BFI shall cease to exist as a corporate entity; that as a result of the merger, all
the 13,137,286 shares of stock in Philtread owned by BFI will be transferred to BFNAT.
In reply, please be informed that on the basis of the facts as herein represented, no sale, exchange,
or disposition of stock will take place between BFI and BFNAT since there is no effective transfer of
beneficial ownership of BFI's shares of stock in Philtread to BFNAT. In a merger, the absorbing
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 1
corporation (BFNAT) succeeds to the rights and liabilities of the absorbed corporation (BFI) and merely
carries on the identity of the latter. Consequently, no gain will be realized by BFI. (BIR Ruling No.
ITAD-166-00, dated October 30, 2000 citing BIR Ruling No. 466-88 dated September 29, 1988)
Even assuming that gain is deemed to be 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 (NIRC) in
accordance with Article 14 (Capital Gains) of the RP-US tax treaty in relation to its Reservation Clause
which provides, viz:
"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 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 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."
Based on the aforequoted clause, the Philippines may tax 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 Statements of Philtread for the year ended December 31, 2000
disclosed that none of its assets constitute immovable property. In 1994, the company ceased its tire
manufacturing operations to avert further deterioration of its financial condition. Consequently, Philtread
sold certain parcels of land to Sucat Land Corporation, and on February 09, 1995 has entered into an
agreement with Siam Tyre (Singapore) Pte Ltd. and MSF Tire and Rubber Inc. for the sale of the
company's inventories, property, plant and equipment. With this development, the Company's primary
business activity has been changed to that of a holding company.
Accordingly, this Office confirms your opinion and as it hereby holds that any gain assumed to be
realized by BFI on the transfer of its shares of stock in Philtread to BFNAT pursuant to the merger, is not
subject to Philippine income tax. (BIR Ruling No. ITAD-166-00 dated October 30, 2000)
However, the transfer of the shares of stock as a consequence of the said merger is subject to the
documentary stamp tax (DST) imposed under Section 176 of the NIRC. Upon presentation of proof of
payment of the DST, the Corporate Secretary of Philtread can register the transfer of the shares from BFI
to BFNAT in the stock and transfer books of Philtread and cancel and issue new stock certificates in the
name of BFNAT.
This ruling is issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,
Commissioner of Internal Revenue
By:
(SGD.) MILAGROS V. REGALADO

Assistant Commissioner
Legal Service
Bureau of Internal Revenue
December 21, 2001
RP-Japan, Art. 10 BIR Ruling No. ITAD-156-00
Sycip Gorres Velayo & Co.

3rd Flr. Insular Life Building
Cor. Gerardo and Gen. Maxilom Avenues
Cebu City
Attention: Atty. Asuncion S. Fernandez
Tax Division
Gentlemen :
This refers to your letters dated December 18, 2000 and May 29, 2001 requesting confirmation of
your opinion on behalf of the following stockholders for tax treaty relief on the preferential tax rate of
withholding tax on the cash dividends as remitted by Philippine Keno Corporation (PKC) pursuant to
Article 10(2)(a) of the RP-Japan Tax Treaty:
Name of Stockholders Withholding

Tax Rate
1. Kenko Company Limited ("Kenko") 10%

2. JAIC-1 Investment Enterprise Partnership ("JAIC-1") 25%
3. JAIC-2(A) Investment Enterprise Partnership ("JAIC-2(A)") 25%
4. JAIC-2(B) Investment Enterprise Partnership ("JAIC-2(B)") 25%
5. JAIC-2(C) Investment Enterprise Partnership ("JAIC-2(C)") 25%
It is represented that PKC is a domestic corporation organized and existing under Philippine laws
with principal office at Mactan Economic Zone, Lapu-Lapu City; that Kenko is a non-resident corporation
organized and existing under the laws of Japan with principal office at Nishi-Ochiai 3-9-19, Shinjuku-Ku,
Tokyo, Japan; that it is not registered as a corporation/partnership licensed to do business in the
Philippines per certification dated January 30, 2001 issued by the Securities & Exchange Commission;
that JAIC-1, JAIC-2(A), JAIC-2(B) and JAIC-2(C) are investments managed by Japan Asia Investment
Co., Ltd., a non-resident foreign partnership organized and existing under the laws of Japan with principal
office at 7th Floor Kochimachi Tsuruyahchiman Bldg., 4, Kojimachi 2-Chome, Tokyo, Japan; that they are
not registered as corporations/partnerships licensed to do business in the Philippines per certification dated
January 6, 2001 issued by the Securities & Exchange Commission; that on December 5, 2000, the Board
of Directors of PKC declared cash dividends of 10% of the issued and outstanding shares of stock to its
shareholders of records as of October 31, 2000 in the amount of PHP 14,100,000.00 of which
P14,099,869.80 pertains to its non-resident foreign shareholders; that the payment of the said dividends
was made on January 19, 2001; and that for the period April 30, 2000 up to April 30, 2001, the following
are the composition of the shareholdings in PKC by its various shareholders, the corresponding percentage
of ownership and amount of cash dividends derived by them in the said declaration of dividends:
No. of Shares Amount of Shares percentage Amount of Cash

Subscribed Subscribed of Ownership Dividend
(10% of the
issued and
outstanding
shares of stock)
1. Kenko 80,220,280 80,220,280 56.89% P8,022,028.00

2. JAIC-1 24,044,210 24,044,210 17.00% 2,404,421.00
3. JAIC-2(A) 12,244,736 12,244,736 8.68% 1,224,473.60
4. JAIC-2(B) 12,244,736 12,244,736 8.68% 1,224,473.60
5. JAIC-2(C) 12,244,736 12,244,736 8.68% 1,224,473.60
6. Toru. Yamanaka 186 186 0.01% 18.60
7. Asao Sekiai 186 186 0.01% 18.60
8. M. Asami 186 186 0.01% 18.60
9. M. Higashida 186 186 0.01% 18.60
10. C. Lauglaug 186 186 0.01% 18.60
11. K Onodera 186 186 0.01% 18.60
12. Totarou Suga 186 186 0.01% 18.60
TOTAL P141,000,000 P141,000,000 100% P141,000,000
In reply, please be informed that pursuant to 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 the
other Contracting State may be taxed in that other Contracting State.
"2. However, such dividends may also be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the laws of that Contracting State, but if the
recipient is the beneficial owner of the dividends the tax so charged shall not exceed:
"a) 10 per cent of the gross amount of the dividends if the beneficial owner is a
company which holds directly at least 25 per cent either of the voting shares of the
company paying the dividends or of the total shares issued by that company during
the period of six months immediately preceding the date of payment of the
dividends;
"b) 25 per cent of the gross amount of the dividends in all other cases. ADCEcI
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 company to a
Japanese resident at a rate not exceeding 10 percent of the gross amount of the dividends if the latter holds
directly at least 25 percent 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 and at a rate not exceeding 25 percent of the gross amount of the dividends, in all other
cases.
In view of the foregoing, considering that Kenko holds directly 56.89 percent of the outstanding
capital stock of PKC for a period of more than six months before the latter's declaration and payment of
the dividends, the remittance of cash dividends in the amount of P8,022,028.00 by PKC to Kenko shall be
subject to 10 percent withholding tax pursuant to Article 10(2)(a) of the RP-Japan Tax Treaty. (BIR
Ruling No. ITAD 156-00) On the other hand, the cash dividends remitted to JAIC-1, and JAIC-2(A),
JAIC-2(B) and JAIC-2(C), which respectively own less than 25 percent of the outstanding capital stock of
PKC, shall be subject to tax at 25 percent of the gross amount of the dividends.
investigation it will be disclosed that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,
By:
(SGD.) EDMUNDO P. GUEVARA

Deputy Commissioner
Legal and Inspection Group
December 21, 2001
RP-US — Art. 13
RP-Russia — Art. 12
BIR Ruling No. 163-99
Poblador Bautista & Reyes

5th Floor SEDCCO 1 Bldg.
120 Rada cor Legaspi St.,
Legaspi Village, Makati City
Attention: Mr. Gilbert Raymund T. Reyes

Mr. Raymund Martin C. Rodriguez
Ms. Susan Bustos-Jacinto
Gentlemen :
This refers to your letter dated August 14, 2001 requesting confirmation that royalty payments
made by Drake Beam Morin (Philippines), Inc. ("DBM Phil.") to Drake Beam Morin, Inc. ("DBM")
pursuant to their Affiliate License Agreement shall be subject to the preferential tax rate of fifteen percent
(15%) pursuant to the "most favored nation clause" [Article 13(2)(b)(iii)] of the RP-US tax treaty in
relation to Article 12(2) of the RP- Russia tax treaty.
Documents submitted show that DBM is a non-resident foreign corporation duly organized and
existing under the laws of the State of Delaware, USA; that it is not licensed to engage in business in the
Philippines per certification dated July 27, 2001 issued by the Securities and Exchange Commission
(SEC); that DBM is engaged in the business of providing individual outplacement consulting programs
and group outplacement consulting workshops; that it has access to, has developed and uses sophisticated
technology and know-how in executive career continuation programs, spouse relocation counseling,
retirement counseling, entrepreneurial programs, career decision workshops, selection interviews and
other outplacement programs; on the other hand, DBM Phil. is a 100% Filipino-owned corporation duly
organized and existing under Philippine laws, engaged in the business of providing individual and group
outplacement consultancy services; that DBM Phil., desirous of obtaining sophisticated technology and
know-how in the field of outplacement consulting services, entered into an Affiliate License Agreement
with DBM effective for three (3) years commencing on June 01, 2001, whereby DBM has agreed to
provide technology and know-how to DBM Phil. through the licensing of the trade names, trademarks and
technology transfer of the software, manuals, modules and other materials developed by DBM; that in
consideration thereof, DBM Phil. shall pay royalty fees consisting of an initial royalty fee of
US$25,000.00 upon the execution of the Agreement, and a monthly license fee being a percentage of
DBM Phil.'s annual gross revenues as follows: (i) a fee of 7% for annual gross revenue of up to
US$1,500,000.00, and (ii) a fee of 4.5% for annual gross revenues in excess of US$1,500,000.00; that the
Affiliate License Agreement is registered with the Intellectual Property Office (IPO) under Certificate of
Registration No. 5-2001-00055, dated July 30, 2001.
Based on the foregoing, it is now your opinion that pursuant to Article 13(2)[b](iii) 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 Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third State."
(Emphasis supplied)
"(3) The term "royalties" as used in this article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work,
including cinematographic films or films or tapes used for radio or television broadcasting, any
patent, trade mark, design or model, plan, secret formula or process, or other like right or property,
or for information concerning industrial, commercial or scientific experience. The term "royalties"
also includes gains derived from the sale, exchange, or other disposition of any such right or
property which are contingent on the productivity, use, or disposition thereof.
"xxx xxx xxx"
and, in relation thereto, considering that the lowest rate given to a third State is 15% as provided in Article
12(2) of the RP-Russia tax treaty, 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, 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. (Emphasis supplied)
"xxx xxx xxx"
the royalties arising as a consequence of the Affiliate License Agreement between DBM and DBM Phil.,
are subject to 15% final withholding tax.
In reply, please be informed that under the "most favored nation" clause provision of the RP-US tax
treaty [Article 13, (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(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 the right to use, any copyright of literary, artistic or scientific work
including cinematograph films and films and tapes for television or radio broadcasting, any patent,
trademark, design or model, 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.
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 as it was declared that
the payment of taxes was made under different circumstances. Moreover, the aforementioned decision and
its doctrine are 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, shows 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, this Office is of the opinion and so holds that the royalties paid by DBM Phil.
to DBM under the Affiliate License Agreement are subject to tax at the rate of 15% pursuant to the "most
favored nation" provision of the RP-US tax treaty in relation to RP-Russia tax treaty. (BIR Ruling No.
ITAD-121-00 dated August 29, 2000)
Moreover, the said royalty payments shall be subject to 10% value-added tax (VAT) under Section
108(A)(1) and (3) of the Tax Code. Section 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 (BIR Form No. 1600 — Monthly Remittance Return of
Value-Added Tax and Other Percentage Taxes Withheld) for this purpose. The duly validated VAT
declaration/return is sufficient evidence in claiming input tax credit by the licensee."
Accordingly, DBM Phil. shall, before making payment of royalties to DBM, withhold and remit to
this Bureau the value-added tax at the rate of 10% of the contract amount and the income tax at the rate of
15% of the gross amount of royalties.
void.
Very truly yours,
By:

Deputy Commissioner
December 19, 2001
Article 13, RP-Singapore tax treaty

BIR Ruling No. DA-ITAD-101-01
Laya Mananghaya & Co.

Certified Public Accountants and Management Consultants
22/F Anter 1000 Corporate Centre
139 Valero Street, Salcedo Village
Makati City 1227
Attention: Remigio A. Noval

Partner, Tax and Corporate Services
Charlene O. Ang
Assistant Manager, Tax and Corporate Services
Gentlemen :
This refers to your application for relief from double taxation dated November 12, 2001, on behalf
of your client, TECHNITROL SINGAPORE HOLDINGS PTE. LTD. (TSH), requesting confirmation of
your opinion that the gains to be realized by TSH from the proposed sale of its shares of stock in Pulse
Philippines, Inc. (PPI) are exempt from capital gains tax in the Philippines, pursuant to Article 13 of the
RP-Singapore tax treaty and Section 2 of Revenue Regulations No. 4-86.
It is represented that TSH is a non-resident foreign corporation duly organized and existing under
the laws of Singapore; that it is not registered either as a corporation or as a partnership and has not been
licensed to do business in the Philippines per certification dated October 29, 2001 issued by the Securities
and Exchange Commission, that PPI is a domestic corporation organized and existing under the laws of
the Philippines; that its current capital structure is as follows:
Name of Stockholders Nationality No. of shares
Technitrol Singapore Holdings Singapore 324,978

Benjamin C. Zeta Filipino 2
Jose Vicente Y. Ting-ga Filipino 2
Bernadette San Jose Filipino 2
Drew Moyer American 4
Jocobus J.M. VanderKnyff American 4
————
Total Shares 324,992
=======
that the par value for each of the above shares is P100, that TSH intends to transfer its total shareholdings
(i.e., the 324,978) in PPI in favor of Pulse Electronics Singapore Pte. Ltd. (PESPL), a non-resident foreign
corporation domiciled in Singapore; that in consideration for said transfer, TSH shall be issued 37,987,778
shares (fully paid) of PESPL with a par value of S$1.00; that as shown in its audited financial statements
as of December 31, 2000, PPI has the following real properties in the Philippines: ADaSEH
Machinery and equipment P366,188,570

Plant and improvements 67,535,156
Furniture and fixtures and equipment 13,768,047
Transportation equipment 2,326,875
——————
P449,818,648
Less accumulated depreciation 179,692,914
——————
Total P270,125,734
============
and that the real properties in the amount of P270,125,734 as against its total assets of P1,205,680,191
represent 22% of the total assets of PPI which is less than 50% of the carrying value of its total assets.
In reply, please be informed that Article 13 of the RP-Singapore tax treaty provides as follows:
"Article 13
"GAINS FROM THE ALIENATION OF PROPERTY
"1. Gains from the alienation of immovable property may be taxed in the Contracting State
in which such property is situated.
"2. Gains from the alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the other Contracting State
or of movable property pertaining to a fixed base available to a resident of a Contracting State in the
other Contracting State for the purpose of performing professional services, including such gains from
the alienation of such 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.
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."
The gains which will be realized by TSH from the intended sale of its shares of stock in PPI to
PESPL shall be taxable only in Singapore. However, under paragraph 3 of the aforequoted provision, the
Philippines may tax the gains to be 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 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 2000 Audited Financial Statements of PPI disclosed that its real property interest
located in the Philippines does not principally consisted of real property interest located in the Philippines.
Consequently, the gains, if any, shall be taxable only in Singapore since, pursuant to paragraph 4 of
said Article, any capital gains which may be derived by TSH from the alienation of any property, other
than those mentioned in paragraphs 1, 2, and 3 of Article 13 of the RP-Singapore tax treaty shall be
taxable only in the Contracting State of which the alienator is a resident.
Accordingly, your opinion that the intended sale by TSH to PESPL of its shares in PPI is not
subject to capital gains tax is hereby confirmed. (BIR Ruling No. DA-ITAD 101-01 dated October 26,
2001)
However, once the intended sale is consummated and the Share Transfer Agreement of the subject
shares of stock is executed by TSH and PESPL, said Agreement shall be subject to the documentary stamp
tax imposed under Section 176 of the National Internal Revenue Code of 1997.
This ruling shall be without force and effect unless and until an actual agreement or contract, which
stipulations are found to be consistent with the representations made herein, has been entered into by the
parties involved. Thus, upon reaching a binding agreement or contract between and among the parties in
this case, the instrument must be presented to the International Tax Affairs Division of this Bureau within
15 days from its due execution for verification whether the representations made herein upon which this
ruling is based are consonant with the actual facts of the transaction. (BIR Ruling No. DA-ITAD 36-01
dated March 21, 2001)
Very truly yours,
By:

Legal Service
December 19, 2001
Article 13-RP-US tax treaty

Articles 12-RP Netherlands tax treaty
Quisumbing & Torres Law Offices

11th Floor, Pacific Star Building
Makati Avenue cor. Sen. Gil Puyat Ave.
Makati City
Attention: Atty. Jose R. Sandejas
Gentlemen :
This refers to your application for tax treaty relief dated December 12, 2000 on behalf of your
clients, The Pillsbury Company (TPC) and Haagen-Dazs (HD), a Division of The Pillsbury Company,
requesting confirmation of your opinion that royalties paid to them by HD Marketing & Distribution
(Philippines), Inc (HDMD) are subject to the 15% final withholding tax pursuant to the "most-favored
nation" clause of the RP-US tax treaty in relation to the RP-Netherlands tax treaty.
It is represented that both TPC and HD are non-resident foreign corporations organized and existing
under the laws of the State of Delaware, United States of America, with principal office at 200 South Sixth
Street, Minneapolis, Minnesota; that neither TPC nor HD are registered either as a corporation or as a
partnership licensed to do business in the Philippines as per certification issued by the Securities and
Exchange Commission dated June 6, 2001; that TPC is the owner of the trademark "Haagen-Dazs"
(Licensed Trademark) in several countries around the world, including, the Philippines; that TPC licensed
HD the right to use the Licensed Trademark in connection with the manufacture and sale of certain
products; that HD has developed a unique and successful system for selling the Products ("System")
through the operation of retail establishments known as Haagen Dazs Shops ("Shops"); that on June 7,
1996, TPC and HD entered into a Trademark License and Distribution Agreement ("TLDA") with HD
Marketing & Distribution (Philippine), Inc., ("HDMD"), a corporation organized and existing under
Philippine laws; that under the TLDA, HDMD is granted the exclusive license to import, franchise,
sub-franchise, market and sell at wholesale within the Philippines the Products under the Licensed
Trademark and to obtain from TPC technical know-how and information and assistance relating to the
marketing, franchising and sale of the Products; that in consideration for this exclusive license, HDMD
will pay TPC and HD a fee of US$200,000; also on the same date, HD and HDMD entered into a Master
Franchise Agreement ("MFA") whereby HDMD is granted the exclusive right to use the System in the
operation of the Shops, and/or to grant sub-franchises in accordance with existing Philippine laws; that
pursuant to the MFA, HDMD will pay HD the following: (i) fee of US$200,000; (ii) franchise fee for each
Shop of US$20,000 or US$10,000; and (iii) royalty and technical assistance fee of 3% of gross sales; that
the TLDA and the MFA have been registered with the Technology and Transfer Registry of the Bureau of
Patents, Trademarks and Technology Transfer under Certificate of Registration No. 1852.
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
"(1) Royalties derived by a resident of one of the Contracting States from sources within the other
(2) However, the tax imposed by that other Contracting State shall not exceed —
(a) ...
same kind paid under similar circumstances to a resident of a third State. (Emphasis
supplied)
(c) The term "royalties" as used in this Article means payments of any kind received as a
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
The above-cited "most-favored nation" clause of the RP-US tax treaty speaks of 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," which purpose is to grant to the Contracting State treatment no less favorable
than that which has been or may be granted to the "most favored" among other countries. CcAITa
Relative thereto, 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.
"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 percent of the gross amount of the royalties where the royalties are paid by an
enterprise registered, and engaged in preferred areas of activities in that State; and
b. 15 percent of the gross amount of the royalties in all other cases.
xxx xxx xxx"
In the case of Commissioner of Internal Revenue vs. SC. Johnson and Son, Inc. and Court of
favored nation" clause, particularly the phrase "paid under similar circumstances," as referring to the
manner of payment of taxes. A perusal of the RP-US and RP-Netherlands tax treaty provisions on the
elimination of double taxation shows 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, the royalties payable by HD Marketing & Distribution (Philippines) to The
Pillsbury Company and Haagen-Dazs, under their Trademark License and Distribution Agreement
("TLDA") and Master Franchise Agreement ("MFA") are subject to Philippine tax at the rate of fifteen
percent (15%), in accordance with Article 12(2)(b) of the RP-Netherlands tax treaty, in relation to Article
13(2)(b)(iii) of the RP-US tax treaty. (BIR Ruling No. ITAD-151-00, October 23, 2000)
Furthermore, under Section 108 of the Tax Code of 1997, the royalty payments to be remitted by
HD Marketing & Distribution (Philippines) are subject to the ten percent (10%) value added tax. Section
4.102-1(b) of Revenue Regulations No. 7-95 provides that:
filing a separate VAT declaration/return (BIR Form No. 1600-Monthly Remittance Return of
declaration/return is sufficient evidence in claiming input tax credit by the licensee. "
In view of all the foregoing, HD Marketing & Distribution (Philippines) shall be responsible for the
withholding of income tax at the rate of 15% of the gross amount of royalties and the value-added tax at
the rate of 10% of the contract amount.
investigation it shall be discovered that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,
By:

Deputy Commissioner
December 19, 2001
Sec 32 (B) (7) (a), NIRC

BIR Ruling ITAD-22-01
BIR Ruling ITAD 109-00
Embassy of the Russian Federation

1245 Acacia Road, Dasmariñas Village
Makati City
Attention: Mr. Leonty D. Mikhaylov

Second Secretary
Gentlemen :
This refers to your letter dated November 16, 2001, requesting for exemption from payment of
withholding tax charged by United Coconut Planters Bank on the account of the Embassy of the Russian
Federation.
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: TAHCEc
"SEC. 32. Gross Income. —
"(B) Exclusions from Gross Income. — The following items shall not be included in gross
income and shall be exempt from taxation under this Title:
"(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 the 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. (BIR Ruling No. ITAD-109-00)
As regards your request from exemption of your diplomatic personnel from withholding tax on their
accounts (savings/current) maintained with local banks, please be informed that the exemption of
diplomatic agents from all dues and taxes, personal or real, national, regional or municipal, under Article
34 of the 1961 Vienna Convention on Diplomatic Relations does not include exemption from tax on
private income having its source in the receiving State.
Accordingly, your diplomatic personnel are subject to the withholding tax on their accounts
(savings/current) maintained with the local banks.
investigation, it shall be disclosed that the facts are different, then this ruling shall be rendered null and
void.
Very truly yours,
By:

Deputy Commissioner
Legal & Inspection Group
December 13, 2001
Sec 108 & 109 of the Tax Code 1997;

Article 34, Vienna Convention

Makati City
Attention: Mr. Anton V. Saygin
Attaché
Gentlemen :
This has reference to your letter dated November 15, 2001 referred to this Office by the Department
of Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT) and ad
valorem tax on a locally purchased car specifically described hereunder, for the official use of Mr. Anton
V. Saygin, Attaché of the Embassy of the Russian Federation:
Make: Honda Civic (1.6 VTI-S A/T, 4-speed automatic

transmission)
Model Year : 2001
Color : Titanium Silver Metallic
Chassis Number : PADES 56701V001036
Engine Number : PSJD5-1002088
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:
"ARTICLE 34
"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services;
"xxx xxx xxx"
the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption from
value added tax (VAT) and ad valorem taxes on its local purchases of goods and services. In other words,
purchases by that Embassy of goods and/or services shall be subject to the value added tax prescribed
under Sections 106 and 108, and ad valorem taxes under Section 149, both of the National Internal
Revenue Code of 1997.
However, applying the principle of reciprocity, this Office may grant VAT and ad valorem tax
exemption to the Embassy of the Russian Federation or its personnel on their local purchases of goods
and/or services it appearing from the list submitted by the Department of Foreign Affairs as of September
4, 2001 that your Government allows similar exemption to Philippine Embassy personnel on their
purchase of goods and services in your country.
Hence, the local purchase of one (1) Honda Civic 1.6 A/T, for the official use of Mr. Anton V.
Saygin, Attaché of the Embassy of the Russian Federation is exempt from VAT and ad valorem taxes.
(BIR Ruling No. ITAD-180-00 dated November 29, 2001)
Very truly yours,

Legal Service
2001
Article 12, RP-Japan Tax Treaty BIR Ruling No. ITAD 39-99
Nanox Philippines, Inc.

1E-5 Clark Premiere International Park
M.A. Roxas Highway
Clark Special Economic Zone
Clark Field, Pampanga
Attention: Mr. Katsuhiro Takahashi

Director/VP — Administration
Gentlemen :
This refers to your letter dated February 8, 2001 requesting confirmation of your opinion that your
royalty payments to Nanox Corporation (Nanox Japan) are subject to the preferential withholding tax rate
of ten per cent (10%) pursuant to Article 12 of the RP-Japan Tax Treaty.
It is represented that Nanox Japan is a non-resident foreign corporation duly organized and existing
under the laws of Japan; that it is not registered as a corporation/partnership licensed to do business in the
Philippines as per certification dated April 24, 2001 issued by the Securities and Exchange Commission
(SEC); that Nanox Philippines, Inc. (Nanox Philippines) is a domestic corporation duly organized and
existing under the laws of the Philippines and a Board of Investments (BOI)-registered enterprise as per
Certificate of Registration No. EP 99-079; that on April 1, 2000, Nanox Philippines, in its desire to engage
in the business of manufacturing and selling of liquid crystal display products of Nanox Japan and to
acquire the right to use the know-how and other technical information relating thereto, entered into a
Technical and Management Service Agreement with Nanox Japan whereby the latter shall grant Nanox
Philippines the right to use within the Philippines such know-how and to provide consultancy services
relative thereto to Nanox Philippines; that it shall enable Nanox Philippines to manufacture and sell the
Licensed Products of Nanox Japan and develop or expand its crystal display business; that said Agreement
shall continue in full force for ten (10) years and shall be automatically renewed for another ten (10) year
period thereafter; that in consideration for the grant of such technology and privilege, Nanox Japan shall
be entitled to receive running royalty of two per cent (2%) of the net sales of the Licensed Products during
the same royalty period; that the term “net sales” refers to the invoiced amount of the Licensed Products
sold by Nanox Philippines; and that said Agreement is covered by Certificate of Compliance No.
5-2001-00029 issued by the Intellectual Property Office (IPO).
In reply, please be informed that Article 12 of the RP-Japan Tax Treaty provides as follows:
“Article 12
“(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting
State may be taxed in that other Contracting State.
“(2) However, such royalties may also be taxed in the Contracting State in which they arise,
and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed:
(a) 15 per cent of the gross amount of the royalties if the royalties are paid
in respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;
(b) 25 per cent of the gross amount of the royalties in all other cases. DHcSIT
“(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the royalties paid by a company, being a resident of the Philippines, registered with
the Board of Investments and engaged in preferred pioneer areas of investment under the
investment incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of
the royalties, shall not exceed 10 per cent of the gross amount of the royalties. (Emphasis supplied)
“(4) The term “royalties” as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work
including cinematograph films and films or tapes for radio or television broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience.”
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 and engaged in preferred
pioneer area of investment, 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 royalties.
Such being the case, since Nanox Philippines is a BOI-registered enterprise and engaged in
preferred pioneer area of investment as per Certificate of Registration No. EP 99-079, this Office is of the
opinion and so holds that the royalty fees to be paid for the use of the know-how and other technological
information relating to the manufacturing and selling of liquid crystal display products of Nanox Japan are
subject to the preferential tax rate of 10% based on net sales of the Licensed Products sold by Nanox
Philippines under Article 12(3) of the RP-Japan Tax Treaty. (BIR Ruling No. 39-99 dated November 3,
1999 in relation to BIR Ruling No. 134-96 dated November 27, 1996)
Finally, under Section 108(A)(1) and (3) of the Tax Code, such royalty payments are subject to the
10% value-added tax (VAT). Accordingly, Nanox Philippines shall, before making payment of royalties to
Nanox Japan, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate VAT
return using BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage
Taxes Withheld) for and on behalf of Nanox Japan. The duly validated VAT declaration/return is
sufficient evidence for Nanox Philippines in claiming input tax credit. [Section 4.102.1(b) of Revenue
Regulations No. 7-95]
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 10, 2001

Embassy of Italy
6th Floor, Zeta Building
191 Salcedo Street
Legaspi Village
Makati City
Attention: Mr. Angelo Antonio Cartone

Administrative/Technical Staff Member
Gentlemen :
This has reference to your letter dated October 9, 2001 referred to this Office by the Department of
Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT) on a locally
purchased car specifically described hereunder, for the personal use of Mr. Angelo Antonio Cartone,
Administrative/Technical Staff Member of the Embassy of Italy:
Make : KIA 4D Sportage

Model Year : 1995
Color : Brave Blue/grey
Chassis Number : KNEJA5535T43
Engine Number : FE729338
"ARTICLE 34
services;
"xxx xxx xxx"
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 of the National Internal Revenue Code of 1997.
However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
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.
Hence, the local purchase of one (1) KIA 4D Sportage for the personal use of Mr. Angelo Antonio
Cartone is exempt from value-added tax (VAT). (BIR Ruling No. 206-93 dated May 11, 1993)
Very truly yours,

Legal Service
December 6, 2001
RP-JAPAN — Protocol par. 5

Sumitomo Corporation
35th Floor Philamlife Tower
8767 Paseo de Roxas, Makati City
Attention: Mr. Kenichi Onitsuka

Senior Deputy General Manager
Gentlemen :
This refers to your letter dated June 20, 2001, seeking confirmation of your opinion that the profits
to be remitted by your office, SUMITOMO CORPORATION, MANILA (Sumitomo Manila), to your head
office, SUMITOMO CORPORATION, JAPAN (Sumitomo Japan) is subject to the preferential tax rate of
ten (10%) percent pursuant to paragraph 5 of the Protocol of the RP-Japan Tax Treaty.
It is represented that Sumitomo Japan is a corporation duly organized and existing under and by
virtue of the laws of Japan with business address at 8-11, Harumi, 1-Chome, Chuo-ku, Tokyo 104-8610,
Japan; that as per License No. 492 dated March 20, 1967 issued by the Philippine Securities and Exchange
Commission (SEC), said corporation is licensed to engage in the importation, exportation and sale of all
kinds of commodities and to act as commission and commercial brokers, etc. in the Philippines thru its
branch office, Sumitomo Manila.
In reply, please be informed that paragraph 5 of the Protocol of the RP-Japan Tax Treaty provides,
viz:
"Protocol
xxx xxx xxx
"5. Nothing in the Convention shall be construed as preventing the Republic of the
Philippines from imposing on the earnings (other than those derived from the operation of ships or
aircraft in international traffic) of a company being a resident of Japan attributable to a permanent
establishment which it has in the Republic of the Philippines, a tax in addition to the tax which would
be chargeable on the income of a company being a resident of the Republic of the Philippines,
provided that any additional tax so imposed shall not exceed 10 per cent of the amount of the part of
such earnings which is remitted abroad. For the purposes of this paragraph, the term "earnings"
means the amount remaining after deducting from the profits attributable to a permanent
establishment in the Republic of the Philippines in a year and years preceding that year all taxes other
than the additional tax referred to in this paragraph, imposed on such profits by the Republic of the
Philippines. (emphasis supplied)
Based on the afore-quoted provisions, this Office is of the opinion and so holds that the profits to be
remitted by Sumitomo Manila to its head office Sumitomo Japan are subject to the preferential tax rate of
10% of such profits remitted abroad. The fifteen (15%) percent tax rate prescribed under Section 28(A)(5)
of the National Internal Revenue Code of 1997 imposed on the profits remitted by a branch to its head
office abroad does not, therefore, apply in the instant case. (BIR Ruling No. ITAD-158-00, BIR Ruling
No. 138-89)
This ruling is issued on the basis of the foregoing representations. However, if upon investigation it
shall be disclosed or discovered that the facts are different, then this ruling shall be considered null and
void. ETCcSa
Very truly yours,
(SGD.) RENE G. BAÑEZ

Commissioner
December 6, 2001

Embassy of the State of Qatar

No. 1601 Cypress Street,
Dasmariñas Village,
Makati City
Attention: H.E. Saleh Ibrahim Al-Kuwari

Ambassador
Gentlemen :
This has reference to your letter dated August 2, 2001 referred to this Office by the Department of
Foreign Affairs (DFA), requesting for exemption from payment of value-added tax (VAT) on a locally
purchased car, one (1) unit of 2001 Toyota Revo SR A/T 2.0, for the personal use of H.E. Saleh Ibrahim
Al-Kuwari, Ambassador of the Embassy of the State of Qatar, specifically described as follows:
Type of Use: Personal

Make: Toyota Revo SR A/T 2.0
Model Year: 2001
Color: Burgundy
Chassis Number: RZF81-4001784
Engine Number: 1RZ-2602626
"ARTICLE 34
services;
"xxx xxx xxx"
the State of Qatar or its personnel on their local purchases of goods and/or services it appearing from the
list submitted by the Department of Foreign Affairs that your Government allows similar exemption to
Philippine Embassy personnel on their purchase of goods and services in your country.
Hence, the local purchase of one (1) Toyota Revo SR A/T, for the personal use of H.E. Saleh
Ibrahim Al-Kuwari, Ambassador of the Embassy of the State of Qatar is exempt from value-added tax
(VAT). (BIR Ruling No. 206-93 dated May 11, 1993)
Very truly yours,

Legal Service
December 4, 2001


Makati City
Attention: Mr. Leonty D. Mikhaylov

Second Secretary
Gentlemen :
This has reference to the Indorsement letter dated October 8, 2001 referred to this Office by the
Department of Foreign Affairs, Office of Protocol, requesting for exemption from payment of value added
tax (VAT) on the local purchase of one (1) Nissan Frontier 4x4 Pick-up A/T specifically described as
follows:

Make: Nissan Frontier 4x4
Model Year: 2001
Chassis Number: CVRULDFD22-A76193
Engine Number: QD32-137510
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the
goods and services;
"xxx xxx xxx"
Revenue Code of 1997
exemption to the Embassy of the Russian Federation or its personnel on their local purchases of goods
and/or services it appearing from the list submitted by the Department of Foreign Affairs as of February
Hence, the local purchase of one (1) Nissan Frontier 4x4 Pick-up for the personal use of Mr.
George Ivanov, Second Secretary of the Embassy of the Russian Federation is exempt from VAT and ad
valorem. (BIR Ruling No. ITAD-180-00 dated November 29, 2000)
Very truly yours,

Legal Service
November 29, 2001
RP-Japan Tax Treaty — Art. 10

BIR Ruling No. ITAD 7-01
Joaquin Cunanan & Co.

8767 Paseo de Roxas
1226 Makati City
Attention: Atty. George J. Lavadia

Principal
Tax Services Department
Gentlemen :
This refers to your letter dated June 6, 2001 on behalf of your client, Nippon Express Philippines
Inc. (NEPC), requesting for a ruling that the cash dividends to be remitted by NEPC to its parent company,
Nippon Express Co. Ltd. (Japan) (NECL) are subject to the preferential tax rate of 10% pursuant to the
RP-Japan Tax Treaty.
It is represented that NECL is a non-resident foreign corporation duly organized and existing under
the laws of Japan with business address at 3-12-9, Sotokanda Chiyoda-ku, Tokyo, Japan; that it is not
registered either as a corporation or as a partnership licensed to do business in the Philippines per
Securities and Exchange Commission certificate dated April 26, 2001; that NEPC is a corporation duly
organized and existing under the laws of the Philippines with business address at Suite 2701, Yuchengco
Tower, RCBC Plaza, 6819 Ayala Ave., Makati City; that NEPC has an authorized capital of Two Hundred
Twenty Five Million Pesos (P225,000,000.00) divided into: (a) one million one hundred six thousand six
hundred thirteen (1,106,613) Class "A" Preferred shares with a par value of Ten Pesos (P10.00) each; and
(b) seven hundred thirty seven thousand seven hundred three (737,703) Class "B" Common shares with a
par value of Two Hundred Ninety Pesos (P290.00) per share; and that out of the total authorized capital
stock, the following shares are outstanding: (a) three hundred nine thousand eight hundred thirty seven
(309,837) Class "A" Preferred shares, and (b) two hundred six thousand five hundred fifty eight (206,558)
Class "B" Common shares, which represent 40% of the outstanding voting shares of stock and are
owned/held by NECL.
"Article 10
paying the dividends is a resident, and according to the laws of that Contracting State, but if the
"a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company
which holds directly at least 25 per cent either of the voting shares of the company paying the
dividends or of the total shares issued by that company during the period of six months immediately
preceding the date of payment of the dividends;
"b) 25 per cent of the gross amount of the dividends in all other cases.
"The provisions of this paragraph shall not affect the taxation of the company in respect of the
profits out of which the dividends are paid.
"3. ". . .
the distribution is a resident.
"xxx xxx xxx"
Based on the above, the Philippines may tax the dividends paid by a company which is a resident
thereof to a company which is a resident of Japan at a rate not exceeding 10 per cent if the last-mentioned
company holds directly at least 25 per cent either of the voting shares or of the total shares of the
first-mentioned company during a period of six months immediately preceding the date of payment of the
dividends.
In view of the foregoing, since NECL holds directly 40% of the voting shares of NEPC during a
period of six months before the latter declared dividends, your opinion that the cash dividends to be
remitted by NEPC to NECL are subject to the 10% preferential tax rate under the Philippines-Japan Tax
Treaty is hereby confirmed.
It is understood that the obligations to deduct and withhold the tax arises at the time that the cash
dividend is paid or payable, whichever comes first. The term "payable" refers to the date the obligation
becomes due, demandable or legally enforceable. Accordingly, the obligations to deduct and withhold the
tax arise at the time the cash dividends become payable in accordance with the terms of the resolution of
the Board of Directors. Also, the due date is within 10 days from end of month that it becomes paid or
payable.
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 29, 2001
RP-US/RP-Denmark Article 13/12

Punongbayan & Araullo

20th Floor, Tower 1
The Enterprise Center
6766 Ayala Avenue
1200 Makati City
Attention: Mr. Vic C. Mamalateo

Tax Partner
Gentlemen :
This refers to your letter dated May 30, 2000, on behalf of Swift Textiles, Inc. (Swift), requesting
for confirmation of your opinion that the tax rate for the royalty payments made by Litton Mills, Inc.
(Litton) to Swift is 15% pursuant to Article 13 of the RP-US Tax Treaty.
It is represented that Swift is a non-resident foreign corporation organized and existing under the
laws of the United States of America engaged in the production of denim and denim-related products, with
office address at Five Concourse, Parkway, Suite 2300, Atlanta, GA 30328; that Litton is a domestic
corporation with office address at Bo. Rosario, Pasig City, 1609 Philippines, registered with the Board of
Investment as an expanding producer of woven fabrics which is a preferred area of activity on a
non-pioneer status under Certificate of Registration No. EP 94-641 issued on December 29, 1994 and BOI
certification dated October 4, 2001; that Swift is neither registered nor licensed to do business in the
Philippines as a corporation or partnership per Securities and Exchange Commission certification dated
October 24, 2000; that Swift entered into a Technical Assistance and Licensing Agreement (TALA) and
Marketing and Sales Agreement (MSA) with Litton; that both agreements were covered by a Certificate of
Compliance No. 5-1999-00078 issued on September 8, 1999 with 10 years validity by the Intellectual
Property Office of the Department of Trade and Industry; that under the TALA, Swift granted Litton the
exclusive right to use the denim technology within the Philippines and has also provided Litton with
technical services that will enable Litton to utilize the denim technology subject to the payment of royalty;
that, on the other hand, Litton is granted under the MSA the exclusive license to use the Swift trademark
and Swift's customer lists, marketing, merchandising and distribution know-how and expertise within the
Philippines in consideration for the payment of royalty; and that under both agreements, Litton is required
to withhold the corresponding tax on the royalty payments.
In reply, please be informed that Article 13 of the RP-US Tax Treaty provides:
"Article 13
"ROYALTIES
"1. Royalties derived by a resident of one of the Contracting States from sources within the other
"2. However, the tax imposed by that other Contracting State shall not exceed —
a) In the case of the United States, 15 percent of the gross amount of the royalties, and
b) In the case of the Philippines, the least of: ATcEDS
"(i) 25 percent of the gross amount of the royalties,
engaged in preferred areas of activities, and (emphasis supplied)
''(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"
Based on the foregoing, royalty payments to a company which is a resident of the United States of
America (USA) and which does not have a permanent establishment in the Philippines may be taxed at a
preferential tax rate not exceeding fifteen per cent (15%) of the gross amount of royalties if the payor
Philippine company is a Board of Investments (BOI) registered enterprise engaged in preferred areas of
activities.
Such being the case, since Litton Mills, Inc. is a BOI-registered enterprise engaged in preferred
areas of activities, the royalty fees paid by Litton to Swift are subject to the preferential tax rate of 15
percent based on the gross amount of royalties pursuant to the RP-US Tax Treaty. (BIR Ruling No. 207-82
dated June 28, 1982)
Further, under Section 108(A) of the 1997 Tax Code, the payments to be remitted by Litton to Swift
are subject to 10% Value-Added Tax (VAT). Accordingly, Litton shall be responsible for the payment of
VAT on behalf of Swift by filing a separate VAT declaration/return using BIR Form 1600 (Monthly
Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). The said return can be
used by Litton as evidence in claiming input tax credit. [Sec. 4.102-1(b), Revenue Regulations No. 7-95]
In fine, Litton shall be responsible for the withholding of the income tax at the rate of 15% of the
gross amount of the royalties and the value-added tax at the rate of 10% of the contract price.
This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it shall
be discovered that the facts are different, then this ruling shall be considered null and void.
Very truly yours,
By:
(SGD. ) EDMUNDO P. GUEVARA

Deputy Commissioner
November 27, 2001
RP-US-Article 13
RP-Denmark — Article 12
McCormick Philippines, Inc.

145 Panay Avenue, Quezon City
Attention: Ms. Rebecca Ann K. Sy

Treasurer
Gentlemen :
This refers to your letter dated July 23, 2001 requesting confirmation that your royalty payments to
McCORMICK & COMPANY, INC. ("MCI") are subject to the withholding tax rate of fifteen percent
(15%) pursuant to the "most-favored-nation" clause [Article 13(2)(b)(iii)] of the RP-US tax treaty in
relation to Article 12(2) of the RP-Denmark tax treaty.
It is represented that MCI is a non-resident foreign corporation duly organized and existing under
and by virtue of the laws of the State of Maryland, engaged in the business of manufacturing and selling
spices, herbs, seasoning blends, sauces, extracts, flavors and other specialty food products; that it is not
licensed to engage in business in the Philippines per the Securities and Exchange Commission (SEC) letter
dated July 04, 2001; that McCORMICK PHILIPPINES, INC. ("MPI"), on the other hand, is a corporation
duly organized and existing under and by virtue of the laws of the Philippines; that on April 10, 1992, MCI
and MPI entered into a License Agreement whereby the former granted the latter the following: a)
exclusive license to use the "McCormick's Trademarks", b) exclusive license to use such know-how,
technology and other confidential information, and c) such technical assistance as may be necessary to
enable MPI to manufacture the licensed products; that in consideration of the aforementioned grants, MPI
will pay MCI technical assistance fees equivalent to $350 per day for each hour of assistance provided by
MCI to MPI in excess of 10 days of assistance per year during the term of the Agreement, and license fees,
as defined in Section 2(b) of the Agreement.
Based on the foregoing, 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.
(a) ...
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-Denmark tax treaty which 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.
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
including cinematographic films and films and tapes for television or radio broadcasting, any patent,
trademark, design or model, plan, secret formula or process, or for information concerning industrial,
commercial or scientific experience, and for the use of, or the right to use, industrial, commercial or
scientific equipment in connection therewith.
"xxx xxx xxx"
the royalty payments made by MPI to MCI under the aforementioned License Agreement shall be subject
to the withholding tax rate of 15% pursuant to the most-favored-nation clause of the RP-US tax treaty in
relation to the RP-Denmark 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 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. Corollary thereto, the RP-US and RP-Denmark tax treaties, particularly their provisions on the
avoidance of double taxation, show a-similarity on the manner of payment of taxes, that is, the allowable
Such being the case, this Office confirms your opinion and so holds that the royalty payments to
MCI are subject to the withholding 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-Denmark tax treaty. (BIR Ruling No.
ITAD-123-00)
Moreover, the said royalty payments shall be subject to the 10% value-added tax (VAT) under
Section 108(A)(1) and (3) of the Tax Code, as implemented by Section 4.102-1(b) of Revenue Regulations
No. 7-95, viz:
filing a separate VAT declaration/return (BIR Form No. 1600 — Monthly Remittance Return of
Accordingly, MPI shall be responsible for the withholding of income tax at the rate of 15% of the
gross amount of royalties and the value-added tax at the rate of 10% of the contract amount.
void.
Very truly yours,
By:

Deputy Commissioner
November 8, 2001
RP-France, Art. 13;

Sec. 176, Tax Code of 1997
Quisumbing & Torres Law Office

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

and
Atty. Jose Jaime V. Cruz
Gentlemen :
This refers to your letter dated March 26, 2001 on behalf of your client, Suez Lyonnaise Des Eaux
(SLDE), requesting confirmation of your opinion that the capital gains derived by SLDE from the sale of
shares of the capital stock of Lyonnaise Des Eaux Philippines, Inc. (LDEP) to Lyonnaise des Eaux (LDE)
are exempt from the payment of capital gains tax pursuant to Article 13 of the RP-France Tax Treaty.
It is represented that SLDE is a non-resident foreign corporation duly organized and existing under
the laws of France with office address at 1 rue d" Astorg — 75008 Paris; that it is not registered either as a
corporation/partnership licensed to do business in the Philippines per certification issued by the Securities
and Exchange Commission dated February 1, 2001; that LDEP is a corporation organized and existing
under the Philippine laws with office address at Units 801 and 802, 8th Floor, The Taipan Place, Emerald
Avenue, Ortigas Centre, Pasig City; that LDE is a non-resident foreign corporation duly organized and
existing under the laws of France with office address at 18, square Edouard VII — 75009 Paris; that as of
December 31, 2000, SLDE is the stockholder of record of one hundred percent (100%) of the outstanding
capital stock of LDEP equivalent to 52,800 shares with a par value of P100.00 per share; that on the same
date, SLDE assigned its LDEP's 52,800 shares in favor of LDE.
In reply, please be informed that Article 13 of the RP-France 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
or from the alienation of shares or comparable interest in a real property cooperative or in a company
the assets of which consist principally of immovable property, may be taxed in the Contracting State
in which such property is situated. (emphasis supplied)
"(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 any property other than those mentioned in paragraphs 1
and 2, shall be taxable only in the Contracting State of which the alienator is a resident."
Under the aforequoted provisions, capital gains derived by SLDE from the transfer of its shares of
stock in LDEP to LDE is generally taxable in France. However, paragraph 1 of the same 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 interests located in the Philippines. "Real Property Interest" means 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 2000 Audited Financial Statement of LDEP disclosed that its net property and
equipment located in the Philippines is valued at Php9,003,126 representing only 7.92% or less than fifty
percent (50%) of its total assets of Php113,611,585, thereby making the assets of LDEP not consisted
principally of real property interest located in the Philippines.
Accordingly, your opinion that the assignment and transfer by SLDE of its shares in LDEP to LDE
is not subject to Philippine income tax is hereby confirmed.
However, a certificate of authority to register the said transaction in the books of LDEP must be
secured. Thus, SLDE, 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 in order for the latter to
issue a Certificate Authorizing Registration of the said shares of stock in favor of LDE.
Moreover, 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. ITAD 38-00 dated February 4,
2000)
Upon presentment of proof of payment of the documentary stamp tax, the Corporate Secretary of
LDEP can register in the Stock and Transfer Book the shares from SLDE to LDE.
This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall
Very truly yours,
By:

Legal Service
November 8, 2001
Art. 13, RP-Singapore

Sec. 176, NIRC
Padilla Law Office

7th Floor, Padilla-De Los Reyes Bldg.
232 Juan Luna Street, Binondo, Manila 1006
Attention: Atty. Sabino Padilla, Jr.

Gentlemen :
This refers to your letter dated October 26, 2001 requesting confirmation of your opinion to the
effect that the proposed sale by your client, Development Bank of Singapore, Ltd. (DBS Singapore), of its
shares of stock in DBS Bank Philippines (DBS Philippines) to BPI Family Savings Bank (BPI) is not
subject to capital gains tax pursuant to the RP-Singapore tax treaty.
It is represented that DBS Singapore is a non-resident foreign corporation duly organized and
existing under the laws of Singapore with principal office address at 6 Shenton Way, #40-00, DBS
Building Tower One, Singapore 068809; that it is not registered either as a corporation or as a partnership
licensed to do business in the Philippines per certification dated October 19, 2001 issued by the Securities
and Exchange Commission; that DBS Philippines and BPI are corporations duly organized and existing
under the laws of the Philippines; that DBS Singapore is the duly registered stockholder of record and
owns Seventy One and 71/100 percent (71.71%) of the issued and outstanding capital stock of DBS
Philippines, equivalent to Nineteen Million Four Hundred Seven Thousand Seven Hundred Seventy Nine
(19,407,779) shares of stock, with a par value of One Hundred Pesos (P100.00) per share; that DBS
Singapore also recently acquired an additional Seven Million Six Hundred Fifty Six Thousand Three
Hundred Fifty Four (7,656,354) shares of stock of DBS Philippines from other stockholders of the latter,
also with a par value of One Hundred Pesos (P100.00) per share; that in view of the aforementioned
additional acquired shares of stock of DBS Singapore, the total shareholdings of DBS Singapore in DBS
Philippines is now Twenty Seven Million Sixty Four Thousand One Hundred Thirty Three (27,064,133)
shares of stock, representing 100% of the total outstanding capital stock of DBS Philippines; and that by
virtue of the agreement dated August 15, 2001 executed by DBS Singapore and BPI, DBS Singapore
proposed to sell to BPI the aforementioned shares in DBS Philippines for and in consideration of the
amount of P58.60 per share, equivalent to an aggregate amount of P1,585,958,193.80.
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
2. Gains from the alienation of movable property forming part of the business property of a
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." (emphasis
supplied) SCIcTD
The gains which will be realized by DBS Singapore from the proposed sale of its shares of stock in
DBS Philippines to BPI shall be taxable only in Singapore. However, under paragraph 3 of the
aforequoted provision, the Philippines may tax the gains to be 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 2000 Audited Financial Statements of DBS Philippines disclosed that its real
property interest located in the Philippines is only 3.44% of its total assets, thereby making the assets of
DBS Philippines not principally consisted of real property interest located in the Philippines.
Consequently, the gains, if any, shall be taxable only in Singapore since, pursuant to paragraph 4 of
the said Article, "any capital gains which may be derived by DBS from the alienation of any property,
other than those mentioned in paragraphs 1, 2, and 3 of Article 13 of the RP-Singapore tax treaty shall be
taxable only in the Contracting State of which the alienator is a resident."
Accordingly, your opinion that the proposed sale by DBS Singapore to BPI of its shares in DBS
Philippines is not subject to capital gains tax is hereby confirmed. (ITAD Ruling No. 101-01 dated
October 26, 2001)
However, once the proposed sale is consummated and the Deed of Assignment of the subject shares
of stock is executed by DBS Singapore and BPI, the Deed of Assignment shall be subject to the
documentary stamp tax imposed under Section 176 of the National Internal Revenue Code of 1997.
void.
Very truly yours,
By:

Legal Service
November 5, 2001

Embassy of the Republic of Korea

10TH Floor, The Pacific Star Building,
Makati Avenue, Makati City
Attention: Hwang Seung-hyun

Counsellor
Gentlemen :
This has reference to your letter dated October 10, 2001 referred to this Office by the Department
of Foreign Affairs (DFA), requesting for the exemption from value-added tax (VAT) for a locally
purchased car, one (1) unit of 2002 Mitsubishi Adventure Super Sport A/T, for the personal use of Hwang
Seung-hyun, Counsellor of the Embassy of the Republic of Korea specifically described as follows:

Make: Mitsubishi Adventure Super Sport A/T
Model Year: 2002
Color: Imola Red/Silver Mist
Chassis Number: PAEVB2WLR1B001995
Engine Number: 4G63A-B6650
"ARTICLE 34
services;
"xxx xxx xxx"

the Republic of Korea or its personnel on their local purchases of goods and/or services it appearing from
the list submitted by the Department of Foreign Affairs that your Government allows similar exemption to
Hence, the local purchase of one (1) Mitsubishi Adventure Super Sport A/T, for the personal use of
Mr. Hwang Seung-hyun is exempt from value-added tax (VAT). (BIR Ruling No. ITAD-183-00 dated
December 7, 2000)
Very truly yours,

Legal Service
October 30, 2001
RP-UK Tax Treaty — Art. 12

Tax Code of 1997 — Sec. 176
BIR Ruling No. ITAD — 44-00

8767 Paseo de Roxas
1226 Makati City
Attention: Ms. Tomasa H. Lipana

Managing Partner Tax Services
Gentlemen :
This refers to your application for relief from double taxation dated May 29, 2000, on behalf of
Whessoe LGA Technology Limited (WLTL), requesting confirmation of your opinion that the capital
gains derived by WLTL from the sale of its shares of stocks in Whessoe Philippine Construction Inc.
(WPCI) are exempt from Philippine capital gains tax, pursuant to the RP-UK Tax Treaty.
It is represented that WLTL is a corporation duly organized and existing under the laws of the
United Kingdom with business address at Brinkburn Road, Darlington, United Kingdom; that WLTL is
not registered either as a corporation or as a partnership and has not been licensed to do business in the
Philippines as evidenced by a Certificate of Non-Registration issued by the Securities and Exchange
Commission dated April 17, 2001; that WPCI is a corporation organized and existing under the laws of the
Philippines with business address at Unit 1001-88 Corporate Centre, Valero St. corner Cedeño St.,
Salcedo Village, Makati City; that WLTL is a registered owner of five thousand two-hundred (5,200)
shares (inclusive of two shares held by nominee directors) with a par value of P100.00 per share., in
WPCI; and that pursuant to a Share Purchase Agreement executed on May 17, 2000, WLTL transferred all
its shares of stocks in WPCI to Messrs. John Tate and Kay Bracewell.
In reply, please be informed that Article 14 of the RP-UK 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 Contracting State in which such property is situated.
"2. Capital gains from the alienation of movable property forming part of 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 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 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 sale of the subject shares of stock is not among those mentioned
in paragraphs 1, 2 and 3, the gains derived by WLTL, a resident of the United Kingdom (UK), from the
sale of shares of stock in WPCI are not subject to the capital gains tax imposed under Section 28(B)(5)(c)
of the Tax Code of 1997, but subject to tax only in UK. (BIR Ruling No. 011-87)
However, a certificate of authority to register the said transaction in the books of WPCI must be
secured. Thus, WLTL, 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
Share of Purchase Agreement and this ruling, with Revenue District Office No. 51 — Pasay (RDO 51), in
order for the latter to issue a Certificate of Authorizing Registration (CAR) of the said shares of stock in
favor of the buyers, Messrs. Tate and Bracewell. (BIR Ruling ITAD No. 44-00)
Moreover, Section 176 of the National Internal Revenue Code of 1997 (Tax Code) provides, viz:
"Section 176. Stamp Tax on Sales, Agreements to Sell, Memorandum of Sales,

Deliveries or Transfer of Due-bills, Certificate of Obligation, or Shares or Certificates of Stocks. —
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
issued of stock."
The Tax Code of 1997 likewise 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, either party to the contract may be made liable to
the tax.
In view of the foregoing and based on the Share Purchase Agreement, 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 the buyers in accordance with the provisions of the Tax Code. Failure of the
buyers to do so shall hold WLTL the party liable to the documentary stamp tax.
Upon presentment of proof of payment of the documentary stamp tax, the Corporate Secretary of
WPCI shall register in the Stock and Transfer Book the shares from WLTL to the buyers. (BIR Ruling No.
ITAD 44-00)
This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it shall
be disclosed that the facts are different, then this ruling shall be considered null and void.
Very truly yours,
By:

Legal Service
October 30, 2001
Charter of ADB-Section 56
Agreement of ADB and RP-Section 34
H & Q Philippine Venture, Inc.

22nd Floor, Equitable PCIBank Tower 2
Attention: Ms. Mel Evangelista
Gentlemen :
This refers to your letter dated March 23, 2001, requesting confirmation of your opinion that the
cash dividend to be paid by H & Q Philippine Venture, Inc. (H&Q) to Asian Development Bank (ADB) is
exempt from Philippine tax under the Tax Code, as amended.
It is represented that ADB is an international financing institution and is not registered as a

corporation or partnership licensed to do business in the Philippines as evidenced by a Certification of
Non-Registration issued by the Securities and Exchange Commission dated March 27, 2001; that H&Q is
a domestic corporation with business address at 22nd Floor, PCIB Tower II, Makati Ave., corner H.V. dela
Costa Street, Makati City; that ADB is a subscriber of 1,411,635 preferred shares (inclusive of nominee
shares) of H&Q based on the list of shareholders as certified by H&Q's Corporate Secretary dated March
15, 2001; that on March 15, 2001, the Board of Directors of H&Q approved the transfer of the amount of
P56,000,000.00 from the restricted retained earnings to the unrestricted retained earnings; and that H&Q
declared cash dividend of the same amount or P224.00 per share in favor of all common shareholders and
P4.0727272727 per share in favor of all redeemable preferred shareholders of record as of March 15, 2001
out of H&Q's unrestricted retained earnings as of December 31, 1997, payable on or before April 18, 2001.
In reply, please be informed that Article 56 of the Charter of ADB provides, viz:
"Article 56
"The Bank, its assets, property, income and its operations and transactions, shall be exempt
from all taxation and all customs duties. The Bank shall also be exempt from any obligation for the
payment, withholding or collection of any tax or duty.
xxx xxx xxx"
On the other hand, Section 34 of the Agreement between ADB and the Government of the Republic
of the Philippines regarding the headquarters of ADB likewise provides, viz:
"Section 34
"The Bank, its property and its operations and transactions shall be exempt from:
"(a) all taxation and any obligation for the payment, withholding or collection of any tax or
duty. The Bank will not claim exemption from taxes or charges which are no more than payments for
public utility services;
"(b) all customs duties and other levies on any goods, articles, including motor vehicles spare
parts and publications imported or exported by the Bank for its official use, and any obligation for the
payment, withholding or collection of any customs duties. The goods and articles, including vehicles,
spare parts and publications imported under such exemption will not be sold in the Republic of the
Philippines except under conditions agreed upon with the Government; and
"(c) all prohibitions and restrictions on imports and exports in respect of goods or articles,
including motor vehicles, spare parts and publications intended for the official use of the Bank."
Based on the above, ADB is exempt from all taxation and any obligation for payment, withholding
or collection of any tax or duty in the Philippines. Therefore, the dividends to be paid by H&Q to ADB
shall be exempt from tax pursuant to the aforequoted provisions of the Charter of ADB and the Agreement
between the ADB and the Philippines.
void.
Very truly yours,

Commissioner
October 30, 2001
Article 12, RP-Thailand

United Pulp and Paper Co. Inc.

Phinma Building 5th Floor
166 Salcedo St., 1229 Makati City
Attention: Mr. Florentino S. Jumaquio

Vice-President — Finance
Gentlemen :
This refers to your application for relief from double taxation dated September 28, 2000, requesting
that the interest and income participation payments of United Pulp and Paper Co. Inc. (United Pulp) to
Siam and Pulp and Paper Public Co. Ltd (SPPC) be exempted from Philippine income tax pursuant to
Article 12(1) of the RP-Thailand Tax Treaty.
It is represented that SPPC is a non-resident foreign corporation organized and existing under the
laws of Thailand with principal address at No. 1 Siam Cement Road, Bangsue Bangkok, Thailand; that it
is not registered either as a corporation or as a partnership and has not been licensed to do business in the
Philippines as per certification dated August 28, 2000 issued by the Securities and Exchange Commission;
that United Pulp is a corporation organized and existing under the laws of the Philippines with principal
address at 5th Floor Phinma Bldg., 166 Salcedo St., 1229 Makati City; that United Pulp is a
BOI-registered corporation per BOI Certificate of Registration No. DP-97-164 dated July 22, 1997, as an
expanding domestic producer of paper products (Linerboard and Corrugating Medium) as of August 4,
1997, on a non-pioneer status under the Omnibus Investment Code of 1997 (E.O. 226); that SPPC is a
bonafide stockholder of United Pulp with shareholdings of 34,455,107 common shares at P10.00 par
value, representing 37.36% of United Pulp's total shareholdings; that by virtue of a Subordinated Loan
Agreement (SLA) made by and between SPPC and United Pulp dated May 18, 1999, SPPC agreed to lend
United Pulp the amount of US$3,750,000.00 payable on April 30, 2009; that United Pulp shall pay a base
interest at the Base Interest Rate as determined in, and in accordance with, the SLA; that in addition to the
base interest, United Pulp shall pay SPPC an income participation amount likewise as determined in, and
in accordance with, the SLA; that in case United Pulp failed to pay any of the principal amount of the
loan, the base interest, or the income participation, United Pulp shall pay an additional interest at the rate
of 2% per annum in respect of the amount due and unpaid; and that the principal amount of the loan, all
income participation, and all interest thereon, shall be subordinate and junior in right of payment to the
prior payment in full of other loans (as stated in the SLA) when due (whether at stated maturity, upon
acceleration or otherwise).
In reply, please be informed that Article 12 of the RP-Thailand Tax Treaty provides as follows; to
wit:
"Article 12
"Interest
"1. Interest arising in a Contracting State and paid to a resident of the other Contracting
"2. However, such interest may also be taxed in the Contracting State in which it arises,
and according to the laws of that State, but if the recipient is the beneficial owner of
the interest the tax so charged shall not exceed
a) 10 per cent of the gross amount of interest if:
(i) it arises in Thailand and is received by Philippine financial institutions

(including insurance companies)
(ii) it arises in the Philippines in respect of public issues of bonds, debentures or

similar obligations;
b) 15 per cent of the gross amount of interest if it arises in the Philippines, and
c) 25 per cent of the gross amount of interest if it arises in Thailand.
"3. The term 'interest' as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage, and whether or not carrying a right to participate
in the debtor's profits, and in particular, income from government securities and
income from bonds or debentures, including premiums and prizes attaching to such
securities, bonds or debentures, as well as income assimilated to income from money
lent by the taxation law of the State in which the income arises, including interest on
deferred payment sales. Penalty charges for late payment shall not be regarded as
interest for purposes of this Article.
xxx xxx xxx."
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.
Such being the case, the interest income and income participation to be remitted by SPPC to United
Pulp 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, pursuant to Article 12 of the RP-Thailand Tax
Treaty contrary to your opinion that the same is exempted. (BIR Ruling No. ITAD-26-2000)
Moreover, Section 180 of the National Internal Revenue Code (Tax Code) of 1997 provides, viz:
"Sec. 180. Stamp Tax on All Bonds, Loan Agreements, Promissory Notes, Bills of Exchange,
Drafts, Instruments and Securities Issued by the Government or any or its Instrumentalities, Deposit
Substitute, Debt Instruments, Certificates of Deposits Bearing Interest and Others Not Payable on
Sight or Demand. — On all bonds, loan agreements, including those signed abroad, wherein the
object of the contract is located or used in the Philippines, bills of exchange (between points within
the Philippines), drafts, instruments and securities issued by the Government or any of its
instrumentalities, deposit substitute debt instruments, certificates of deposits drawing interest, orders
for the payment of any sum of money otherwise than at sight or on demand, on all promissory notes,
whether negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal
of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each
Two hundred pesos (P200), or fractional part thereof, of the face value of any such agreement, bill of
exchange, draft, certificate of deposit, or note: Provided, That only one documentary stamp tax shall
be imposed on either loan agreement, or promissory notes issued to secure such loan, whichever will
yield a higher tax: . . . "
The same 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 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 part, 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 thereof, 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 United Pulp or SPPC in
accordance with the provisions of the Tax Code of 1997.
This ruling is issued based on the foregoing facts as represented. If upon investigation, it will be
disclosed that the said facts are different, this ruling shall be considered null and void.
Very truly yours,
By:

Deputy Commissioner
October 30, 2001
Art. 12 RP-Korea Tax Treaty

Daeduck Philippines, Inc.

Philippine Economic Zone Authority
Lot No. 1-13, Blk. 20, Phase 4, Main Avenue
Rosario, Cavite
Attention: Jae Yeol Lim

Support Group
Division Manager
Gentlemen :
This refers to your application for tax treaty relief dated July 17, 2001, requesting for 15%
preferential tax rate on your royalty payments to Daeduck GDS Co., LTD (Daeduck-Korea) pursuant to
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 a non-pioneer Philippine Economic Zone
Authority (PEZA) enterprise under Certificate of Registration No. 96-038 dated March 15, 1996; that
Daeduck-Korea is a non-resident foreign corporation organized and existing under the laws of Republic of
Korea with business address at 475 Moknai Dong Ansan Si, Kyunggi Do, Korea; that it is not registered
either as a corporation or as a partnership and has not been licensed to do business in the Philippines per
certification dated July 17, 2001 issued by the Securities and Exchange Commission; that on March 1,
2001, Daeduck-Phils entered into a Technical License Agreement with Daeduck-Korea effective for five
years from March 1, 2001 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 2% of Net Sales
for the Single Side PCB and 3% of 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 cent of the
gross amount of the royalties."
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 article 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 Korea.
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. (BIR Ruling No. ITAD-108-2000 dated August 9,
2000)
void. TDcCIS
Very truly yours,
By:

Deputy Commissioner
October 30, 2001
Article 13, RP-US

Article 12, RP-Netherlands
Baxter Healthcare Philippines, Inc.

19/F Wynsum Corporate Plaza
Emerald Avenue, Ortigas Center
Pasig City
Attention: Ms. Anabel T. Chan

Asst. Finance Manager
Gentlemen :
This refers to your letter dated February 14, 2001 requesting to avail of the preferential tax rate of
15% final withholding tax on your royalty payments to Baxter International, Incorporated (BII) citing the
"most favored nation" clause under Article 13 of the RP-US Tax Treaty in relation to the RP-Netherlands
Tax Treaty.
It is represented that BII is a non-resident foreign corporation organized and existing under the laws
of the State of Delaware with principal office located in One Baxter Parkway, Deerfield, Illinois, 60015,
USA; that it is not registered either as a corporation or as a partnership licensed to do business in the
Philippines per certification issued by the Securities and Exchange Commission dated September 12,
2000; that Baxter Healthcare Philippines, Inc. (BHPI) is a domestic corporation duly organized and
existing under Philippine laws with principal office at 19/F Wynsum Corporate Plaza, Emerald Ave.,
Ortigas Center, Pasig City; that BHPI entered into an Intellectual Property License Agreement with BII
dated January 2, 2001, which is duly registered with the Intellectual Property Office of the Department of
Trade and Industry under a Certificate of Compliance No. 5-2001-00005 and valid for ten (10) years, i.e.,
from January 2, 2001 to January 1, 2011; that under the said Agreement, BII grants to BHPI (a) a
nonexclusive license under Patent Rights to make and sell Licensed Products, (b) a nonexclusive license
under Trademark Rights to make and to sell Licensed Products, (c) nonexclusive license to use the
Know-How Rights and the Software Copyright Rights in the manufacture and supply of the Licensed
Products, and (d) to promptly inform the Licensee of improvements in techniques and processes of
Licensed Products; and that for and in consideration of the license granted, BHPI undertakes to pay BII
royalty whichever the larger between Ten Thousand United States dollars ($10,000) per year and six
percent (6%) of the Net Sales per year on quarterly basis.
In reply, please be informed that Article 13 of the RP-US Tax Treaty provides, viz:
"ARTICLE 13
ROYALTIES
"(2) However, the tax imposed by that other Contracting State shall not exceed—
(a) ...
paid by a corporation registered with the Philippine Board of Investments and engaged
in preferred areas of activities, and
supplied)
for information concerning industrial, commercial or scientific experience. The term "royalties' also
"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 a Philippine tax treaty which provides for 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. In
this light, Article 12 (Royalties) 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
(b) 15 per cent of the gross amount of the royalties in all other cases. (Emphasis
supplied)
"xxx xxx xxx"
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 Netherlands Tax Treaty.
A perusal of the RP-US and RP-Netherlands Tax Treaty provisions on the avoidance of double
taxation shows 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, this Office is of the opinion and so holds that the royalties paid by BHPI to BII
are subject to Philippine tax at the rate of fifteen percent (15%) of the gross amount of royalties pursuant
to the "most favored nation" clause of the RP-US Tax Treaty in relation to the RP-Netherlands Tax Treaty.
(BIR Ruling No. ITAD-151-00 dated October 23, 2000)
Moreover, under Section 108(A)(1) and (3) of the Tax Code of 1997, the payments to be remitted
by BHPI to BII are subject to 10% value-added tax. Accordingly, BHPI shall, before making payment of
royalties to BII, withhold and remit to this Bureau the said 10 percent VAT due thereon by filing a
separate VAT return for and on behalf of BII using BIR Form No. 1600 (Monthly Remittance Return of
Value-Added Tax and Other Percentage Taxes Withheld). 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, BHPI shall be responsible for the withholding of income tax at the rate of 15% of the gross
amount of royalties and the value-added tax at the rate of 10% of the contract amount.
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
October 30, 2001
Article 10, RP-Japan BIR Ruling No. ITAD-143-00
Aichi Forging Co. of Asia

Barrio Pulong, Sta. Cruz,
Santa Rosa, Laguna
Attention: Mr. Takashi Wanya

EVP-Finance
Gentlemen :
This refers to your application for relief from double taxation dated May 8, 2001, that your
dividend payments to be made to Aichi Steel Corporation are subject to the preferential withholding tax
rate of ten (10%) per cent, pursuant to Article 10 of the RP-Japan Tax Treaty.
It is represented that Aichi Steel Corp. (Aichi Japan) is a non-resident foreign corporation duly
organized and existing under and by virtue of the laws of Japan with principal address at 1 Wano-Wari
Arao-Machi, Tokai-Shi, Aichi-Ken, Japan; that it is not registered either as a corporation or as a
partnership licensed to do business in the Philippines as per certification issued by the Securities and
Exchange Commission dated April 17, 2001; that Aichi Forging Co. of Asia Inc. (Aichi Phils.) is a
domestic corporation organized and existing under the laws of the Philippines with office address at Barrio
Pulong, Sta. Cruz, Santa Rosa, Laguna; that Aichi Phils. is registered with the Board of Investments as a
preferred pioneer enterprise engaged in the manufacture of closed impression die steel forging and
expanding producer of tools and dies as per Certificate of Registration No. EP-95-132 dated June 8, 1995;
that Aichi Japan holds 61.75% of the total shares of Aichi Phils. amounting to Two Hundred Fifty-Three
Million Eight Hundred Nine Thousand Nine Hundred Sixty Pesos (Php 253,809,960.00); that as per
certification dated March 27, 2001 of Aichi Phils.' Corporate Secretary, Ms. Aissa V. Encarnacion, Aichi
Japan is a stockholder of record of Aichi Phils. as of March 3, 2001; that Aichi Phils.' Board of Directors
declared cash dividends at the rate of 46% of the unrestricted retained earnings in the amount of
Thirty-One Million Five Hundred Seventy-Seven Thousand One Hundred Sixty-Nine Pesos
(Php31,577,169.00) to stockholders of record as of February 28, 2001 which includes Aichi Japan as
evidenced by the Board Resolution dated March 2, 2001.
In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides, viz:
"Article 10
"1. Dividends paid by a company which is a resident of a Contracting State to a resident of

the other Contracting State may be taxed in that other Contracting State.
"2. However, such dividends may also be taxed in the Contracting State of which the
company paying the dividends is a resident, and according to the laws of that Contracting State, but if
the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:
"a) 10 per cent of the gross amount of the dividends if the beneficial owner is a
company which holds directly at least 25 per cent either of the voting shares of the company
paying the dividends or of the total shares issued by that company during the period of six
months immediately preceding the date of payment of the dividends;
xxx xxx xxx
"4. The term ''dividends" as used in this Article means income from shares or other rights,
not being debt-claims, participating in profits, as well as income from other corporate rights
assimilated to income from shares by the taxation laws of the Contracting State of which the company
making the distribution is a resident.
xxx xxx xxx"
Based on the aforequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding 10% if the latter holds directly at least 25% either
of the voting shares or of the total shares of the former for a period of six (6) months immediately
preceding the date of payment of the dividends.
Considering that Aichi Japan owns directly 61.75% of the total shares of Aichi Phils. for a period
of six (6) months immediately preceding the date of payment of dividends, the cash dividends payable by
Aichi Phils. to Aichi Japan are subject to a preferential tax rate of 10% of the gross amount of dividends
pursuant to Article 10(2)(a) of the RP-Japan Tax Treaty. (BIR Ruling No. ITAD 143-00 dated September
28, 2000)
void.
Very truly yours,
By:

Deputy Commissioner
October 29, 2001
RP-Singapore
Unnumbered Ruling dtd. April 19, 1999
Mr. J. A. Osana
Partner Tax Division
SGV & CO.
6760 Ayala Avenue
1226 Makati City
Gentlemen :
This refers to your letter dated May 8, 2000 requesting for a modification of the unnumbered BIR
Ruling dated April 19, 1999, signed by the Commissioner of Internal Revenue, confirming your opinion
that the sale by First Capital Assets (Pte) Ltd. (FCAL) of Singapore of its shares in First Capital Assets
(Phils.) Inc. (FCAPI), [now Guoco Assets Phils., Inc. (GAPI),] to Guoco Group Limited (GGL) is not
subject to capital gains tax. The requested modification of the ruling is to the effect that the sale of the
GAPI shares is made in favor of Guoco Assets Pte., Ltd. (GAPL) and not Guoco Group Limited (GGL) of
Bermuda, which is merely an agent of GAPL.
It is represented that FCAL is a non-resident foreign corporation organized and existing under the
laws of Singapore with office address at 20 Collyer Quay #11-01, Tung Centre, Singapore; that FCAL
does not have a permanent establishment or fixed base in the Philippines; that GAPI is a domestic
corporation duly organized under Philippine laws with address at 17/F BA-Lepanto Building, 8747 Paseo
de Roxas, Makati City; that GAPI is a wholly-owned subsidiary of FCAL with a subscribed and paid-up
capital of 1,210,000 shares having an aggregate par value of P121,000,000.00; that GAPL is a corporation
organized under the laws of Singapore whose parent company is GGL, a corporation organized under the
laws of Bermuda; that GGL and GAPL entered into a Memorandum of Understanding whereby the parties
agreed that GGL shall negotiate and sign, for and on behalf of GAPL, for the purchase of the entire
shareholdings of FCAL in GAPI; that by virtue of the Sale and Purchase Agreement executed on July 24,
1992 between FCAL and GGL, the former conveyed and transferred to the latter its 1,210,000 shares for a
consideration of US$8,600,000.00, that at the time of transfer of shares from FCAL to GGL, the assets of
GAPI do not consist principally of real property interest located in the Philippines (per June 30, 1992
Audited Financial Statement, the total assets of GAPI is P360,484,236.00 which consisted of Cash,
Accounts Receivable, and Investments in the amount of P13,289,666.00, P95,000.00 and P347,099,795.00
respectively, clearly showing that GAPI has no real property interest located in the Philippines); and that
GAPL is the real and actual buyer of the GAPI shares and that GGL merely acted as an agent for GAPL.
In reply, please be informed that Article 13, paragraph 3 of the RP-Singapore tax treaty, provides as
follows, viz:
"Article 13
"Gains from the Alienation of Property
"(1) . . .
"(2) . . .
"(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."
(Emphasis supplied)
Moreover, in implementing the above tax treaty provision, Revenue Regulations (RR) No. 4-86
provides:
"Section 1. Objective — Under Philippine Tax Treaties, capital gains derived by residents of
the other Contracting State from the disposition of a share or of an interest in a Philippine Corporation
are taxable in the Philippines only if the assets of such corporation consists principally of real
property interest located in the Philippines . . . (Emphasis supplied)
"Section 2. Definitions — for purposes of this regulation, the following terms and phrases
shall be understood to mean —
"(a) 'Real Property Interest' — interests on properties enumerated in Section

3 which are not, however, exclusive of others that are similarly situated, As used in
the treaties and in this 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 fifty percent of the entire assets in terms of value; . ."
(Emphasis supplied)
Verification of the documents presented which consisted among others of the affidavit executed by
the Corporate Secretary of FCAPI/GAPI, Ms. Daisy L. Parker, together with the relevant documents
referred therein, disclosed that GGL acted merely as an agent of GAPL.
In view of the foregoing and considering that the property of GAPI does not consist principally of
immovable property, the sale by FCAL of its shares in FCAPI (now GAPI) to GAPL (the principal buyer
as represented by GUOCO) is not subject to capital gains tax, pursuant to Article 13 of the RP-Singapore
Tax Treaty. However, the Sale and Purchase Agreement is subject to the documentary stamp tax imposed
under Section 176 of the Tax Code of 1977, as amended.
Thus, the above stated unnumbered BIR Ruling dated April 19, 1999 is hereby modified
accordingly.
This ruling is issued on the basis of the foregoing facts as presented. However, if upon 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
October 30, 2001
Article 12, RP-Japan Tax Treaty

Nanox Philippines, Inc.

1E-5 Clark Premiere International Park
M.A. Roxas Highway
Clark Special Economic Zone
Clark Field, Pampanga
Attention: Mr. Katsuhiro Takahashi

Director/VP - Administration
Gentlemen :
This refers to your letter dated February 8, 2001 requesting confirmation of your opinion that your
royalty payments to Nanox Corporation (Nanox Japan) are subject to the preferential withholding tax rate
of ten per cent (10%) pursuant to Article 12 of the RP-Japan Tax Treaty.
It is represented that Nanox Japan is a non-resident foreign corporation duly organized and existing
under the laws of Japan; that it is not registered as a corporation/partnership licensed to do business in the
Philippines as per certification dated April 24, 2001 issued by the Securities and Exchange Commission
(SEC); that Nanox Philippines, Inc. (Nanox Philippines) is a domestic corporation duly organized and
existing under the laws of the Philippines and a Board of Investments (BOI)-registered enterprise as per
Certificate of Registration No. EP 99-079; that on April 1, 2000, Nanox Philippines, in its desire to engage
in the business of manufacturing and selling of liquid crystal display products of Nanox Japan and to
acquire the right to use the know-how and other technical information relating thereto, entered into a
Technical and Management Service Agreement with Nanox Japan whereby the latter shall grant Nanox
Philippines the right to use within the Philippines such know-how and to provide consultancy services
relative thereto to Nanox Philippines; that it shall enable Nanox Philippines to manufacture and sell the
Licensed Products of Nanox Japan and develop or expand its crystal display business; that said Agreement
shall continue in full force for ten (10) years and shall be automatically renewed for another ten (10) year
period thereafter; that in consideration for the grant of such technology and privilege, Nanox Japan shall
be entitled to receive running royalty of two per cent (2%) of the net sales of the Licensed Products during
the same royalty period; that the term "net sales" refers to the invoiced amount of the Licensed Products
sold by Nanox Philippines; and that said Agreement is covered by Certificate of Compliance No.
5-2001-00029 issued by the Intellectual Property Office (IPO).
"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 the royalties in all other cases.
"(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the royalties paid by a company, being a resident of the Philippines, registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the investment
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the royalties,
shall not exceed 10 per cent of the gross amount of the royalties. (Emphasis supplied)
"(4) The term "royalties" as used in this Article means payments of any kind received as a
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use,
or scientific experience."
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 and engaged in preferred
pioneer area of investment, 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 royalties.
Such being the case, since Nanox Philippines is a BOI-registered enterprise and engaged in
preferred pioneer area of investment as per Certificate of Registration No. EP 99-079, this Office is of the
opinion and so holds that the royalty fees to be paid for the use of the know-how and other technological
information relating to the manufacturing and selling of liquid crystal display products of Nanox Japan are
subject to the preferential tax rate of 10% based on net sales of the Licensed Products sold by Nanox
Philippines under Article 12(3) of the RP-Japan Tax Treaty. (BIR Ruling No. 39-99 dated November 3,
1999 in relation to BIR Ruling No. 134-96 dated November 27, 1996)
Finally, under Section 108(A)(1) and (3) of the Tax Code, such royalty payments are subject to the
10% value-added tax (VAT). Accordingly, Nanox Philippines shall, before making payment of royalties to
Nanox Japan, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate VAT
Taxes Withheld) for and on behalf of Nanox Japan. The duly validated VAT declaration/return is
sufficient evidence for Nanox Philippines in claiming input tax credit. [Section 4.102.1 (b) of Revenue
Regulations No. 7-95]
void.
Very truly yours,
By:

Deputy Commissioner
October 29, 2001
RP-Japan-Art. 12
Nidec-Shimpo Philippines Corporation

119 Technology Avenue SEZ, Laguna Technopark,
Biñan, Laguna
Attention: Mr. Hiroshi Sano

President
Gentlemen :
This refers to your letter dated December 08, 2000 requesting for confirmation that the applicable
tax rate to be withheld on your royalty payments to NIDEC-SHIMPO CORPORATION, JAPAN (NSC) is
ten (10%) per cent of the gross amount of the royalties as set forth under Article 12(3) of the RP-Japan
Tax Treaty.
It is represented that NSC is a non-resident foreign corporation duly organized and existing under
the laws of Japan with principal office at 1 Terada Kohtari, Nagaokakyo City, Kyoto, Japan; that it is not
registered as a corporation/partnership licensed to do business in the Philippines as per certification dated
November 22, 2000 issued by the Securities and Exchange Commission (SEC); that NIDEC-SHIMPO
PHILIPPINES, CORPORATION (SCF), on the other hand, is a Philippine Economic Zone Authority
(PEZA)-registered wholly-owned subsidiary of NSC, engaged primarily in manufacturing speed reducers,
adjustable speed drives, speed control motors, electronic components/parts for colored TV, colored
computer monitor and other electronic and mechanical instruments of similar nature; that on April 01,
1997, SCF, desirous to obtain and receive a license and technology transfer assistance for the
development, manufacture and marketing of speed reducers, adjustable speed drives, speed control motors
and other electronic and mechanical instruments, entered into a Technical Assistance Agreement with
NSC whereby NSC will grant SCF the right to perform development, manufacturing and marketing
activities using the NSC-transferred technical information; that in consideration for the grant, SCF shall
pay royalty to NSC in the amount equivalent to five (5%) per cent of SCF's net sales on locally
manufactured licensed products using the technical data and information.
Based on the foregoing representations and pursuant to Article 12 of the RP-Japan Tax Treaty
which provides, viz:
"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 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.
trademark, design or model, plan, secret formula or process, or for the use of, or the right to use,
or scientific experience."
"xxx xxx xxx"
it is your opinion that since SCF is a PEZA-registered enterprise whereby the tax incentives laws that are
being applied are the same as that with the Philippine Board of Investments (BOI), the herein royalty
payments are subject to the preferential tax rate of ten (10%) per cent.
In reply, please be informed that pursuant to the aforementioned Treaty, it is explicit that the
royalty payments will be taxed at the preferential tax rate of ten (10%) per cent if the payor is a Board of
Investments (BOI)-registered enterprise, fifteen (15%) per cent 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 (25%) per cent of the gross amount of the royalties.
Such being the case, since SCF is not a BOI-registered enterprise, and the payments made by SCF
to NSC 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 are subject to the 25% rate under Article 12(2)(b) of the
RP-Japan Tax Treaty. (BIR Ruling No. ITAD-178-00)
Hence, the royalty payments made by NIDEC-SHIMPO PHILIPPINES CORPORATION are

subject to the preferential tax rate of twenty-five (25%) per cent based on the gross amount of royalties,
contrary to your opinion that the applicable rate is 10%.
This ruling is issued on the basis of the facts as represented. However, if upon investigation it will
Very truly yours,
By:

Deputy Commissioner
October 26, 2001
Art. 12, RP-UK Tax Treaty

Sec. 176, NIRC
Sycip Salazar Hernandez & Gatmaitan

SycipLaw-All Asia Capital Center
105 Paseo de Roxas
1226 Makati City
Attention: Atty. Carina C. Laforteza

Atty. Roel A. Refran
Atty. Rena M. Rico
Gentlemen :
This refers to your letter dated July 26, 2001 requesting confirmation of your opinion to the effect
that the sale and transfer by your client, Courtaulds Textiles Investments Ltd. (CTIL) of its shares of stock
in Laguna Realty Corporation (LRC) and Penn Philippines, Inc. (PPI) to Dogi, S.A. (Dogi) is not subject
to capital gains tax pursuant to the RP-UK tax treaty. ScaHDT
It is represented that CTIL is a non-resident foreign corporation duly organized and existing under
the laws of the United Kingdom with principal office address at 225 Bath Road, Slough, Berkshire SL1
4AU, England; that it is not registered either as a corporation or as a partnership licensed to do business in
the Philippines per certification dated July 9, 2001 issued by the Securities and Exchange Commission;
that LRC and PPI are corporations duly organized and existing under the laws of the Philippines, both with
principal office address at FTI Electronics Avenue, FTI Complex, Taguig, Metro Manila; that as of May
25, 2001, CTIL is the stockholder of record and owns 100 percent of the issued and outstanding capital
stock of PPI, equivalent to Three Million Six Hundred Thousand (3,600,000) common shares of stock with
a par value of Ten Pesos (P10.00) per share, or an aggregate par value of Thirty Six Million Pesos
(P36,000,000), and Five Hundred Ninety Three Thousand Nine Hundred Ninety-Nine (593,999) preferred
shares of stock with a par value of Five Hundred Pesos (P500.00) per share, or an aggregate value of Two
Hundred Ninety Nine Million Nine Hundred Ninety Nine Thousand Five Hundred Pesos
(P299,999,500.00); that CTIL likewise is the stockholder of record and owns 40 percent of the issued and
outstanding capital stock of LRC, equivalent to Four Hundred Thousand (400,000) common shares of
stock with a par value of Thirty Pesos (P30.00) per share, equivalent to Twelve Million Pesos
(P12,000,000.00); that on May 25, 2001, CTIL and Dogi executed two Deeds of Absolute Sale of Shares
of Stock whereby the former, for and in consideration of the respective amounts of £10,500,000.00 and
£500,000.00, sold, transferred and conveyed to the latter its aforementioned shares in PPI and LRC.
In reply, please be informed that Article 12 of the RP-UK tax treaty provides as follows:
"Article 12
1. Capital gains from the alienation of immovable property, as defined in paragraph (2) of
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 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
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. (Emphasis supplied)
5. The provisions 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
first-mentioned Contracting State at any time during the six years immediately preceding the
alienation of the property."
Based on the aforequoted provisions, capital gains from the alienation of property other than those
mentioned in paragraphs 1, 2 and 3 thereof shall be taxable only in the State where the alienator is a
resident. Inasmuch as the alienation of shares of stock is not among those mentioned in said paragraphs 1,
2 and 3, the gains that may be derived by CTIL, a resident of United Kingdom, from the sale of its shares
of stock in LRC and PPI to Dogi are taxable only in the United Kingdom and therefore exempt from
capital gains tax imposed under Section 28(b)(5)(c) of the National Internal Revenue Code of 1997. (BIR
Ruling No. ITAD-29-00 dated April 16, 2001)
However, the two Deeds of Absolute Sale of Shares of Stock shall be subject to the documentary
stamp tax imposed under Section 176 of the National Internal Revenue Code of 1997.
void.
Very truly yours,
By:

Legal Service
October 26, 2001
Art. 13, RP-Singapore Tax Treaty

BIR Ruling DA-ITAD No. 38-00
Sycip, Salazar, Hernandez & Gatmaitan
SYCIPLAW-All Asia Capital Center,
105 Paseo De Roxas, Makati City
Attention: Mr. Hector M. de Leon, Jr.

Mr. Benedicto P. Panigbatan
Gentlemen :
This refers to your letter dated May 22, 2001, requesting confirmation of your opinion to the effect
that the gains derived by CSE Systems & Engineering Ltd. ("CSE"') from the transfer of its shares in
EBWORX PHILIPPINES, INC. formerly "Solutions Exchange, Inc.," (EBWORX Philippines) to
EBWORX, LTD., are not subject to capital gains tax pursuant to the RP-Singapore tax treaty.
It is represented that CSE is a corporation duly organized under the laws of Singapore with business
address at 10 Collyer Quay, #19-08, Ocean Building, Singapore 049315; that it is not registered either as a
corporation or as a partnership licensed to do business in the Philippines per certification issued by the
Securities and Exchange Commission dated May 8, 2001; that it is the registered owner of Seventy-Five
Thousand (75,000) shares of stock in Ebworx Philippines; that Ebworx Philippines is a domestic
corporation with business address at Unit 2501, 25/F Antel Corporate Center, 139 Valero St., Salcedo
Village, Makati City, Philippines; that, on the other hand, Ebworx Ltd. is a corporation organized and
existing under the laws of Singapore, with business address at 36 Robinson Road, #18-01, City House,
Singapore 068877; and that on June 1, 2000 by virtue of the Deed of Absolute Sale of Shares of Stock
executed by CSE and Ebworx Ltd., CSE sold, transferred and conveyed to Ebworx Ltd. the total of 75,000
shares of stock with a par value of Philippine Pesos: Twenty (PhP20.00) per share or an aggregate par
value of Philippine Pesos: One Million Five Hundred Thousand (PhP1,500,000.00), representing
approximately thirty percent (30%) of the entire issued and outstanding capital stock of the CSE as of the
said date.
In reply, please be informed that Article 13 of the RP-Singapore tax treaty provides as follows:
"Article 13
GAINS FROM THE ALIENATION OF PROPERTY
1. Gains from the alienation of immovable property may be taxed in the Contracting State
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.
(underscored for emphasis).
xxx xxx xxx
Based on the foregoing, the gains which will be realized by CSE from the transfer of its shares of
stock in Ebworx Philippines to Ebworx, Ltd are generally taxable 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 entire assets consist principally of real property interest located in the
Philippines. "Real Property Interest" means interest on properties enumerated in Section 3 of the Revenue
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 Financial Statements for the Six Months Ended June 30, 2000 of Ebworx
Philippines disclosed that it has no real property interest located in the Philippines, thereby making the
assets of Ebworx Philippines not principally consisted of real property interest located in the Philippines.
Thus, Article 13 (3) of the RP- Singapore tax treaty will not apply.
Consequently, the gains shall be taxable only in Singapore since, pursuant to paragraph 4 of the
said Article, "any capital gains which may be derived by CSE from the alienation of any property, other
than those mentioned in paragraphs 1, 2 and 3 of Article 13 of the RP-Singapore tax treaty shall be taxable
only in the Contracting State of which the alienator is a resident."
However, the transfer of stocks from CSE Systems & Engineering Ltd. to Ebworx, Ltd shall be
subject to the documentary stamp tax imposed under Section 176 of the Tax Code of 1997.
Accordingly, this Office is of the opinion and so holds that the gains derived by CSE from the sale
of its shares in Ebworx Philippines to Ebworx, Ltd. are not subject to capital gains tax. (BIR Ruling No.
ITAD 38-00 dated February 4, 2000).
Very truly yours,
By:

Legal Service
October 26, 2001
Art. 14, RP-US Tax Treaty

Sec. 176, NIRC
Bengzon Narciso Cudala Jimenez

Gonzales & Liwanag (The Bengzon Firm)
SOL Building, 112 Amorsolo Street
Legaspi Village, 1229 Makati City
Attention: Atty. Jose V. E. Jimenez

Atty. Mary Jane B. Austria-Delgado
This refers to your letter dated January 29, 2001 requesting confirmation of your opinion to the
effect that the gains derived by Eichleay Engineers, Inc. (EEI) from the transfer of its shares in Eichleay
Pacific Inc. (EPI) to Eichleay Engineers and Constructors, Inc. (EECI) are not subject to capital gains tax
pursuant to the RP-US Tax Treaty.
It is represented that EEI is a corporation organized under the laws of the United States of America,
with office address at 6585 Penn Avenue, Pittsburgh, Pennsylvania, USA; that it is not registered as a
corporation/partnership licensed to do business in the Philippines per certification issued by the Securities
and Exchange Commission dated March 9, 2001 and is the registered holder of Eighty-Three Thousand
Nine Hundred Ninety-Five (83,995) shares of stock in EPI, as well as the beneficial owner of five (5) other
shares under the names of its nominee incorporators/directors or a total of Eighty Four Thousand (84,000)
shares, with a par value of One Hundred Pesos (P100) per share; that EPI is a domestic corporation
engaged in computer generated design documentation using Computer Aided Design and Drafting
(CADD) for export; that EPI is a PEZA-registered Ecozone Export Enterprise (Reg. No. 00-019), with
office address at IBM Plaza Bldg., Eastwood Cyberpark, Quezon City; that EECI is a corporation
organized and existing under the laws of the United States of America; and that on December 22, 2000 by
virtue of the Share Transfer Agreement executed by EEI and EECI, EEI sold, ceded, assigned, transferred
and conveyed to the EECI the total of 84,000 shares of stock including the qualifying one (1) share each
under the names of the aforesaid nominee Directors of EPI with a par value of P100 per share, constituting
all of EPI's outstanding capital stock.
In reply, please be informed that Article 14 of the RP-US Tax Treaty provides as follows:
"Article 14
CAPITAL GAINS
1. Gains from the alienation of tangible personal (movable) property forming part of the
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
xxx xxx xxx
On the other hand, the Reservation Clause of the RP-US Tax Treaty, in pertinent part, provides:
"Article 1
". . . notwithstanding the provisions of Article 14 relating to the capital gains, both the United
consists principally of a real property interest located in the country. Likewise, both countries may tax
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;"
xxx xxx xxx
It is clear from the aforequoted provisions that any capital gains which may be derived by EEI from
the alienation of any property other than those mentioned in paragraph (1) of Article 14 or in Article 7
(Income from Real Property) of the RP-US Tax Treaty shall be taxable only in the State where the
alienator is a resident. 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).
Verification of the 1999 and 1998 Audited Financial Statements of EPI disclosed that it has no real
property interest located in the Philippines, thereby making the assets of EPI not principally consisted of
real property interest located in the Philippines.
Accordingly, your opinion that the gains derived by Eichleay Engineers, Inc. (EEI) from the sale of
its shares in Eichleay Pacific Inc. (EPI) to Eichleay Engineers and Constructors, Inc. (EECI) are not
subject to capital gains tax is hereby confirmed. (BIR Ruling No. ITAD 40-01 dated April 6, 2001).
However, the Share Transfer Agreement entered into by EEI and EECI shall be subject to the
documentary stamp tax imposed under Section 176 of the Tax Code of 1997.
This ruling is issued on the basis of the facts as represented. However, if upon investigation, it will
Very truly yours,
By:
(SGD.) MILAGROS P. REGALADO

Legal Service
October 25, 2001
Article 10, RP-Japan ITAD 91-00
KDK International (Phils.) Corporation

11-A Harmony St. 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 15, 2000 requesting
for a preferential tax rate of ten percent (10%) to be withheld on your dividend remittances to Matsushita
Seiko Co. Ltd (Matsushita), 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 or as a 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 seventy nine thousand nine hundred ninety six (79,996) shares equivalent to Seven Million Nine
Hundred Ninety Nine Thousand Six Hundred Pesos (P7,999,600) representing forty percent (40%) of the
capital stock of KDK from January to June 30, 2000; that on June 30, 2000, the Board of Directors of
KDK passed and approved the declaration of cash dividend in the amount of One Million Pesos
(P1,000,000.00), payable to the stockholders of record as of August 31, 2000.
In reply, please be informed that Article 10 of the RP-Japan Tax Treaty provides as follows
"Article 10

the other Contracting State may be taxed in the other Contracting State.
company paying the dividends is a resident and according to the laws of that Contracting State, but if
"b) 10 per cent of the gross amount of the dividends if the beneficial owner is a company
which holds directly at least 25 per cent either of the voting shares of the company paying the
dividends or of the total shares issued by that company during the period of six months immediately
preceding the date of payment of the dividends;
"b) 25% per cent of the gross amount of the dividends in all other cases.
xxx xxx xxx."
the distribution is a resident.
xxx xxx xxx."
Based on the above, the Philippines may tax the dividends paid by a Philippine company to a
Japanese company at a rate not exceeding 10 percent if the latter holds directly at least 25 percent 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. (BIR Ruling No. ITAD 91-00 dated August 1, 2000)
Considering that Matsushita holds forty per cent of the (40%) of the capital stock of KDK during
the period of six months immediately preceding the date of payment of dividends, the dividends to be paid
and remitted by KDK to Matsushita are subject to the 10 per cent preferential tax rate pursuant to Article
10(2)(a) of the RP-Japan Tax Treaty.
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void.
Very truly yours,
By:

Deputy Commissioner
October 23, 2001
RP-Japan, Article 11 (2) BIR Ruling No. 142-95, 26-00

6th Floor Ayala Life FGU Center
Mindanao Avenue cor Biliran Road
Cebu Business Park, Cebu City
Gentlemen :
This refers to your application for relief from double taxation dated June 4, 2001, on behalf of
Toyoflex Corporation (Toyoflex-Japan), requesting confirmation of your opinion that the interest payment
to be made by Toyoflex Cebu Corporation (Toyoflex-Cebu) is subject to the 15% preferential tax rate
pursuant to the Article 11(2)(b) of the RP-Japan Tax Treaty
It is represented that Toyoflex-Japan is a corporation organized and existing under the laws of
Japan with office address at 1-25-19, Fuchu-cho, Fuchu-shi, Tokyo, Japan; that Toyoflex-Japan is not
registered either as a corporation or as a partnership and has not been licensed to do business in the
Philippines as per certification dated March 28, 2001 issued by the Securities and Exchange Commission;
that Toyoflex-Cebu is a corporation duly organized and existing under laws of the Philippines with office
address at Mactan Economic Zone I, Lapu-Lapu City; that Toyoflex-Japan owns 99.99% of the total
stockholdings of Toyoflex-Cebu equivalent to 571,976 shares of stocks; that on April 20, 2001, a Loan
Agreement was entered into by and between Toyoflex-Japan and Toyoflex-Cebu whereby Toyoflex-Japan
shall lend the amount of Ten Million Japanese Yen (JY10,000,000) to Toyoflex-Cebu; that this same
amount was advanced by Toyoflex-Japan to Toyoflex-Cebu for working capital purposes on July 5, 2000
when the Loan Agreement took effect; and that the said loan is payable on July 4, 2001 with an interest
rate of 2% per annum.
"Article 11
"1. Interest arising in a Contracting State and paid to a resident of the other Contracting
However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed:
"a) 10 per cent of the gross amount of the interest if the interest is paid in respect of
Government securities, or bonds or debentures;
"b) 15 per cent of the gross amount of the interest in all other cases.
xxx xxx xxx."
Such being the case, the interest to be remitted by Toyoflex-Cebu to Toyoflex-Japan relative to the
said loan shall be subject to Philippine withholding income tax at the preferential tax rate of 15% of the
gross amount of the interest, pursuant to Article 11(2)(b) of the RP-Japan Tax Treaty. (BIR Ruling No.
142-95)
Moreover, Section 180 of the National Internal Revenue Code (Tax Code) of 1997 provides, viz: HDIaET
"SEC. 180. Stamp Tax on All Bonds, Loan Agreements, Promissory Notes, Bills of Exchange,
Drafts, Instruments and Securities Issued by the Government or any or its Instrumentalities, Deposit
Substitute, Debt Instruments, Certificates of Deposits Bearing Interest and Others Not Payable on
Sight or Demand. — On all bonds, loan agreements, including those signed abroad, wherein the
object of the contract is located or used in the Philippines, bills of exchange (between points within
the Philippines), drafts, instruments and securities issued by the Government or any of its
instrumentalities, deposit substitute debt instruments, certificates of deposits drawing interest, orders
for the payment of any sum of money otherwise than at sight or on demand, on all promissory notes,
whether negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal
of any such note, there shall be collected a documentary stamp tax on Thirty centavos (P0.30) on
each Two hundred pesos (P200), or fractional part thereof, of the face value of any such agreement,
bill of exchange, draft, certificate of deposit, or note: Provided, That only one documentary stamp tax
shall be imposed on either loan agreement, or promissory notes issued to secure such loan, whichever
will yield a higher tax: . . . "
upon the parties to the contract and leaves the tax to be paid indifferently by either party, and accordingly,
In view thereof; the documentary stamp tax (including penalties thereto, if there are any) on the
Loan Agreement must be paid and the corresponding return thereon be filed by either Toyoflex-Japan or
Toyoflex-Cebu in accordance with the provisions of Revenue Regulations No. 9-2000 1 and the Tax Code
of 1997.
void.
Very truly yours,
By:

Deputy Commissioner
Footnotes
1. Mode of Payment and/or Remittance of the Documentary Stamp Tax (DST) under certain conditions.
October 19, 2001
Articles 12, RP-Netherlands Tax Treaty

Smart Communications, Inc.

Rufino Pacific Tower
6784 Ayala Avenue
Makati City 1226
Attention: Rina R. Manuel
Tax and Regulatory Manager
Gentlemen :
This refers to your application for relief from double taxation dated March 16, 2000, requesting
confirmation of your opinion that the payments to be made by your company to ASIA LINK, B.V. are
subject to the preferential tax rate of 10%, pursuant to the RP-Netherlands Tax Treaty.
It is represented that your company, SMART COMMUNICATIONS, INC. (SMART), is a domestic

corporation engaged in the operation of integrated telecommunications services throughout the
Philippines; that on March 8, 1994, SMART registered with the Board of Investments (BOI) as new
operator of a nationwide enhanced cellular mobile telephone system (CMTS) on preferred non-pioneer
status under the Omnibus Investments Code of 1997 (EO 226) as per Certificate of Registration No.
94-034 dated March 8, 1994; that on August 26, 1997, SMART registered anew its CMTS operations with
the BOI as an expanding operator also on a preferred non-pioneer status as per Certificate of Registration
No. 97-117 dated August 26, 1997; that in line with its operations, SMART entered into an agreement
with ASIA LINK, B.V. (ALBV), a non-resident foreign corporation domiciled in The Netherlands, for
technical support services and assistance; that under said agreement, ALBV agrees to make available to
SMART its patents, patent applications, know-how's (including engineering and manufacturing
assistance), applications and designs for the built-out and maintenance of CMTS; and that in consideration
of said services, SMART agreed to pay a royalty of two percent (2%) based on its net revenues.
In reply, please be informed that Article 12 of the RP-Netherlands Tax Treaty provides as follows:
"Article 12
"ROYALTIES
"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 enterprise registered, and engaged in preferred areas of activities in that
State; and
b) 15 per cent of the gross amount of the royalties in all other cases.
"3. The competent authorities of the States shall by mutual agreement settle the mode of
application of paragraph 2.
"4. The term 'royalties' as used in this Article means payments of any kind received as a
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,
experience.
Based on the above, considering that SMART is engaged in preferred areas of activities as certified
by the BOI, this Office hereby confirms that the royalty arising in the Philippines and payable to ALBV by
SMART, under such agreement, is subject to the preferential royalty tax rate of 10% of the gross amount
of the royalties. (BIR Ruling No. 077-96)
Furthermore, under Section 108 of the Tax Code of 1997, the royalty payments to be remitted by
SMART is subject to the 10% value-added tax. Accordingly, SMART shall, before making payment of
royalties to ALBV, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate
VAT return using BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other
Percentage Taxes Withheld) for and on behalf of ALBV. The duly validated VAT declaration/return is
sufficient evidence for SMART in claiming input tax credit. [Section 4.102.1 (b) of Revenue Regulations
No. 7-95]
In view of all the foregoing, SMART shall be responsible for the withholding of income tax at the
rate of 10% of the gross amount and the value-added tax at the rate of 10% of the contract amount.
disclosed that the said facts are different, then this ruling shall be considered null and void.
Very truly yours,
By:

Deputy Commissioner
October 19, 2001
RP-France, Art. 13
BIR Ruling Nos. UN-296-8-11-95
and DA-03902-5-98
The Law Firm of Quiason Makalintal
Barot Torres & Ibarra
21st Floor, Robinsons-Equitable Tower
4 ADB Avenue corner Poveda Street
Ortigas Center, 1605 Pasig City
Attention: Orencio F . Ibarra, Jr.

Benedict R. Tugonon
Gentlemen :
This refers to your letter dated July 26, 2001, requesting for a ruling exempting your client, Geodis
[previously named Compagnie General Calberson] (Geodis) from the payment of capital gains tax on the
sale of its 149,926 shares in Royal Cargo Corporation (Royal Cargo) in favor of Geodis Asie (Geodis
Asie) pursuant to Article 13 of the RP-France tax treaty.
It is represented that Geodis is a non-resident foreign corporation duly organized and existing under
and by virtue of the laws of France with office address at 183 Avenue de Clichy 75017 Paris, France; that
it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per
Securities and Exchange Commission (SEC) certification dated June 7, 2001; that Geodis owns 149,926
shares in Royal Cargo; that Geodis Asie is a non-resident foreign corporation duly organized and existing
under and by virtue of the laws of France with office address at 183 Avenue de Clichy 75017 Paris,
France; that it is not registered either as a corporation or as a partnership licensed to do business in the
Philippines per SEC certification dated June 28, 2001; that Royal Cargo is a domestic corporation
organized and existing under the laws of the Philippines with principal place of business at the RCC Bldg.,
Sta. Agueda cor. Pascor Drive, Parañaque, Metro Manila and engaged in the business of
freight-forwarding; that on June 6, 2001, Geodis sold its 149,926 shares in Royal Cargo to Geodis Asie.
In reply, please be informed that Article 13 of the RP-France 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
or from the alienation of shares or comparable interest in a real property cooperative or in a company
the assets of which consist principally of immovable property, may be taxed in the Contracting State
in which such property is situated. (Emphasis supplied)
State.
"3. Gains from the alienation of any property other than those mentioned in paragraphs 1
and 2, shall be taxable only in the Contracting State of which the alienator is a resident. (Emphasis
Supplied)
xxx xxx xxx"
Based on the foregoing, the gains which will be realized by Geodis from the transfer of its shares of
stock to Geodis Asie are taxable in France. However, under paragraph 1 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
read 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 Statements of Royal Cargo disclosed that its net property and
equipment located in the Philippines are valued at P74,260,466 net of depreciation as of December 31,
2000 representing only 32.36% or less than fifty percent (50%) of its total assets of P229,478,152 thereby
making the assets of Royal Cargo not consisted principally of real property interest located in the
Philippines up to the date of subject sale.
Accordingly, this Office confirms your opinion and so holds that the gains from the sale by Geodis
of its shares of stock in Royal Cargo to Geodis Asie are not subject to Philippine income tax. (BIR Ruling
UN-296-8-11-95 dated June 22, 1995 and DA-039-2-5-98)
However, the transfer of the shares of stock 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 the documentary
stamp tax, the Corporate Secretary of Royal Cargo can register the transfer of the shares from Geodis to
Geodis Asie in their respective Stock and Transfer Books and cancel and issue new stock certificates in
the name of Geodis Asie.
void.
Very truly yours,
By:
(SGD.) MILAGROS T. REGALADO

Legal Service
October 19, 2001
RP-UK Tax Treaty Article 12

Sec. 176 of the 1997 Tax Code
Punongbayan and Araullo

20th Floor, Tower I
6766 Ayala Avenue,
Makati City 1200
Attention: Vic C. Mamalateo

Tax Partner
Gentlemen :
This refers to your letter dated March 14, 2001, requesting confirmation of your opinion that
sale/transfer by Foseco Transnational Ltd. (Foseco) of its shareholdings in Burmah Castrol Philippines,
Inc. (BCPI) to Castrol Ltd. (Castrol) is not subject to Philippine income tax pursuant to the RP-United
Kingdom Tax Treaty.
It is represented that Foseco and Castrol are corporations organized and existing under the laws of
United Kingdom with the same business address at Burmah Castrol House, Piper's Way, Swindon,
Wiltshire SN3 1RE, United Kingdom; that Foseco is not registered as a corporation or partnership licensed
to do business in the Philippines as evidenced by a Certificate of Non-Registration issued by the Securities
and Exchange Commission dated February 28, 2001; that BCPI is a corporation organized and existing
under Philippine laws with office address at 2nd Floor, Adamson Centre, 121 Leviste Street, Salcedo
Village, Makati City; that as of December 31, 2000, BCPI has a total subscribed and paid-up capital of
P105,000,000.00 consisting of 1,050,000 shares broken down as follows:
NAME NO. OF SHARES
Foseco Transnational Ltd. 1,049,995

Michael D. Miller 1
Danieper Carlos 1
Chris Bennett 1
Eusebio V. Tan 1
Ma. Velia C. Sulit 1
that on February 22, 2001, Foseco and Castrol executed a Share Transfer Agreement for the transfer of the
1,049,995 shares of stocks in BCPI from Foseco to Castrol; that in consideration of the said transfer, the
sum of £2,277,582 shall be paid as a non-interest bearing intercompany loan by Foseco to Castrol; that the
assets of BCPI located in the Philippines do not consist principally of immovable property as shown in its
latest Audited Financial Statements for the year ended December 31, 1999.
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
"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 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 resident of a Contracting State from the alienation of ships and aircraft operated in
"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 Foseco, which is a resident of
the United Kingdom (UK), from the sale/transfer of its shares of stock to Castrol 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. (BIR Ruling 011-82)
However, a certificate of authority to register the said transaction in the books of BCPI must be
secured. Thus, Foseco, being a non resident 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 said Agreement and this ruling, with Revenue District Office No. 51-Pasay City (RDO 51), in order for
the latter to issue a Certificate Authorizing Registration (CAR) of the said shares of stock in favor of
Castrol. (BIR Ruling No. ITAD 44-00)
Moreover, notwithstanding this exemption, the said Agreement 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
the documentary stamp tax, the Corporate Secretary of BCPI shall register in the Stock and Transfer Book
the shares from Foseco to Castrol.
This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it will
be disclosed that the actual facts are different, then this ruling shall be considered null and void.
Very truly yours,
By:

Legal Service
October 19, 2001
Article 11 — RP-Japan Tax Treaty BIR Ruling Nos.

ITAD-40-99 & 122-00
Sanritsu Great
International Corp.
Lot 6, Block 14, Phase III,
Cavite Economic Zone
Rosario, Cavite
Attention: Masahiro Hirano

General Manager
Gentlemen :
This refers to your letter dated February 14, 2001 requesting for relief from double taxation on your
interest payments to your parent companies SANRITSU DENKI COMPANY, LTD. ("Sanritsu Denki")
and SANRITSU COMPANY, LTD. ("Sanritsu Co.") pursuant to the RP-Japan Tax Treaty.
Documents submitted show that both Sanritsu Denki and Sanritsu Co are nonresident foreign
corporations duly organized and existing under and by virtue of the laws of Japan; that both corporations
are not licensed to engage in business in the Philippines per Securities and Exchange Commission (SEC)
certificates dated February 09, 2001 and February 05, 2001, respectively; that SANRITSU GREAT
INTERNATIONAL CORPORATION ("Sanritsu Great International") is a corporation duly organized
and existing under Philippine laws; that on October 09, 2000, Sanritsu Great International entered into
two (2) memoranda of agreement whereby it acknowledges and agrees to pay the principal amount of its
indebtedness or outstanding obligations to the following: a) Sanritsu Denki, amounting to One Hundred
Forty Six Million Six Hundred Twenty Four Thousand Four Hundred Sixty Five Yen (JPY146,624,465) as
of June 30, 2000 at six (6%) percent interest per annum; and b) Sanritsu Co., amounting to One Hundred
Six Million Three Hundred Sixty Seven Thousand Eight Hundred Seventy Six Yen (JPY106,367,876) as
of June 30, 2000 at six (6 %) percent interest per annum.
"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
"(a) 10 per cent of the gross amount of the interest if the interest is paid in respect of
Government securities, or bonds or debentures;
"(b) 15 per cent of the gross amount of the interest in all other cases. (Emphasis
supplied)
"(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
incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the interest,
shall not exceed 10 per cent of the gross amount of the interest.
"xxx xxx xxx
"(5) The term "interest" as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from Government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures.
"xxx xxx xxx
Based on the foregoing, the interest payments will be taxed at a preferential rate of not exceeding
ten per cent (10%), if the interest is paid in respect of government securities, or bonds or debentures, or if
the company paying the interest, being a resident of the Philippines, is registered with the Board of
Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of
the Philippines, and in all other cases, fifteen per cent (15%) of the gross amount of the interest.
Such being the case, the interest income to be remitted by Sanritsu Great International to Sanritsu
Denki and Sanritsu Co. relative to the aforementioned agreements shall be subject to the preferential tax
rate of 15% based on the gross amount of the interest pursuant to Article 11(2)(b) of the RP-Japan Tax
Treaty. (BIR Ruling Nos. ITAD-40-99 & ITAD 122-00)
Moreover, the Loan Agreement executed by and between them shall be subject to the documentary
stamp tax under Section 180 of the Tax Code of 1997.
Very truly yours,
By:

Deputy Commissioner
October 19, 2001
Article 11 (2), RP-Singapore

BIR Ruling No. ITAD 128-00 and

6760 Ayala Avenue, Makati City
Attention: Mr. Lauris L. Dela Peña

Tax Partner
Gentlemen :
This refers to your application for relief from double taxation dated March 22, 2001, on behalf of
your client, NEC Technologies Phils., Inc. (NTEP), requesting confirmation of your opinion that the
interest payments of NTEP to NEC Business Coordination Centre (Singapore) Pte., Ltd. (NEC BCCS) are
subject to the preferential tax rate of fifteen (15%) per cent under Article 11(2) of the RP-Singapore Tax
Treaty.
It is represented that NEC BCCS is a non-resident foreign corporation duly organized and existing
under and by virtue of the laws of Singapore with principal address at #7 Temasek Boulevard #07-01/03
Suntec Tower One, Singapore; that it is registered and licensed by the Securities and Exchange
Commission to establish a regional or area headquarters in the Philippines subject to the provisions of the
Omnibus Investments Code of 1987 and its implementing rules and regulations as evidenced by S.E.C.
License No. F-1997-00009 dated May 7, 2001; that NTEP is a domestic corporation organized and
existing under the laws of the Philippines, with office address at the Mactan Economic Zone, Lapu-Lapu
City, Cebu; that by virtue of a Loan Agreement dated February 20, 2001, NTEP contracted two (2)
interest-bearing loans with NEC BCCS amounting to Eight Hundred Thousand Dollars (US$800,000.00)
each with drawdown dates at the time of the execution of the Agreement (i.e., February 20 and 26, 2001,
respectively); that NTEP shall be charged for interests at the annual rate of 5.70% and 5.65% for the loans
respectively contracted on February 20 and February 26, 2001; that both loans shall be repayable on
March 26, 2001.
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
2. However, such interest may be taxed in the Contracting State in which it arises, and
according to the law of that State, but if the recipient is the beneficial owner of the
interest the tax so charged shall not exceed 15 per cent of the gross amount of the
interest. The competent authorities of the Contracting States shall by mutual agreement
settle the mode of application of this limitation.
xxx xxx xxx
4. The provisions of paragraphs 1 and 2 shall not apply if the recipient of the interest,
being a resident of a Contracting State, carries on in the other Contracting State in
which the interest arises a trade or business through a permanent establishment situated
therein, or performs in that other State professional 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 7 or Article 14, as the case may be, shall apply.
xxx xxx xxx
In other words, if the recipient of the income is the beneficial owner of the interest, the tax so
charged shall not exceed 15% of the gross amount of the interest. This, however, does not apply if the
recipient of the interest, being a resident of a Contracting State (Singapore), carries on in the other
Contracting State (Philippines) in which the interest arises, a trade or business through a permanent
establishment situated therein.
As regards the definition of the term "permanent establishment", Article 5 of the RP-Singapore Tax
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.
2. The term "permanent establishment" includes specially but is not limited to:
a) A seat of management;
b) A branch;
c) An office;
d) A store or other sales outlet;
e) A factory;
f) A workshop;
g) A warehouse, in relation to a person providing storage facilities for others;
h) A mine, quarry, or other place of extraction of natural resources;
i) A building site or construction or assembly project or installation project or

supervisory activities in connection therewith, provided such site, project or
activity continues for a period more than 183 days; and
j) The furnishing of services, including consultancy services, by a resident of one

of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within
the other Contracting State for a period or periods aggregating more than 183
days.
xxx xxx xxx
On the basis of the aforegoing, since the activities of the regional or area headquarters established
in the Philippines by a multinational corporation shall be limited only to acting as a supervisory,
communications and coordinating center for its subsidiaries, affiliates and branches in the Asia Pacific
Region, then NEC BCCS' registration as a regional or area headquarters in the Philippines pursuant to
Article 58 of Executive Order 226, otherwise known as the Omnibus Investments Code of 1987, will not
create a "permanent establishment" within the purview of Article 5 of the RP-Singapore Tax Treaty. (BIR
Ruling No. 094-96 dated August 30, 1996)
In view thereof, since the subject interest income of NEC BCCS is not attributable to a permanent
establishment situated in the Philippines nor renders professional services from a fixed base in the
Philippines, and being the beneficial owner of the interest income arising in the Philippines, your opinion
that the interest payments by NTEP to NEC BCCS relative to the loan shall still qualify to a preferential
withholding tax rate of 15% of the gross amount of the interest pursuant to Article 11(2) of the
RP-Singapore Tax Treaty, is hereby confirmed. 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.
[BIR Ruling No. ITAD-128-00 dated September 1, 2000)
void.
Very truly yours,
By:

Deputy Commissioner
October 18, 2001
Art. 14, RP-Australia Tax Treaty

Saigon Company Phils. Inc.

6/F S&L Building
1500 Roxas Blvd., Ermita, Manila
Attention: Ms. Concepcion C. Santos

Financial Controller
Gentlemen :
This refers to your application dated August 10, 2000, on behalf of MS. SUZANNE STROUT, for
the availment of the preferential withholding tax rate on her income as Deputy for the Principal Costume
Designer of your company for a musical play entitled "Miss Saigon" pursuant to the RP-Australia Tax
Treaty.
It is represented that Ms. Strout is an Australian citizen and a holder of an Australian passport with
no. K0207460 issued by Australian Government; that she is a resident of No. 9 Hilcot Street, Ashbury
NSW 2193 Australia; that on May 23, 2000, Ms. Strout entered into a contract with your Company as
Deputy for the Principal Costume Designer (Andreane Neofitou); that pursuant to the said contract, Ms.
Strout will carry out all the duties of a first class professional Associate Costume Designer for a first class
live stage production of "Miss Saigon", which includes the duties to incorporate into the production the
existing London designs created by Andreane Neofitou and for this purpose to make herself available on
location as and when required in accordance with the production schedule; that in consideration for such
services, your company will pay Ms. Strout a fee of Twenty Five Thousand Australian Dollars ($AUD
25,000.00), fifty percent (50%) of which is payable upon signing of the contract and the other half will be
payable on the first preview of "Miss Saigon"; and that Ms. Strout will stay in the Philippines for an
approximate period of forty four (44) 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,
so much of the income derived by him as is attributable to activities so performed may be

taxed in the other State.
2. The Treasurer of Australia and the Minister of Finance of the Philippines may agree in
letters exchanged for the purpose to variations in the amount specified in
sub-paragraph (c) of paragraph (1) and any variations so agreed shall have effect
according to the tenor of the letters.
3. The term "professional services" includes services performed in the exercise of

independent scientific, literary, artistic, educational or teaching activities, as well as in
the exercise of independent activities of physicians, lawyers, engineers, architects,
dentists and accountants."
Under the above-quoted provision of the RP-Australia Tax Treaty, the presence of at least one of
the three conditions is sufficient to make the income from sources within the Philippines of a resident of
Australia taxable in the Philippines: i.e., a) presence of a fixed base, b) stay in the Philippines for a period
of at least 183 days, and c) the income exceeds ten thousand Australian dollars.
In the instant case, the third condition is present inasmuch as Ms. Strout's income exceeds ten
thousand Australian dollars ($AUD10,000) in a year. Hence, the said income (amounting $ AUD
25,000.00) of Ms. Strout as a nonresident alien not engaged in trade or business in the Philippines is
subject to a final withholding tax in the Philippines at the rate of 25% pursuant to Section 25 (B) of the
Tax Code of 1997 as implemented by Revenue Regulations No. 2.98, Section 2.57-1(c)(1) in relation to
Art. 14(1)(c) of the RP-Australia Tax Treaty. (BIR Ruling No. ITAD 89-00)
Under the final withholding tax system, the amount of income tax withheld by your company is
constituted as a full and final payment of the income tax due from Ms. Strout on the said income. The
liability for payment of the tax rests primarily on your company as a withholding agent. Thus, in case of
your company's failure to withhold the tax or in case of under withholding, the deficiency tax shall be
collected from your company since Ms. Strout is not required to file an income tax return for the particular
income pursuant to Section 51(A)(2)(c) of the Tax Code of 1997. [Revenue Regulations No. 2.98, Section
2.57(A)]
Very truly yours,
By:

Deputy Commissioner
Legal & Enforcement Group
October 18, 2001
RP-Japan, Art. 5 & 7

Sankou Seiki Co., Ltd. Inc.

Lot 8 Blk 14 Phase 3
Cavite Economic Zone (CEZ)
Rosario, Cavite
Attention: Tsutomu Seki

President and CEO
Gentlemen :
This refers to your letter dated May 29, 2001 requesting confirmation of your opinion that the
income derived by International Manufacturing and Engineering Services Co., Ltd. (IMES) as a consultant
of your Company, is exempt from withholding taxes pursuant to the RP-Japan Tax Treaty.
It is represented that IMES is a corporation organized and existing under the laws of Japan with
principal office address at 3 Kirihara-cho Fujisawa-shi, Kanagawaken, Japan; that it is not registered as a
corporation/partnership licensed to do business in the Philippines per certification dated May 24, 2001
issued by the Securities and Exchange Commission; that Sankou Seiki Co., Ltd., Inc. (Sankou) is a
corporation organized and existing under the laws of the Philippines with principal office address at Lot 8
Blk 14 Phase 3 Cavite Economic Zone (CEZ) Rosario, Cavite and is primarily engaged in the manufacture
of computer peripherals; that on January 1, 2001, IMES and Sankou entered into a Management and
Engineering Consulting Agreement whereby the former is appointed by the latter as its consultant; that
IMES, being the consultant, shall provide consultancy services to Sankou in the areas of management,
engineering and manufacturing which include but not limited to the following: 1) to recommend and
advise Sankou in the development of its financial, operation and planning system and on the improvement
of management systems and organizational structures; 2) to advise and assist Sankou in the development
of the ingenious production control system and with the on going management; 3) to review and comment
on the engineering plans for adoption; 4) to advise Sankou on the preparation of quality control system for
the materials and equipment used in the manufacturing and operation of the business; and 5) to procure
materials and equipment suitable for the operation of the business of Sankou which are not available in the
Philippines; that in consideration for the said services, Sankou shall pay IMES a fee in the amount of
JPY20,589,600; that the consultancy services are done at the consultant's office at 3 Kirihara-cho
Fujisawa-shi, Kanagawa-ken, Japan and shall commence on January 1, 2000 for a period of one year and
shall be automatically extended for another year unless either party discontinues the Agreement by written
notice within 30 days prior to the end of the period.
"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) and (6) of Article 5 of the said treaty provide, viz:
"Article 5
"1. For the purposes of this Convention, the term "permanent establishment" means a fixed
place of business through which the business of an enterprise is wholly or partly
carried on.
"xxx xxx xxx"
"6. An enterprise of a Contracting State shall be deemed to have a permanent

establishment in the other Contracting State if it furnishes in that other Contracting
State consultancy services, or supervisory services in connection with a contract for a
building, construction or installation project through employees or other personnel —
other than an agent of an independent status to whom paragraph 7 applies — provided
that such activities continue for the same project or two or more connected projects)
for a period or periods aggregating more than six months within any taxable year.
However, if the furnishing of such services is effected under an agreement between the
Governments of the two Contracting States regarding economic or technical
cooperation, that enterprise shall, notwithstanding any provisions of this Article, not be
deemed to have a permanent establishment in that other Contracting State.
"xxx xxx xxx"
Based on the aforequoted provisions, it is clear that if a corporation which is a resident of Japan
carries on business in the Philippines through a permanent establishment situated therein, the profits of the
same shall be subject to Philippine income tax, but only so much of them as is attributable to that
permanent establishment. For this purpose, a corporation which is a resident of Japan may be deemed to
have a permanent establishment in the Philippines if, among others, the furnishing of consultancy or
supervisory services by such corporation, through its employees or other personnel, in the same or
connected project, continue with in the Philippines for a period or periods aggregating more than six
months in any taxable year except when the furnishing of such services is effected under an agreement
between the Governments of Japan and Philippines regarding economic or technical cooperation, in which
case, the corporation shall not be deemed to have a permanent establishment in the Philippines.
Considering that the furnishing of services is performed by IMES in its office in Japan and none of
its personnel will arrive or stay in the Philippines, IMES is not deemed to have a permanent establishment
in the Philippines to which its business profits may be attributed to. Therefore, the consultancy income
derived by IMES from services rendered is not subject to Philippine tax pursuant to Article 7(1) in relation
to Article 5(1) and (6) of the RP-Japan Tax Treaty. (BIR Ruling No. ITAD-101-00 dated August 7, 2000)
void.
Very truly yours,
By:

Deputy Commissioner
October 18, 2001

French Embassy
FRENCH EMBASSY / TRADE COMMISSION
Poste d'Expansion Economique
34 A & B Rufino Tower
Gentlemen :
This has reference to your letter dated September 25, 2001 referred to this Office by the
Department of Foreign Affairs (DFA), requesting for the exemption from value-added tax (VAT) and ad
valorem tax for a locally purchased car, one (1) unit of 2001 Honda CRV 2.0 M/T for the official use of
the French Embassy specifically described as follows:
Type of use: Official
Make: Honda CRV 2.0 M/T (5 door sedan, gas 2.0li.,

PGM-FI, 5-speed manual transmission, 150 hp)
Model year: 2001
Color: Taffeta White
Chassis Number: PADRD 17201V303088
Engine Number: PEWD2-1403099
"Article 34
"(a) indirect taxes of a kind which are normally incorporated in the price of
the goods and services;
"xxx xxx xxx"
exemption to the French Embassy or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs as of September 4, 2001 that your
Government allows similar exemption to Philippine Embassy personnel on their purchase of goods and
services in your country.
Hence, the local purchase of one (1) Honda CRV 2.0 M/T, for the official use of the French
Embassy is exempt from VAT and ad valorem taxes. (BIR Ruling No. ITAD-53-01)
Very truly yours,

Legal Service
October 17, 2001

Art. 12, RP-Denmark Tax Treaty
Eagle Broadcasting Corporation

Maligaya Building 2
287 Edsa, Quezon City
Attention: Atty. Susan C. Tuazon

Corporate Secretary
Gentlemen :
This refers to your application for tax treaty relief dated December 11, 2000 requesting
confirmation of your opinion that the royalty payment of Eagle Broadcasting Corporation to Planet
Pictures, Limited is subject to withholding tax at the rate of 25% pursuant to Article 13(2)(b)(iii) of the
RP-US Tax Treaty in relation to the RP-Denmark Tax Treaty.
It is represented that Planet Pictures, Ltd. 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 licensed to do business in the Philippines as per certification issued by the
Securities and Exchange Commission dated March 23, 2000; that Eagle Broadcasting Corporation is a
corporation duly organized and existing under Philippine Laws; that it currently maintains UHF TV
Channel 25; that Eagle Broadcasting Corporation and Planet Pictures, Ltd. entered into a Standard
Telecast License Agreement whereby the latter granted the former an exclusive license to broadcast the
following programs:
Contract Date of Agreement Program Title Term

Number
090999-1 September 9, 1999 "Living Right" 2 years

[November 1, 1999
to October 31, 2001
091099 September 10, 1999 "Concrete Jungle" 2 years
[November 1, 1999
to October 31, 2001
091599 September 15, 1999 "Futures" 2 years

[November 1, 1999
to October 31, 2001
that in consideration of the aforementioned licenses, Eagle Broadcasting Corporation agreed to pay Planet
Pictures, Ltd. the following:
Contract No. License Fee
090999-1 US$800.00 per hour, total license fee of US$7,600, less

applicable withholding tax
091099 US$800.00 per hour, total license fee of US$4,800, less

091599 US$800.00 per hour, total license fee of US$26,000, less

In reply, please be informed that Article 13 of the RP-US Tax Treaty provides as follows, viz: aSADIC
"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 percent of the gross amount of the
royalties, and
b) In the case of the Philippines, the least of:
i) 25 percent of the gross amount of the royalties,
ii) 15 percent of the gross amount of the royalties, where the royalties are
paid by a corporation registered with the Philippine Board of
Investments and engaged in preferred areas of activities, and
iii) the lowest rate of Philippine tax that may be imposed on royalties of
the same kind paid under similar circumstances to a resident of a
third State. (Emphasis supplied)
3. The term "royalties" as used in this article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific
work, including cinematographic films or films or tapes used for radio or television
broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or
other like right or property, or for information concerning industrial, commercial or
scientific experience. The term "royalties" also includes gains derived from the sale,
exchange or other disposition of any such right or property which are contingent on the
productivity, use, or disposition thereof.
xxx xxx xxx"
Article 13(2)(b)(iii) of the RP-US Tax Treaty speaks of 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."
This is known as the most favored nation clause of the RP-US Tax Treaty. The purpose of a most favored
nation clause is to grant to the Contracting State treatment no less favorable than that which has been or
may be granted to the "most favored" among other countries and the provisions of Article 12 of the
RP-Denmark Tax Treaty, particularly the preferential tax rate of 15%, may be made to apply in the case of
Planet Pictures, Ltd..
Article 12 of the RP-Denmark 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, the royalties may also be taxed in the Contracting State in which they arise and
according to the laws of that State, but if the recipient is the beneficial owner of the royalties
the tax so charged shall not exceed 15 per cent of the gross amount of the royalties.
The competent authorities of the Contracting States may by mutual agreement settle the
mode of application of this limitation.
xxx xxx xxx"
In the case of Commissioner of Internal Revenue vs. SC. Johnson and Son, Inc. and Court of
manner of payment of taxes. A perusal of the RP-US and RP-Denmark Tax Treaty provisions on the
elimination from double taxation show 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, the royalties payable by Eagle Broadcasting Corporation to Planet Pictures,
Ltd. under their Standard Telecast License Agreement are subject to Philippine tax at the rate of fifteen
percent (15%), in accordance with Article 12(2) of the RP-Denmark Tax Treaty, in relation to Article
13(2)(b)(iii) of the RP-US Tax Treaty. (BIR Ruling No. ITAD-123-00 dated September 1, 2000)
Furthermore, under Section 108 of the said Code, the royalty payments to be remitted by Eagle
Broadcasting Corporation is subject to ten percent (10%) value added tax. Section 4.102-1(b) of Revenue
Regulations No. 7-95 provides that:
In view of all the foregoing, Eagle Broadcasting Corporation shall be responsible for the
withholding of income tax at the rate of 15% of the gross amount of royalties and the value-added tax at
the rate of 10% of the contract amount. HDITCS
void.
Very truly yours,
By:

Deputy Commissioner
October 17, 2001
Sec. 32 (B) (7) (a) (ii) of the 1997 Tax Code

H & Q Philippine Venture II Inc.

22nd Floor, Equitable PCIBank Tower 2
Attention: Ms. Mel Evangelista
Gentlemen :
This refers to your letter dated November 20, 2000, requesting confirmation of your opinion that
the cash dividend to be paid by H & Q Philippine Venture II, Inc. (H&Q) to Commonwealth Development
Corporation (CDC) is exempt from Philippine tax pursuant to Section 32(B)(7)(a)(ii) of the Tax Code of
1997.
It is represented that H&Q is a corporation organized and existing under the laws of the Philippines;
that CDC is a corporation established by the Act of Parliament of United Kingdom (UK) for the purpose
of assisting in the economic development of certain countries; that, in particular, CDC is empowered to
operate in the Philippines based on the Agreement between the Government of the Philippines, as
represented by Secretary of Finance Roberto F. de Ocampo, and CDC, as represented by His Excellency
Ambassador Adrian C. Thorpe, on September 3, 1997; that CDC is recognized by the Philippine
Government as a financing institution owned and controlled by the UK Government as contemplated
under Section 28(b)(8)(A)(ii) [now Section 32(B)(7)(a)(ii)] of the Philippine Tax Code; that as of October
31, 2000, CDC owns 23,786 of H&Q's issued and outstanding shares as certified by the Assistant
Corporate Secretary of H&Q dated November 20, 2000; and that on September 20, 2000, H&Q's Board of
Directors declared cash dividend in the amount of Eighty Million Pesos (P80,000,000.00) or
P326,5306122 per share in favor of common stockholders of record as of October 31, 2000 in proportion
to their respective common shareholdings as of said record date, payable on or before December 5, 2000.
In reply, please be informed that Section 32(B)(7)(a)(ii) of the Tax Code of 1997 provides as
follows:
"Section 32. Gross Income. —
"xxx xxx xxx
"(B) Exclusions from Gross Income — The following items shall not be included in gross
"xxx xxx xxx
"(7) Miscellaneous Items —
"(a) Income Derived by Foreign Government. — Income derived from investments in the
Philippines in loans, stocks, bonds or other domestic securities, or from interest on
deposits in banks in the Philippines by
"(i) foreign governments,
"(ii) financing institutions owned, controlled, or enjoying refinancing from foreign

governments, and
"(iii) international or regional financial institutions established by foreign

governments"
Such being the case and since CDC is recognized by the Philippine Government as an international
financing institution owned and controlled by the UK Government as contemplated under the
above-quoted provision, this Office is of the opinion and so holds that the dividend to be paid by H&Q to
CDC shall not be subject to Philippine income tax and consequently to the withholding tax. (BIR Ruling
No. 013-96 dated February 14, 1996)
be disclosed that the facts are different, this ruling shall be considered null and void.
Very truly yours,
By:

Deputy Commissioner
October 12, 2001
Article 12, RP-Netherlands


14th Floor, Multinational
Bancorporation Centre
6805 Ayala Avenue
1226 Makati City, Manila
Attention: Mr. Alexander B. Cabrera

Partner, Tax Services Department
Gentlemen :
This refers to your application for relief from double taxation dated June 1, 2000 on behalf of your
client Halifax Davao Hotel, Inc. (HDHI) requesting for a preferential tax rate of 10% on its royalty
payments to Marco Polo Hotels Licensing B.V. (MPHLBV) pursuant to Article 12(2)(a) of the
RP-Netherlands Tax Treaty.
It is represented that HDHI is a corporation duly organized and existing under and by virtue of the
laws of the Philippines with principal address at C.M. Recto Street, Davao City, Philippines; that HDHI is
registered with the Board of Investments (BOI) as a pioneer enterprise [new operator of tourist
accommodation facilities (hotel)] per Certificate of Registration No. 97-182 dated August 13, 1997; that
MPHLBV is a corporation duly organized and existing under the laws of Netherlands with registered
office at Emmaplein 5, 1075 AW, Amsterdam, the Netherlands; that it is not registered as a
Securities and Exchange Commission (SEC) dated September 4, 2000; that on May 16, 1996 and on
October 14, 1997, HDHI entered into a Trademark License Agreement and Amendment to the Trademark
License Agreement, respectively, with MPHLBV, whereby the latter granted the former exclusive license
to operate a hotel in Davao City under the Marco Polo trademark; that in consideration for the said rights,
MPHLBV shall receive royalty fees equivalent to zero point five percent (0.5%) of the hotel's gross
revenue payable in United States dollars; and that the said Trademark License Agreement and its
Amendment are 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. 2029 dated October 20, 1997, which is valid until May 15, 2001.
In reply, please be informed that Article 19 of the RP-Netherlands Tax Treaty provides, viz:
"Article 12
ROYALTIES
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
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
"3. The competent authorities of the States shall by mutual agreement settle the mode of
consideration for the use of, or the right to use, any copyright of literary, artistic or
scientific work including cinematograph films or tapes for radio or television
broadcasting, any patent, trademark, design or model, plan, secret formula or process,
or for the use of; or the right to use, industrial, commercial or scientific equipment, or
for information concerning industrial, commercial or scientific experience.
"xxx xxx xxx"
Based on the foregoing, royalties arising in the Philippines and paid to a resident of the Netherlands
may be subject to Philippine tax at a rate not to exceed 10 percent of the gross amount of 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.
Such being the case and since HDHI is BOI-registered and engaged in preferred areas of activities
in the Philippines, this Office hereby confirms your opinion that the royalty remittances of HDHI to
MPHLBV are subject to tax at a rate of 10 percent of the gross amount of the royalties. (BIR Ruling No.
77-96 dated July 12, 1996)
Finally, under Section 108 of the Tax Code of 1997, such royalty payments are subject to the 10%
value-added tax (VAT). Accordingly, HDHI shall, before making payment of royalties to MPHLBV,
withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate VAT return using
BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes
Withheld) for and on behalf of MPHLBV. The duly validated VAT declaration/return is sufficient
evidence for HDHI in claiming input tax credit. [Section 4.102.1(b) of Revenue Regulations No. 7-95]
void.
Very truly yours,
By:

Deputy Commissioner
October 10, 2001
Article 12, RP-Netherlands BIR Ruling No. ITAD-67-00 BIR Ruling No. ITAD-54-99 BIR Ruling No.
ITAD-141-00
Castillo Laman Tan Pantaleon &

San Jose Law Offices
The Valero Tower, 122 Valero Street
1227 Makati City
Attention: Atty. Dina D. Lucenario/

Atty. J. Gregson A. Castillo
Gentlemen :
This refers to your application for relief from double taxation dated November 22, 2000 on behalf
of your client Pascual Laboratories, Inc. (Pascual) requesting for a preferential tax rate of 15% on its
royalty payments to MundiPharma B. V. (MundiPharma) pursuant to the RP-Netherlands Tax Treaty.
It is represented that MundiPharma B.V. is a non-resident foreign corporation duly organized and
existing under the laws of Netherlands with principal office at Van Alkemadelaan 1, 2597 A Den Haag,
The Netherlands; that it is not registered as a corporation or partnership licensed to do business in the
Philippines as per certification issued by the Securities and Exchange Commission dated January 4, 2001;
that Pascual is a company organized and existing under the laws of the Philippines with principal office at
817 E. de los Santos Avenue, Quezon City; that on December 21, 2000, MundiPharma has entered into a
Manufacturer’s License Agreement (MLA), Distributor’s License Agreement (DLA) and a Technical
Assistance Agreement (TAA) with Pascual; that under the MLA and the DLA, in consideration of
royalties from Pascual to MundiPharma, the latter grants the former the license to manufacture, package,
warehouse, use, distribute, market, promote and sell as well as to package within the Philippines (the
“Territory”) certain pharmaceutical preparations (the “Preparations”) using the know-how, trademarks and
patents owned or licensed by MundiPharma; that under the TAA, in consideration of technical fees,
MundiPharma agrees to provide Pascual technical assistance (i.e., certain of MundiPharma’s proprietary
and confidential procedures and technical expertise, knowledge and experience) as necessary to assist
Pascual in the manufacture of the Preparations within the Territory.
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
“2. However, such royalties may also be taxed in the State in which they arise, and
so charged shall not exceed: HTSaEC
“a) 10 per cent of the gross amount of the royalties where the royalties are
paid by an enterprise registered, and engaged in preferred areas of activities in that
State; and
“b) 15 per cent of the gross amount of the royalties in all other cases.
“3. The competent authorities of the States shall by mutual agreement settle the mode of
“4. The term “royalties” as used in this Article means payments of any kind received as a
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 tax at a rate not to exceed ten percent (10%) of the gross amount of royalties
where such are paid by an enterprise registered and engaged in preferred areas of activities or fifteen
percent (15%) of the gross amount of royalties in all other cases.
The tax treaty defines "royalties" to include "payments of any kind received as a consideration for
information concerning industrial, commercial or scientific experience." According to the Commentaries
of the ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(Royalties), © 1998, p. 151), such information alludes to the concept of "know-how". The definition of
know-how, which has been adopted by the said Committee, is "all the undivulged technical information,
whether capable of being patented or not, that is necessary for the industrial reproduction of a product or
process, directly and under the same conditions; inasmuch as it is derived from experience, know-how
represents what a manufacturer cannot know from mere examination of the product and mere knowledge
of the progress of technique." In the know-how contract, one of the parties agrees to impart to the other,
so that he can use them for his own account, his special knowledge and experience which remain
unrevealed to the public. (BIR Ruling No. ITAD-67-00 dated April 7, 2000)
Such being the case and since both the license fees under MLA and DLA and the technical fees
pursuant to the TAA to be paid by Pascual 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 are, therefore, royalties within the meaning of the aforequoted article, this Office is of the
opinion and so holds that both are subject to the preferential tax rate of 15 percent of the gross amount of
royalties. (BIR Ruling No. ITAD 54-99 dated December 23, 1999 and ITAD No. 141-00 dated September
19, 2000)
Moreover, the said royalty payments are subject to the 10% value-added tax (VAT) pursuant to Sec.
108 of the Tax Code and that Pascual shall, before making payments of royalties to MundiPharma,
withhold and remit to this Bureau the 10% VAT due thereon by filing a separate VAT return for and on
behalf of MundiPharma using BIR Form 1600. The duly validated VAT declaration/return is sufficient
evidence for Pascual in claiming input tax credit (Sec. 4.110-3(b) of the Revenue Regulations No. 7-95).
void.
Very truly yours,
By:

Deputy Commissioner
October 5, 2001

Sec. 176, NIRC
Romulo Mabanta Buenaventura Sayoc

& De Los Angeles
30th Floor, Citibank Tower
Citibank Plaza
8741 Paseo De Roxas
Makati City
Attention: Ms. Wilma M. Valdemoro-Cua

Mr. Jayson L. Fernandez
This refers to your letter dated July 25, 2001 requesting confirmation of your opinion to the effect
that the gains derived by onQ Holdings, Inc. ("onQ") from the sale of its shares in onQ Technology
Philippines, Inc. ("onQ Phils.") to Device Dynamics, Inc. ("DDI") are not subject to capital gains tax
pursuant to the RP-US tax treaty.
It is represented that onQ is a corporation duly organized under the laws of the State of Delaware,
U.S.A. with office address at 8201 E. Riverside Drive, Suite 100, building Four, Austin Texas; that it is
not registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification issued by the Securities and Exchange Commission dated July 23, 2001 and is the registered
holder of Twenty Eight Thousand (28,000) shares of stock and subscription rights to Seven Hundred Sixty
Eight Thousand Five Hundred Forty Five (768,545) shares of stock all with a par value of One Hundred
Pesos (P100) in onQ Phils.; that onQ Phils. is a corporation duly organized under the laws of the Republic
of the Philippines; that DDI is a corporation organized and existing under the laws of the State of
Delaware, U.S.A.; and that on June 29, 2001, by virtue of the Stock Purchase Agreement executed by and
between onQ and DDI, onQ sold to DDI the total of 28,000 shares of stock and its subscription rights of
768,545 shares of stock in onQ Phils..
In reply, please be informed that Article 14 of the RP-US tax treaty provides as follows:
"Article 14
CAPITAL GAINS
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 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 provisions of Article 13.
in Article 7 (Income From Real Property) shall be taxable only in the Contracting State
of which the alienator is a resident."
xxx xxx xxx"
On the other hand, the Reservation Clause of the RP-US tax treaty, in pertinent part, provides:
"Article 1
consist principally of a real property interest located in the country. Likewise, both countries may tax
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;"
xxx xxx xxx"
It is clear from the aforequoted provisions that any capital gains which may be derived by onQ from
the alienation of any property other than those mentioned in paragraph (1) of Article 14 or in Article 7
(Income From Real Property) of the RP-US tax treaty shall be taxable only in the State where the alienator
is a resident. It is to be noted, however, 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 (a) and (b), Revenue Regulations No. 4-86)
Verification of the Audited Financial Statements as of December 31, 2000 of onQ Phils. disclosed
that its real property interest is valued at P18,734,279 or 18% of total assets, thereby making the assets of
onQ Phils. not principally consisted of real property interest located in the Philippines.
Accordingly, this Office is of the opinion and so holds that the gains derived by onQ Holdings, Inc.
from the sale of its shares in onQ Technology Philippines, Inc. to Device Dynamics, Inc. are not subject to
capital gains tax. (BIR Ruling No. ITAD 40-01 dated April 6, 2001).
However, the Stock Purchase Agreement entered into by and between onQ Holdings, Inc. and
Device Dynamics, Inc. 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 tax thereon, the corporate secretary
of onQ Technology Philippines, Inc. shall then be authorized to register the transfer of shares from onQ
Holdings, Inc. to Device Dynamics, Inc. in the Stock and Transfer Book of the corporation and to cancel
and issue new certificates in the name of DDI.
void.
Very truly yours,
By:

Legal Service
October 3, 2001
RP-US Tax Treaty Art. 14

Tax Code of 1997 - Sec. 176
BIR Ruling No. ITAD - 127-00

Sycip Law — All Asia Capital Centre
105 Paseo de Roxas
Makati City 1226
Attention: Atty. Angel M. Salita, Jr.

Atty. Roel A. Refran
Gentlemen :
This refers to your letter dated January 9, 2001, on behalf of your client The Prudential Insurance
Company of America (PICA), requesting for exemption from Philippine tax on any gain that it may derive
from the transfer of its shares of stock in The Prumerica Life Insurance Company, Inc. (Prumerica) to
Prumerica International Insurance Holdings, Ltd. (PIIHL) pursuant to Article 14 of the RP-US Tax Treaty.
It is represented that PICA is a corporation duly organized and existing under the laws of the State
of New Jersey, USA with business address at 751 Broad Street, Newark, New Jersey, USA; that it is not
registered either as a corporation or as a partnership licensed to do business in the Philippines per
certification issued by the Securities and Exchange Commission dated September 7, 2000; that PICA is the
registered owner of 2,500,000 shares (inclusive of 5 nominal shares) in Prumerica, a domestic corporation
with office address at 22nd Floor Multinational Bancorporation Centre, 6805 Ayala Avenue, Makati City;
that on August 18, 2000, PICA executed a Deed of Assignment covering all of the said 2,500,000 shares in
favor of PIIHL, a corporation duly organized and existing under the laws of the State of Delaware, USA
with registered office address at 1013 Centre Road, Wilmington, Delaware, USA; and that although the
Deed of Assignment is dated August 18, 2000, the said shares cannot be actually transferred to PIIHL due
to the required tax clearance in relation for such transfer.
"Article 14
"CAPITAL GAINS
"(1) Gains from the alienation of tangible personal (movable) property forming part of the
"(2) Gains from the alienation of any property other than those mentioned in paragraph 1 or
Furthermore, the Reservation Clause of the same treaty provides, in part, as follows:
"Article 1
"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 the country. Likewise, both countries may tax
have the meaning it has under the law of the country in which the underlying real property is
located."
Based on the aforequoted provisions, it is clear that any gains which may be derived by PICA 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. But, under the Reservation
Clause of the same treaty, the Philippines may tax the gains derived from the disposition of interest in a
corporation if its assets consist principally of real property interests located in the Philippines. "Real
Property Interest" means properties enumerated in Section 3 of Revenue Regulations No. 4-86 which, are
not, however, exclusive of others that are similarly situated. As used in the treaties and in the Regulations,
it shall be understood to include real properties as understood under Philippine Laws. Moreover,
"Principally" means more than 50% of the entire assets in terms of value. (Sec. 2 (a) and (b), Revenue
Regulations No. 4-86).
Verification of the Audited Financial Statement of Prumerica disclosed that its net property and
equipment located in the Philippines are valued at P58.3M in 1999 and P33.2M in 1998, representing less
than fifty percent (50%) of its total assets of P416.7M and P334.9M, respectively, thereby making the
assets of Prumerica not consisting principally of real property interest located in the Philippines.
Accordingly, your opinion is hereby confirmed that any gain derived by PICA from the transfer
from its shares of stock in Prumerica to PIIHL is not subject to capital gains tax as imposed under Section
28(B)(5)(c) of the National Internal Revenue Code (Tax Code) of 1997.
However, a certificate of authority to register the said transaction in the books of Prumerica must be
secured. Thus, PICA, 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. 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
PICA. (BIR Ruling No. ITAD 127-00)
Likewise, the Deed of Assignment 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 the documentary stamp
tax, the Corporate Secretary of Prumerica can register in the Stock and Transfer Book the shares from
PICA to PIIHL.
This ruling is 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 null and void.
Very truly yours,
By:

Legal Service
October 2, 2001
Sec. 24 (B) (1) Tax Code of 1997 Sec. 2.24 RR 10-98

DA-ITAD 52-01
Mrs. Ma. Esther Feliciano-Cruz

41 Cecilleville St., White Plains
Quezon City
Dear Mrs. Feliciano-Cruz,
This refers to your letter dated 25 June 2001 requesting for a ruling on the exemption from the
7.5% final tax on interest income of the foreign currency deposits of your daughter, Anna Cristina
Cruz-Gayla, and your sister, Beatrice R. Feliciano.
It is represented that Anna Cristina Cruz-Gayla is the holder of Passport No. GG305949 issued on
December 12, 2000 by the Philippine Consulate General in New York expiring on December 5, 2005; that
she is living in US with her husband and daughter; that her husband is employed in the US; that on the
other hand, Beatrice R. Feliciano is an American citizen and is the holder of American Passport No.
154099327 issued on April 5, 1996 expiring on April 4, 2006; and that Anna Cristina Cruz-Gayla and
Beatrice R. Feliciano are being requested by certain banks here in the Philippines, particularly Metrobank,
to secure a certification from this Bureau of their exemption from 7.5% final tax on their dollar deposits.
In reply, please be informed that under Section 24 (B)(1) of the National Internal Revenue Code of
1997, interest income received by a non-resident individual from a depository bank under the expanded
foreign currency deposit system shall not be subject to the final income tax of 7½%.
Furthermore, Section 2.24 of Revenue Regulations No. 10-98 (the Regulations implementing the
said provision) provides, viz:
"Sec. 2.24 Income Tax Rate of Interest Income from Foreign Currency Deposit —
"xxx xxx xxx
"(B) Compliance and Administrative Procedures for Non-Resident Citizen

and Non-Resident Alien — The tax on interest income from foreign currency deposit
shall be imposed unless the depositor who is a non-resident citizen or a non-resident
alien can present documentary evidence that he is not a resident of the Philippines.
Such evidence shall consist of the original or certified copy of any of the following:
"(1) an immigration visa issued by the foreign government in the country

where he is a resident of; or
"(2) a certificate of residency which is issued by the Philippine Embassy or

Consulate in the Foreign Country of his residence; or
"(3) a certificate of the contract of employment of an overseas contract

worker which is duly registered with the Philippine Overseas Employment Agency
(POEA); or a Seaman's Certificate, in the case of Filipino seaman; or
"(4) a certification from the Bureau of Immigration of the Philippines that a

non-resident alien is not a resident of the Philippines; or
"(5) a certification from the Department of Foreign Affairs (DFA) of

Philippines that the individual is a regular member of the diplomatic corps of a
foreign government and is entitles to income tax exemption under an international
agreement which the Philippines is the signatory."
Based on the foregoing, the interest income which may be derived from foreign currency deposit in
the Philippines of a non-resident individual shall be exempt from the final withholding tax of 7 1/2% upon
compliance with the requirements of Revenue Regulations No. 10-98.
Thus, upon presentation of any of the above-mentioned documentary evidence of Anna Cristina
Cruz-Gayla and Beatrice R. Feliciano (or of their duly authorized representative) to the concerned bank,
the latter shall not withhold the 7½% income tax on their interest income from the said Foreign Currency
Deposits.
Very truly yours,
By:

Deputy Commissioner
September 27, 2001
RP-Spain — Article 13
NIRC — Sec. 176

6760 Ayala Avenue
1226 Makati City
Attention: Mr. Jose A. Osana
Tax Division
Gentlemen :
This refers to your letter dated August 28, 2001 on behalf of your clients, San Miguel Corporation
("SMC") and Campofrio Alimentacion, S.A. ("Campofrio"), requesting confirmation that the sale by
Campofrio to SMC of its 50% equity in San Miguel Campo Carne Corporation ("SMCC") is not subject to
capital gains tax pursuant to Article 13 of the RP-Spain Tax Treaty.
Documents submitted show that Campofrio is a non-resident foreign corporation duly organized
and existing under the laws of Spain with principal office address at Avenida de Europa, 24 Parque
Empresarial La Moraleja, 28108 Alcobendras, Madrid, Spain; that it is not registered either as a
corporation or as a partnership licensed to do business in the Philippines as per Certificate of
Non-registration issued by the Securities and Exchange Commission (SEC) dated July 06, 2001; that SMC
is a corporation duly organized and existing under the laws of the Philippines; that in 1991, Campofrio
entered into a Joint Venture Agreement ("JVA") with SMC; that pursuant to the JVA, SMCC, the joint
venture company, was organized and established under the laws of the Philippines with Campofrio and
SMC each owning fifty percent (50%) of the total outstanding capital stock; that on March 21, 2001, SMC
filed a complaint against Campofrio to compel the latter to consummate an agreement to purchase all of
SMC's shares of stock in SMCC; that on April 06, 2001, in order to settle all their claims against each
other in respect of the aforementioned civil case, and any other case that may have been filed by either of
them against each other in connection with or arising from the JVA, SMC and Campofrio entered into a
Compromise Agreement whereby Campofrio shall sell all of its shares of stock in SMCC to SMC; and that
since SMCC's real property interest as per its audited financial statements as of December 31, 2000, is not
more than 50% of its entire assets in terms of value, it is your opinion that the sale by Campofrio of its
SMCC shares to SMC shall not be subject to capital gains tax.
In reply, please be informed that Article 13 of the RP-Spain Tax Treaty provides, viz:
"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.
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 a trust, the property of which consists principally of
immovable property situated in a Contracting State, may be taxed in that State. (Emphasis supplied)
"4. Gains from the alienation of any property 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."
Based on the aforequoted provisions of the RP-Spain tax treaty, the gains which will be realized by
Campofrio from the sale of its shares of stock in SMCC to SMC is taxable in Spain. However, under
paragraph 3 of the said provisions, 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
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 December 2000 and 1999 Audited Financial Statements of SMCC disclosed that
its real property interest located in the Philippines is only 45% of its total assets, thereby making the assets
of SMCC not principally consisted of real property interest located in the Philippines.
Accordingly, your opinion that the sale by Campofrio Alimentacion, S.A. to San Miguel
Corporation of its shares in San Miguel Campo Carne Corporation is not subject to capital gains tax is
hereby confirmed. (BIR Ruling No. ITAD-153-00 dated October 23, 2000)
However, the aforementioned Deed of Assignment of shares of stocks shall be subject to the
documentary stamp tax imposed under Section 176 of the Tax Code of 1997.
void.
Very truly yours,
By:

Legal Service
September 24, 2001
Articles 13 & 23, RP-US Tax Treaty

Articles 12 & 23, RP-Denmark Tax Treaty

Ernst & Young International
20th Floor, Tower I
6766 Ayala Avenue 1200 Makati City

Tax Partner
Gentlemen :
This refers to your application for relief from double taxation dated January 19, 2000, on behalf of
your client, UNISYS PUBLIC SECTOR SERVICES CORP. (UPSS), requesting for confirmation of your
opinion that the payments to be made by the latter to UNISYS CORPORATION (UNISYS) are considered
royalties and, thus, subject to the preferential tax rate of 15%, pursuant to the "most-favored-nation"
clause [Article 13(2)(b)(iii)] of the RP-US Tax Treaty in relation to Article 12(2) of the RP-Denmark Tax
Treaty.
It is represented that UPSS is a corporation organized and existing under the laws of the
Philippines; that it is primarily engaged in the business of licensing and modifying computer hardware,
computer system software programs, applications, components, devices and supplies, as well as providing
support, training and consultancy services in the use and application of said products; that UNISYS 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 July 6, 2000 issued by the Securities and
Exchange Commission; that in 1998, UPSS entered into an Intellectual Property License Agreement with
UNISYS, effective October 1, 1998, for a period of two (2) years, subject to automatic and successive
renewal for additional periods of one year, unless a notice of termination is given by either party; that the
said Agreement complies with the provisions of the Intellectual Property Code on Voluntary Licensing as
per Certificate of Compliance No. 5-1998-00089 dated January 4, 1999 issued by the Intellectual Property
Office of the Department of Trade and Industry; that said Agreement grants UPSS a non-exclusive license
to reproduce, translate, distribute and prepare derivative works of, and use in its business such present and
future rights in patents, copyrights, trademarks, trade secrets, software, documentation, know-how,
maintenance and products support materials and professional service support materials under patent,
copyright and mask work, trade secret and trademark law in the Philippines; that in consideration for the
said grant, UPSS pays UNISYS royalties, to wit: (1) an amount equal to fifty percent (50%) of UPSS's
Software Revenue, (2) an amount equal to ten, percent (10%) of UPSS's Maintenance Revenue, (3) an
amount equal to five percent (5%) of UPSS's Professional Services Revenue, and (4) an amount equal to
either, at UPSS's option, (a) three percent (3%) of revenues from UPSS's OEM Products or (b) four and
four-fifths percent (4.8%) of UPSS's OEM Product Costs.
In reply, please be informed that Article 13 of the RP-US Tax Treaty provides as follows, viz:
"Article 13
"ROYALTIES
"1. Royalties derived by a resident of one of the Contracting States from sources within the
a) In the case of the United States, 15 percent of the gross amount of the royalties,
and
paid by a corporation registered with the Philippine Board of Investments
and engaged in preferred areas of activities, and
"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
of the progress of technique." In the know-how contract, one of the parties agrees to impart to the other, so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public.
As thus defined by the Intellectual Property License Agreement by and between UPSS and
UNISYS, the information to be imparted by UNISYS falls under the purview of know-how. Hence,
payments received by UNISYS in consideration for the said grant are deemed royalties.
The RP-US Tax Treaty also speaks of 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." This is known
as the most-favored-nation clause of the RP-US Tax Treaty. The purpose of a most favored nation clause
is to grant to the Contracting State treatment no less favorable than that which has been or may be granted
to the "most favored" among other countries.
Pursuant therefore to the most favored nation clause of the RP-US Tax Treaty, it is your stand that
the phrase "paid under similar circumstances" is to be interpreted, according to some Court of Tax
Appeals decisions, to refer to the royalties paid and not to the payment of taxes since what is paid to a
resident of a third State is royalty and not the tax, and that the provisions of Article 12 of the RP-Denmark
Tax Treaty, particularly the preferential tax rate of 15%, may be made to apply in the case of UNISYS.
Said Article 12 reads:
"Article 12
"Royalties"
The competent authorities of the Contracting States may by mutual agreement settle the mode
"xxx xxx xxx."
In the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc., and Court of
Appeals (G.R. No. 127105, June 25, 1999), the interpretation of the Court of Tax Appeals of the phrase
"paid under similar circumstances" was not sustained, thus:
"We are unable to sustain the position of the Court of Tax Appeals, which was upheld by the
Court of Appeals, that the phrase 'paid under similar circumstances' in Article 13 (2) (b) (iii) of the
RP-US Tax Treaty should be interpreted to refer to payment of royalty, and not to the payment of the
tax, for the reason that the phrase 'paid under similar circumstances' is followed by the phrase 'to a
resident of a third state.' The respondent court held that 'Words are to be understood in the context in
which they are used', and since what is paid to a resident of a third state is not a tax but a royalty 'logic
instructs' that the treaty provision in question should refer to royalties of the same kind paid under
similar circumstances.
"The above construction is based principally on syntax or sentence structure but fails to take
into account the purpose animating the treaty provisions in point. To begin with, we are not aware of
any law or rule pertinent to the payment of royalties, and none has been brought to our attention,
which provides for the payment of royalties under dissimilar circumstances. The tax rates on royalties
and the circumstances of payment thereof are the same for all the recipients of such royalties and
there is no disparity based on nationality in the circumstances of such payment. On the other hand, a
cursory reading of the various tax treaties will show that there is no similarity in the provisions on
relief from or avoidance of double taxation as this is a matter of negotiation between the contracting
parties.
"xxx xxx xxx.
"The reason for construing the phrase 'paid under similar circumstances' as used in Article 13
(2) (b) (iii) of the RP-US Tax Treaty as referring to taxes is anchored upon a logical reading of the text
in the light of the fundamental purpose of such treaty which is to grant an incentive to the foreign
investor by lowering the tax and at the same time crediting against the domestic tax abroad a figure
higher than what was collected in the Philippines."
Article 23 of RP-US Tax Treaty reads:
"Article 23
"RELIEF FROM DOUBLE TAXATION
"Double taxation of income shall be avoided in the following manner:
"1. In accordance with the provisions and subject to the limitations of the law of the United
States (as it may be amended from time to time without changing the general principle hereof), the
United States shall allow to a citizen or resident of the United States as a credit against the United
States tax the appropriate amount of taxes paid or accrued to the Philippines and, in the case of a
United States corporation owning at least 10 percent of the voting stock of a Philippine corporation
from which it receives dividends in any taxable year, shall allow credit for the appropriate amount of
taxes paid or accrued to the Philippines by the Philippine corporation paying such dividends with
respect to the profits out of which such dividends are paid. Such appropriate amount shall be based
upon the amount of tax paid or accrued to the Philippines, but the credit shall not exceed the
limitations (for the purpose of limiting the credit to the United States tax on income from sources
within the Philippines or on income from sources outside the United States) provided by United States
law for the taxable year . . ."
On the other hand, Article 23 of the RP-Denmark Tax Treaty provides, viz:
"Article 23
"ELIMINATION OF DOUBLE TAXATION
"xxx xxx xxx.
"2. In Denmark, in accordance with the provisions and subject to the limitations of the laws
of Denmark, as may be amended from time to time without changing the general principle hereof,
double taxation shall be eliminated as follows:
a) Subject to the provisions of sub-paragraph (c), where a resident of Denmark

derives income which, in accordance with the provisions of this Convention,
may be taxed in the Philippines, Denmark shall allow as a deduction from the
tax on the income of that resident, an amount equal to the income tax paid in
the Philippines;
b) such deduction shall not, however, exceed that part of the income tax, as
computed before the deduction is given, which is attributable to the income
which may be taxed in the Philippines;
c) where a resident of Denmark derives income which, in accordance with the

provisions of this Convention shall be taxable only in the Philippines, Denmark
may include this income in the tax base, but shall allow as a deduction from the
income tax that part of the income tax, which is attributed to the income
derived from the Philippines;
xxx xxx xxx."
A cursory reading of the above-quoted Article 23 of the RP-US Tax Treaty and Article 23 of the
RP-Denmark Tax Treaty, though differently worded, will reveal that they grant the same relief from
double taxation to their respective residents, who are covered thereby. Thus, the tax on royalties by Danish
residents and US residents are paid under similar circumstances. US residents may, therefore, invoke the
preferential tax rate of 15% under the RP-Denmark Tax Treaty pursuant to the most favored nation clause
of the RP-US Tax Treaty.
Such being the case, this Office confirms your opinion that the payments to be made by UPSS to
UNISYS, pursuant to their Intellectual Property License Agreement are deemed royalties and, thus,
subject to the preferential tax rate of 15%, pursuant to the most favored nation clause [Article 13 (2) (b)
(iii)] of the RP-US Tax Treaty in relation to Article 12 (2) of the RP-Denmark Tax Treaty. (BIR Ruling
No. ITAD 123-00, September 1, 2000)
Furthermore, under Section 108 of the said Code, the royalty payments to be remitted by UPSS is
subject to the 10% value-added tax. Accordingly, UPSS shall, before making payment of royalties to
UNISYS, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate VAT
Taxes Withheld) for and on behalf of UNISYS. The duly validated VAT declaration/return is sufficient
evidence for UPSS in claiming input tax credit. [Section 4.102.1 (b) of Revenue Regulations No. 7-95]
In view of all the foregoing, UPSS shall be responsible for the withholding of income tax at the rate
of 15% of the gross amount of royalties and the value-added tax at the rate of 10% of the contract amount.
Very truly yours,
By:

Deputy Commissioner
September 24, 2001
Article 13 (4) — Philippines-Japan Tax Treaty

Diaz Murillo Dalupan
(L.C. Diaz & Co.)
Certified Public Accountants
5th Floor, Don Jacinto Building
Dela Rosa Street corner Salcedo Streets
Attention: Atty. Millard M. Manseguiao

Director, Tax and Corporate Service
Gentlemen :
This refers to your letter dated June 18, 2001 requesting for a confirmatory ruling that gains derived
by Precision Springs Co., Ltd. (Precision-Japan) from the sale of its shares of stock in Precision Springs
Manila, Incorporated Precision-Manila) and in Precision Springs Cebu, Incorporated (Precision-Cebu) to
Mitsubishi Steel Manufacturing Company, Ltd. (Mitsubishi) are exempt from capital gains tax, pursuant to
Article 13 of the Philippines-Japan Tax Treaty.
It is represented that Precision-Japan is a corporation organized and existing under the laws of
Japan with principal office at 15, 3-chome, Shiohama, Ichikawa, Chiba, Japan; that Precision-Japan is not
registered either as a corporation or as a partnership licensed to do business in the Philippines as per
certification issued by the Securities and Exchange Commission dated January 12, 2001; that Mitsubishi is
a corporation likewise organized and existing under the laws of Japan with principal office at 2-22,
3-chome, Harumi, Chuo-ku, Tokyo, Japan; that Precision-Manila and Precision-Cebu, with respective
principal offices at Block 1, Lot 1, Light Industrial Science Park 2, Barrio Real, Calamba, Laguna and at
5th Street, Philippine Economic Zone Authority-Mactan, Pusok, Lapu-Lapu City, Mactan Island, Cebu,
are corporations organized and existing under the laws of the Philippines and registered with the
Philippine Economic Zone Authority; that, as of August 31, 2000, Precision-Japan owns 57,999,995
shares of stock in Precision-Manila and 23,999,995 shares of stock in Precision-Cebu, each share in both
corporations having a par value of P1.00; that, on the same date, Precision-Japan sold its 57,999,995
shares of stock in Precision-Manila and 23,999,995 shares of stock in Precision-Cebu to Mitsubishi for a
consideration of 223,900,000 Japanese yen (for Precision-Manila) and 276,500,000 Japanese yen (for
Precision-Cebu); and that, on October 10, 2000, the corresponding documentary stamp taxes thereon
amounting to PhP435,000.00 (for Precision-Manila) and PhP180,000.00 (for Precision-Cebu) were paid
to the Bureau of Internal Revenue District Offices No. 56 (Calamba, Laguna) and No. 80 (Mandaue City),
respectively.
In reply, please be informed that Article 13, paragraph 4 of the Philippines-Japan Tax Treaty
provides:
"Article 13
xxx xxx xxx
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.
xxx xxx xxx"
Section 2 of Revenue Regulations No. 4-86 (Determination of Whether the Assets of a Corporation
Consist Principally of Real Property Interest under the Philippine Tax Treaties) issued by the Minister of
Finance and the Commissioner of Internal Revenue on April 8, 1986 provides guidance on the meaning of
the phrase "consists principally of immovable property."
"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;
b) 'Principally', 'wholly or principally', 'directly principally' or 'attributable' — more than

fifty percent of the entire assets in terms of value;
"xxx xxx xxx"
A perusal of the Summary of Property, Plant and Equipment as of August 31, 2000 (the date of
sale) of Precision-Manila and Precision-Cebu reveals that 26 percent and 15 percent, respectively, of their
total assets constitute real property interests in the Philippines. Consequently, Article 13 (4) of the
Philippines-Japan Tax Treaty will not apply. The gains shall be taxable only in the country where the
alienator is a resident.
Accordingly, gains derived by Precision-Japan from the sale of its shares of stock in
Precision-Manila and in Precision-Cebu to Mitsubishi are exempt from capital gains tax imposed under
Section 28(B)(5)(c) of the National Internal Revenue Code of 1997 (NIRC of 1997) which provides:
xxx xxx xxx
(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange — A final
tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the
taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic
corporation, except shares sold, or disposed of through the stock exchange:
Not over P100,000 5 percent

On any amount in excess of P100,000 10 percent"
Although such gains are exempt from capital gains tax, the transfer, however, by Precision-Japan
of its shares of stock in Precision-Manila and in Precision-Cebu to Mitsubishi are subject to the
documentary stamp tax imposed under Section 176 of the NIRC of 1997, viz:
"Section 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."
Moreover, Section 201 of the NIRC of 1997 mentions:
"Section 201. Effect of Failure to Stamp Taxable Document. — An instrument,

document or paper which is required by law to be stamped and which has been signed, issued,
accepted or transferred without being duly stamped, shall not be recorded, nor shall it or any copy
thereof or any record of transfer of the same be admitted or used in evidence in any court until the
requisite stamp or stamps shall have been affixed thereto and cancelled.
xxx xxx xxx"
Finally, since the corresponding documentary stamp taxes on the transfer were paid to the Bureau
of Internal Revenue, the Corporate Secretaries of Precision-Manila and Precision-Cebu, upon presentation
to them of the relevant Certificates Authorizing Registration, are authorized to: record in their Stock and
Transfer Books the transfer of the shares of stock in Precision-Manila and in Precision-Cebu from
Precision-Japan to Mitsubishi; cancel stock certificates previously issued to Precision-Japan; and issue
new stock certificates in the name of Mitsubishi.
void.
Very truly yours,
By:

Deputy Commissioner
September 21, 2001

New Zealand Embassy

23rd Floor
Far East Bank Center
Sen. Gil Puyat Avenue
Makati City
Gentlemen :
This has reference to your letter dated July 23, 2001 referred to this Office by the Department of
Foreign Affairs (DFA), requesting for the exemption from ad valorem tax and value-added tax for a
locally purchased car, one (1) unit of 2001 Honda CRV 2.0 A/T for the personal use of Group Captain
James McMillan, Defence Attaché of New Zealand Embassy specifically described as follows:
Type of use: Personal
Make: Honda CRV 2.0 A/T (5 door sedan, gas, 2.0 li.,
PGM-FI, 4-speed automatic transmission, 150 hp)
Model year: 2001
Color: Heather Mist Silver
Chassis Number: PADRD 1830YV207379
Engine Number: PEWD7-Y307405
"Article 34
the goods and services;
"xxx xxx xxx"
exemption to New Zealand Embassy or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs as of September 6, 2001 that your
Hence, the local purchase of one (1) Honda CRV 2.0 A/T, for the personal use of Group Capt. Jim
McMillan is exempt from VAT and ad valorem taxes. (BIR Ruling No. 206-93)
Very truly yours,

Deputy Commissioner
September 19, 2001
Article 10 (2), RP-UK Tax Treaty

Blue Circle Phils., Inc.

9th Floor, 1004 Antel Corporate Center
139 Valero St., Salcedo Village, Makati
Attention: Ms. Marivic C. Españo

Tax Partner
Gentlemen :
This refers to your letter dated April 10, 2001 requesting confirmation of your opinion that the
interest payments to be made by Blue Circle Philippines Inc. (BCPI) to Blue Circle Overseas Finance
Limited (BCOFL) shall be subject to preferential tax rate of fifteen (15%) per cent under Article 10(2) of
the RP-UK Tax Treaty.
It is represented that BCOFL is a non-resident foreign corporation duly organized and existing
under and by virtue of the laws of the United Kingdom of Great Britain and Northern Ireland with
principal address at #84 Eccleston Square, London, SWIV 1PX, United Kingdom; that it is not registered
as a corporation or partnership licensed to do business in the Philippines as per certification dated March
22, 2001 issued by the Securities and Exchange Commission; that BCPI is a domestic corporation
organized and existing under the laws of the Philippines, with office address at 9th Floor, 1004 Antel
Corporate Center 139 Valero St., Salcedo Village, Makati City; that on June 26, 2000, BCPI contracted a
loan in the amount of Three Million Pesos (Php3,000,000,000.00) from Blue Circle Industries PLC (BCI),
a foreign corporation organized and existing under and by virtue of the laws of the United Kingdom of
Great Britain and Northern Ireland; that the proceeds of the loan shall be utilized exclusively for the
refinancing of Republic Cement Corp.'s peso loans and investment in Fortune Cement Corp.; that the loan
shall be available for drawdown in minimum amounts of P500 million for a period of 6 months from June
26, 2000; that the loan shall be subject to an interest rate equal to the PHIBOR (Philippine Interbank
Offered Rate) rate and payable in equal semi-annual installments for five years commencing on the third
anniversary of the first drawdown; that BCPI shall have the right at any time to prepay the loan at an
amount not less than P60,000,000.00 while BCI, on the other hand, shall have the option to convert, fully
or partially, the said loan into equity with BCPI either before maturity of the loan or upon failure of BCPI
to pay the loan within the stipulated period; that BCI has assigned all its rights and interests under the
Original Loan Agreement to BCOFL; that on March 15, 2001, a supplementary agreement was entered
into between BCOFL and BCPI where BCOFL has agreed to extend to an additional facility of Three
Hundred Fourteen Million Three Hundred Eighty-Two Thousand Five Hundred Ninety Pesos and
Seventy-Eight Centavos (Php314,382,590.78); that BCPI has agreed to abide by the terms and conditions
set forth in the Original Loan and Supplementary Agreement as regards its obligations on the loan; that in
accordance with the terms and conditions of the Original Loan Agreement, payment on the loan shall
commence on the third year anniversary of the first drawdown, thus, BCPI has not yet made any payments
on the loan.
In reply, please be informed that Article 10 of the RP-UK Tax Treaty provides, viz:
"Article 10
INTEREST
1. Interest arising in a Contracting State which is derived and beneficially owned by a

resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises,
and according to the law of that State, but the tax so charged shall not exceed 15 per
cent of the gross amount of the interest.
xxx xxx xxx
5. The term " interest" as used in this Article means income from Government securities,
bonds or debentures, including premiums and prizes attaching to such securities,
whether or not secured by mortgage and whether or not carrying 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. (Emphasis supplied)
6 The provisions of paragraphs (1), (2), and (3) of this Article shall not apply if the
beneficial owner of the interest, being a resident of a Contracting State, carries on a
trade or business in the other Contracting State in which the interest arises, through a
permanent establishment situated therein, or performs in that other State professional
services from a fixed base situated therein, and the debt-claim in respect of which the
interest is paid is effectively connected with such permanent establishment or fixed
base. In such case, the provisions of Article 7 or 13, as the case may be, shall apply.
xxx xxx xxx
On the basis of the foregoing, since BCOFL neither carries on a trade or business in the Philippines
through a permanent establishment nor renders professional services from a fixed base in the Philippines
and being the beneficial owner of the interest income arising in the Philippines, your opinion that the
interest income to be earned by BCOFL from the loan it extended to BCPI shall be subject to a preferential
withholding tax rate of 15% of the gross amount of the interest pursuant to Article 10(2) of the RP-UK
Tax Treaty is hereby confirmed. However, the Original Loan and Supplementary Agreement executed by
and between them shall be subject to the documentary stamp tax imposed under Section 180 of the Tax
Code of 1997.[BIR Ruling No. ITAD-138-00 dated September 19, 2000)
void.
Very truly yours,
By:

Deputy Commissioner
September 12, 2001
RP-US, Art. 13
RP-Germany, Arts. 12 & 24

Attention: Atty. Zenaida O. Salipsip
Anna Teresa C. Villacorta
Gentlemen :
This refers to your application for tax treaty relief dated March 16, 1999, on behalf of your client,
Rhone-Poulene Rorer Philippines (RPRPI), to avail of the preferential rate of ten percent (10%)
withholding tax on royalties to be paid by RPRPI to RPR Investments, Inc. (RPRII) pursuant to Article 13
of the RP-US Tax Treaty in relation to Article 12 of the RP-Germany Tax Treaty.
It is represented that RPRII is a company organized and existing under the laws of the State of
Delaware, that it is not registered as a corporation or partnership licensed to do business in the Philippines
as per certification dated June 3, 1999 issued by the Securities and Exchange Commission; that it entered
into a License Agreement with RPRPI, a company organized and existing under Philippine laws; that in
consideration of royalties from RPRPI, RPRII grants the former the license to use its housemark; that
RPRII has no branch or permanent establishment in the Philippines.
Based on the foregoing representations, you are requesting relief from double taxation under Article
13 of the RP-US Tax Treaty which provides, viz:
"Article 13
ROYALTIES
(a) ..
(ii) 15 percent of the gross amount of the royalties, where the

royalties are paid by a corporation registered with the Philippine Board of
(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"
Considering that the lowest rate given to a third State is 10% as provided in Article 12 of the
RP-Germany Tax Treaty which provides, viz:
"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 the tax so charged shall not exceed:
(a) ...
(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
experience.
For as long as the transfer of technology, under Philippine law, is subject o approval, the limitation
of the tax rate mentioned under (b) shall, in the case of royalties arising in the Republic of the
Philippines, only apply if the contract giving rise to such royalties has been approved by the
Philippine competent authorities.
"xxx xxx xxx"
it is your opinion that the 10% withholding tax on royalties provided in the RP-Germany Tax Treaty
will apply to royalty payments to U.S. residents because this is the lowest tax rate embodied in duly
ratified tax treaties which the Philippines has entered into.
In reply, please be informed that the above-quoted Article 13(2)(b)(iii) of the RP-US Tax
Treaty, otherwise known as the "most favored nation clause", must be interpreted not only in relation
to Article 12 of the RP-Germany Tax Treaty but also in connection with Article 12 of the
RP-Germany Tax Treaty but also in connection with Article 24 of the same treaty, to wit:
"Article 24
RELIEF FROM DOUBLE TAXATION
"1. Tax shall be determined in the case of the resident of the Federal Republic of Germany
as follows:
"xxx xxx xxx"
b) Subject to the provisions of German tax law regarding credit for foreign
tax, there shall be allowed as a credit against German income and corporation tax
payable in respect of the following items of income arising in the Republic of the
Philippines, the tax paid under the laws of the Philippines in accordance with this
Agreement on:
"xxx xxx xxx"
dd) royalties, as defined in paragraph 3 of Article 12;
"xxx xxx xxx"
c) For the purpose of the credit referred in subparagraph b) the Philippine

tax shall be deemed to be
"xxx xxx xxx"
cc) in the case of royalties for which the tax is reduced to 10 to 15

percent according to paragraph 2 of Article 12, 20 percent of the gross
amount of such royalties. (emphasis supplied)
The Supreme Court has ruled in Commissioner of Internal Revenue vs. S.C. Johnson and Son Inc.
and Court of Appeals (June 25, 1999) that unlike the RP-US Tax Treaty, the RP-Germany Tax Treaty
allows a matching credit of twenty percent (20%) of the gross amount of such royalties arising the
Philippines against German income and corporation tax, where the tax rate is reduced to a range of ten to
fifteen percent under such treaty. Therefore, the taxes on royalties under RP-US Tax Treaty are not paid
under circumstances similar to those in the RP-Germany Tax Treaty because of the absence of the said
matching credit provision in the former convention. In so ruling, the Highest Tribunal further declares:
"The purpose of a most favored nation clause is to grant to the contracting party treatment not
less favorable than that which has been or may be granted to the 'most favored' among other countries.
The most favored nations clause is intended to establish the principle of equality of international
treatment by providing that the citizens or subject of the contracting nations may enjoy the privileges
accorded by either party to those of the most favored nation. The essence of the principle is to allow
the taxpayer on one state to avail of more liberal provisions granted in another tax treaty to which the
country of residence of such taxpayer is also a party provided that the subject matter of taxation, in
this case royalty income, is the same as that in the tax treaty under which the taxpayer is liable. Both
Article 13 of the RP-US Tax Treaty and Article 12(2)(b) of the RP-West Germany Tax Treaty,
above-quoted, speaks of tax on royalties for the use of trademark, patent and technology. The
entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for royalties)
would derogate from the design behind the most favored nation clause to grant equality of
international treatment since the tax burden laid upon the income of the investor is not the same in the
two countries. The similarity in the circumstances of payment of taxes is a condition for the
enjoyment of most favored nation treatment precisely to underscore the need for equality of
treatment."
The foregoing Supreme Court decisions has become final and executory on September 10, 1999.
Moreover, the said decision and its doctrine shall be applied prospectively as provided in BIR Ruling No.
163-99 dated October 20, 1999.
Such being the case, your opinion that the 10% preferential tax rate on royalties paid by RPRPI to
RPRII is hereby confirmed, but only so much of the payments made from January 1, 1998 to September
10, 1999. With respect to royalty payments made after September 10, 1999 and onward, the 10% tax rate
shall no longer be applicable for being contrary to the above-mentioned doctrine. In view of this, a new tax
treaty relief application may be filed for transactions covering the remaining period covered by the
License Agreement between RPRPI and RPRII, applying the "most favored nation clause" of the RP-US
Tax Treaty citing other RP-Tax Treaties.
Moreover, the said royalties shall be subject to the 10% value-added tax (VAT) based on the
contract price, pursuant to Section 108 of the Tax Code. Accordingly, RPRPI shall, before making
payment of royalties to RPRII, withhold and remit to this Bureau the said 10% VAT due thereon, by filing
a separate VAT declaration/return using BIR Form 1600. The duly validated VAT declaration/return can
be used as sufficient evidence for RPRPI in claiming input tax credit. (Sec. 4,102-1(b), Revenue
Regulations No. 7-95)
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:
(SGD.) EDMUNDO P. GUEVARRA

Deputy Commissioner
September 12, 2001
RP-Japan Article 13
R.S. Bernaldo & Associates
Unit 1810 Cityland Condominium 10 Tower 1
6815 Ayala Avenue cor. H.V. dela Costa Ext.
Makati City 1200
Attention: Atty. Rosario S. Bernaldo

Managing Partner
Gentlemen :
This refers to your letter dated April 27, 1999, requesting confirmation of your opinion that the
transfer by Sumitomo Corporation-Japan (Sumitomo-Japan) to Sumitronics Asia Holdings Pte.
Ltd.-Singapore (Sumitronics-Asia) of its shares in Sumitronics Philippines, Inc. (Sumitronics-Phils.) is not
subject to capital gains tax pursuant to the RP-Japan Tax Treaty.
It is represented that Sumitomo-Japan 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 May 16, 2000 issued by the Securities and Exchange Commission; that
Sumitronics-Phils. is a corporation duly organized and existing under the laws of the Philippines; that
Sumitronics-Asia is a non-resident foreign corporation organized and existing under the laws of
Singapore; that Sumitomo-Japan is the stockholder of record of seventy-eight percent (78%) of the
outstanding capital stock of Sumitronics-Phils. equivalent to Fifty Seven Million Nine Hundred Thousand
(57,900,000) shares of stock, with a par value of One Peso (1.00) per share, or an aggregate par value of
Fifty Seven Million Nine Hundred Thousand Pesos (P57,900,000.00); that on April 05, 1999, by virtue of
the Deed of Sale, Sumitomo-Japan transferred and assigned its shareholdings in Sumitronics-Phils. to
Sumitronics-Asia consisting of Fifty Seven Million Nine Hundred-Thousand (57,900,000) shares of stock
for Sixty Four Million Nine Hundred Twelve Thousand Five Hundred Thirty One Pesos Only
(P64,912,531.00); that in exchange, Sumitomo-Japan will receive equivalent Sumitronics-Asia shares of
stocks as alleged in the Secretary's Certificate dated May 23, 2000; that at the time of the transfer, the bulk
of Sumitronics-Phils. assets is in the form of accounts receivable and inventory.
In reply, please be informed that Article 13 of the RP-Japan Tax Treaty provides that:
"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
(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
Contracting State has in the other Contracting State or of any other 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 permanent establishment
(alone or together with the whole enterprise) or 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 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
gains which will be derived by Sumitomo-Japan from the transfer of its shares of stocks in
Sumitronics-Phils. to Sumitronics-Asia shall be taxable only in Japan. However, under the aforequoted
provision of paragraph 4 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),
Verification of the 1998 and 1999 Audited Financial Statements of Sumitronics-Phils. disclosed
that its real property interest is less than 50% of its entire assets.
As represented, since Sumitronics-Phils. real property interest does not exceed 50% of its entire
assets, the gains, if any, to be derived by Sumitomo-Japan from the sale of its shares of stock in
Sumitronics-Phils. to Sumitronics-Asia, are not subject to capital gains tax imposed under Section 25 (A)
(3) of the Tax Code of 1997. However, the Share Transfer Agreement shall be subject to the documentary
stamp tax imposed under Section 176 of the said Tax Code. (ITAD 24-99)
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
September 11, 2001
RP-Japan Article 11
Philippine Denrai, Inc.

Blk. 3 Lot 5 Phase II
PEZA CEPZ
Rosario Cavite 4106
Attention: Mr. Hiroshi Takiguchi

General Manager
Gentlemen :
This refers to your letter dated November 8, 2000, on behalf of Denrai Kohbo Co., Ltd. (DKC)
requesting for a preferential tax rate of fifteen percent (15%) to be withheld on interest payments to DKC
by your company, Philippine Denrai, Inc. (PDI) pursuant to the RP-Japan Tax Treaty.
It is represented that DKC is a non-resident foreign corporation organized and existing under the
laws of Japan with principal address at 45 Ninodancho Shinden Kissyoin Minami-ku, Kyoto, Japan; that
DKC is not registered either as a corporation/partnership licensed to do business in the Philippines as per
certification dated October 26, 2000 issued by the Securities and Exchange Commission; that PDI is a
corporation organized and existing under the laws of the Philippines and duly registered with the
Philippine Economic Zone Authority with Certificate of Registration No. 99-017 dated March 25, 1999
with principal address at BLK. 3 Lot 5 Phase II PEZA CEPZ, Rosario, Cavite; that the Monetary
Agreements by and between DKC and PDI are as follows:
Loan I — entered into on September 16, 1999, amounting to Fifty Million Japanese Yen
(¥50,000,000.00) with an interest rate of 2.3% per annum, payable not later than
August 31, 2000,
Loan II — entered into on July 16, 1999, amounting to Ten Million Japanese Yen
(¥10,000,000.00) with an interest rate of 2.3% per annum, payable not later than June
30, 2001;
that the interests on the foregoing loans shall be paid after the payment of the respective principal
amounts; and that DKC, as per agreement with PDI, can and/or may offset the loan amount of the
agreement with the price of imported stock (goods) coming from PDI.
"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; cACDaH
"(b) 15 per cent of the gross amount of the interest in all other cases.
"xxx xxx xxx
"xxx xxx xxx"
The term "interest" is generally taken to mean remuneration on money lent being remuneration
coming within the category of income from movable capital. It 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. (OECD Model Tax Convention)
Such being the case, the interest income to be remitted by PDI to DKC relative to the
aforementioned loans shall be subject to the preferential tax rate of 15%. (BIR Ruling No. 48-99, dated
December 9, 1999) Moreover, the Monetary Agreements executed by and between them shall be subject to
the documentary stamp tax imposed under Section 180 of the Tax Code of 1997.
void.
Very truly yours,
By:

Deputy Commissioner
September 11, 2001
Sec. 32 (B) (7) (a) of Tax Code of 1997

BIR Ruling ITAD-3-00;
Royal Embassy of Cambodia

Unit 7A-B/7th Floor, Country Space One Bldg.,
Sen. Gil Puyat Avenue, Makati City, Philippines
Gentlemen :
This refers to your letter dated May 29, 2001, requesting for exemption from payment of 20%
withholding tax charged by a local bank on the peso account of the Royal Embassy of Cambodia.
In reply, please be informed that pursuant to Section 32(B)(7)(a) of the Tax Code of 1997 provides,
viz:
(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 financing institution's established by foreign governments." (Emphasis
provided)
Since diplomatic and consular Missions fall within the purview of the term "foreign government" as
used in the afore-quoted provisions of the Tax Code, income from interest on deposits in banks of foreign
embassies, as well as cash and/or property dividends, are exempt from income tax and consequently from
the final withholding tax. EIcTAD
However, the interest income on the personal deposits of the personnel of that Embassy is subject
to income tax in accordance with Section 24(B)(1) of the Tax Code of 1997. (BIR Ruling No. 130-95
dated August 28, 1995)
Very truly yours,
By:

Deputy Commissioner
June 8, 2001
Sec 106, Sec 108 & Sec 149

Embassy of France
16th Pacific Star Bldg.
Sen. Gil Puyat corner
Makati Avenue
Makati City
Attention: Mr. Thibaud Saintin

Cultural Administrative Staff
Gentlemen :
This has reference to your letter dated May 7, 2001 referred to this Office by the Immunities and
Privileges Division, Office of Protocol of the Department of Foreign Affairs (DFA), requesting for a
tax-free local purchase of one (1) Honda CRV 2.0 M/T specifically described as follows:
Make: Honda CRV 2.0 M/T
Model Year: 2000
Color: Dark Emerald Green
"ARTICLE 34
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 and 108 and ad valorem taxes under Section 149, both of the National
Internal Revenue Code of 1997.
However applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
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 M/T 2000, for the personal use of Mr.
Thibaud Saintin, Cultural Administrative Staff of the Embassy of France is exempt from VAT and ad
valorem taxes. (BIR Ruling No. 95-00 dated August 1, 2000) aCcADT
Very truly yours,
By:
(SGD.) LILIAN B. HEFTI

OIC - Commissioner
August 29, 2001
RP-Netherlands Tax Treaty — Art. 13

Tax Code of 1997 — Sec. 176
DA-ITAD - 072-01
6766 Ayala Avenue
1200 Makati City
Attention: Atty. Vic C. Mamalateo
Tax Partner
Gentlemen :
This refers to your letter dated May 25, 2001 on behalf of your client, Compaq Computer
International B.V. (CCIBV), requesting confirmation of your opinion that any gain it may derive from the
transfer of its shares of stock in Compaq Computer Philippines Incorporated (CCPI) to its affiliate
company, Compaq Computer (The Hague) B.V. (CCBV — The Hague) shall be exempt from tax in the
Philippines.
It is represented that CCIBV is a corporation duly organized and existing under the laws of the
Netherlands with business address at St. Teusnismolenweg 15, 6534 AG Nijimegen, The Netherlands; that
it is not registered as a corporation or partnership licensed to do business in the Philippines as evidenced
by a Certificate of Non-Registration issued by the Securities and Exchange Commission dated May 22,
2001; that CCIBV is a registered owner of 615,195 shares in CCPI, a domestic corporation with office
address at 15th Floor, Citibank Tower Valero cor. Villar Sts., Salcedo Village, Makati City; that pursuant
to a global restructuring being undertaken by the Compaq Group of Companies, CCIBV executed a
contract denominated as Informal Capital Contribution Agreement dated December 19, 2001 transferring
all of all its shares in CCPI to CCBV — The Hague; and that on May 15, 2001, the documentary stamp tax
due on the transaction amounting to Six Hundred Nine Thousand Five Hundred Five Pesos and 6/100
(P609,505.06) was paid (inclusive of surcharge and other charges).
In reply, please be informed that Article 13 of the RP-Netherlands Tax Treaty provides as follows:
"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.
"(2) Gains from the alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of one of the States has in the other .State, or of
movable property pertaining to a fixed base available to a resident of one of the States in the other
State for the purpose of performing professional services, including such gains from the alienation of
such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base,
may be taxed in the other State.
"(3) Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of

the States from the alienation of ships and aircraft operated in international traffic and movable
property pertaining to the operation of such ships or aircraft shall be taxable only in that State.
"(4) Gains from the alienation of any property other than those mentioned in paragraphs 1,
2, and 3, shall be taxable only in the State of which the alienator is a resident. ISaTCD
xxx xxx xxx
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 transfer of shares of stocks is not among
those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by CCIBV from the transfer
of its shares of stock in CCPI shall not be subject to Philippine income tax under Section 28(B)(5)(c) of
the Tax Code of 1997 but are subject to tax only in the Netherlands. (BIR Ruling No. ITAD-41-00)
However, a certificate of authority to register the said transaction in the books of CCPI must be
secured. Thus, CCIBV, 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 Informal Capital Contribution Agreement and this ruling, with Revenue District Office No. 39 —
South — Quezon City (RDO 39), in order for the latter to issue a Certificate of Authorizing Registration
(CAR) of the said shares of stock in favor of CCIBV.
Moreover, the Informal Capital Contribution Agreement shall be subject to documentary stamp tax
imposed under Section 176 of the Tax Code of 1997. Upon presentment of proof of payment of the
documentary stamp tax, the Corporate Secretary of CCPI shall register in the Stock and Transfer Book the
shares from CCIBV to CCRV — The Hague.
be disclosed that the facts are different, then this ruling shall be rendered null and void.
Very truly yours,
By:

Deputy Commissioner
August 29, 2001
Sec. 108 & 109 of the Tax Code 1997;

DA-ITAD-71-01
Embassy of Malaysia
107 Tordesillas Street
Salcedo Village
P.O. Box 2984 (MCPO)
Makati City
Gentlemen :
This has reference to your letter dated June 18, 2001 referred to this Office by the Department of
Foreign Affairs (DFA), requesting for exemption from payment of value added tax (VAT) and ad valorem
tax on a local purchase of a motor vehicle, for the personal use of Mdme. Radziah Ismail, Administrative
Assistant of the Embassy of Malaysia of one (1) Honda City 1.3 LXi A/T specifically described as
follows:
Type of use: Personal
Make: Honda City 1.3 LXi A/T
Model year: 2001
Color Ruby Red
Chassis Number: PAD3A 1640XV102689
Engine Number: P3RD6-P302696
Relations, pertinent portion of which reads: AHaDSI
"Article 34
services;
"xxx xxx xxx"
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 Department of Foreign Affairs as of February 22, 2001 that your
Hence, the local purchase of one (1) Honda City 1.3 LXi A/T, for the personal use of Mdme.
Radziah Ismail, Administrative Assistant of the Embassy of Malaysia is exempt from VAT and ad valorem
tax. (BIR Ruling No. ITAD-135 00 dated February 4, 2000)
Very truly yours,

Deputy Commissioner
August 16, 2001
RP-Singapore, Art. 5 & 7

Pricon Microelectronics, Inc.

1st Ave. Cor. Antonio St., Mañalac Industrial Estate
Km. 16, East Service Road, South Expressway
Taguig, Metro Manila
Attention: Alfredo C. Pacho
President
Gentlemen :
This refers to your letter dated March 23, 2001 relative to your request for a ruling whether the
income derived by SB Leasing Singapore Pte. Ltd. (SB Leasing) from its sale of one complete line of
surface mount machines to Pricon Microelectronics, Inc. (Pricon), is exempt from Philippine taxes
pursuant to the RP-Singapore Tax Treaty.
It is represented that SB Leasing is a corporation organized and existing under the laws of
Singapore with principal office address at 1, Shenton Way #19-05, Singapore 068803; that it is not
registered as a corporation/partnership licensed to do business in the Philippines per certification dated
June 21, 2000 issued by the Securities and Exchange Commission (SEC); that Pricon is a corporation
organized and existing under the laws of the Philippines and is primarily engaged in the manufacture and
export of electronic and telecommunications products; that on November 2, 2000, SB Leasing and Pricon
executed a Deed of Sale whereby the former conveyed to the latter one complete line of surface mount
machines enumerated in the said deed; and that in consideration for the aforementioned; machines, Pricon
shall pay SB Leasing a fee in the amount of Two Million Eight Thousand Nine Hundred and Eighty Five
U.S. Dollars and Ninety Five Cents (US$2,008,985.95) payable in installment.
In reply, please be informed that Article 7 of the RP-Singapore Tax Treaty provides as follows:
"Article 7
"Business Profits
"1. The profits of an enterprise of a Contracting State shall be taxable only in that State
unless the enterprise carries on business in the other Contracting State through establishment situated
therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise
may be taxed in the other State but only so much of them as is attributable to that permanent
establishment.
"xxx xxx xxx"
Moreover, Article 5 of the above treaty provides:
"Article 5
"Permanent Establishment
"2. The term "permanent establishment" includes specially but is not limited to: SEAHID
b) A branch;
c) An office;
e) A factory;
f) A workshop;
g) A warehouse, in relation to a person providing storage facilities for others:
i) A building site or construction or assembly project or installation project or supervisory

activities in connection therewith, provided such site, project or activity continues for a period more
than 183 days; and
j) The furnishing of services, including consultancy services, by a resident of one of the

Contracting States through employees or other personnel, provided activities of that nature continue
(for the same or a connected project) within the other Contracting State for a period or periods
aggregating more than 183 days."
"xxx xxx xxx"
Based on the aforequoted provisions, it is clear that if a corporation which is a resident of

Singapore carries on business in the Philippines through a permanent establishment situated therein, the
profits of the same shall be subject to Philippine income tax, but only so much of them as is attributable to
that permanent establishment. For this purpose, a corporation which is a resident of Singapore may be
deemed to have a permanent establishment in the Philippines if; among others, it has a seat of management
or a branch, a factory, an office, a store or a sales outlet in the sale of its goods in the Philippines.
Considering that SB Leasing does not carry on business in the Philippines as aforesaid, as
evidenced by the certificate of non-registration of corporate/partnership issued by the SEC, it is deemed
not to have a permanent establishment in the Philippines to which its business profits may be attributed to.
Therefore, the income derived by SB Leasing from the sale of one complete line of surface mount
machines to Pricon is not subject to Philippine tax pursuant to Article 7(1) in relation to Article 5 of the
RP-Singapore Tax Treaty. (BIR Ruling No. ITAD-144-00 dated September 28, 2000)
void.
Very truly yours,
By:

Deputy Commissioner
August 16, 2001
Art. 13, RP-Singapore; BIR Ruling No. ITAD-133-00;

DA-ITAD 069-01
6760 Ayala Avenue
1226 Makati City
Attention: Atty. E.C. Alcantara
Tax Division
Gentlemen :
This refers to your letter dated December 28, 2000 requesting for confirmation of your opinion that
the gains derived from the sale of shares of stocks of Tetra Pak (Philippines), Inc. ("TPPI") by Tetra Pak
Jurong Pte. Ltd. (Singapore) ("TP Jurong") to its parent company Tetra Pak International S.A.
(Switzerland) ("TP Switzerland") are not subject to capital gains tax pursuant to the RP-Singapore Tax
Treaty.
It is represented that TP Jurong is a non-resident foreign corporation duly organized and existing
under the laws of Singapore with principal office at 19 Gul Lane Singapore; that TP Jurong is not
registered as a corporation/partnership licensed to do business in the Philippines per certification issued by
the Securities & Exchange Commission dated December 11, 2000; that TPPI is a domestic corporation
duly organized and existing under the laws of the Philippines with principal office at 16 Jupiter Street,
Bel-Air, Makati City; that per certificate issued by the Corporate Secretary of TPPI, TP Jurong is the
registered owner of 20,420 shares of stock of TPPI which constitutes 10 per cent of the outstanding capital
stock thereof; that in December, 2000, TP Jurong transferred its 20,420 shares in TPPI in favor of TP
Switzerland, a non-resident foreign corporation organized and existing under the laws of Switzerland, for
and in consideration of P3,342,282 as evidenced by the Deed of Absolute Sale & Transfer dated
December, 2000.
In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty provides as follows:
CcTHaD
"ARTICLE 13
xxx xxx xxx
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.
xxx xxx xxx
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 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 phrases
shall be understood to mean
(a) 'Real Property Interest' — interest on properties enumerated in Section 3 which are not,
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 the Audited Financial Statements of TPPI ending December 31, 2000 and 1999, only six
decimal point ninety eight per cent (6.98%) of the total assets thereof constitute immovable property.
Hence, this Office confirms your opinion as it hereby holds that the gains realized by TP Jurong from the
sale of its shares of stock in TPPI to TP Switzerland are not subject to Philippine income tax (BIR Ruling
No. ITAD-133-00).1
Although exempt, the said sale, however, is subject to the documentary stamp tax imposed under
Section 176 of the Tax Code of 1997.
investigation, it will be discovered that the facts are different, then this ruling shall be considered null and
void.
Very truly yours,
By:

Deputy Commissioner
August 15, 2001
Article 13 RP-Singapore

14th Floor Multinational
6805 Ayala Avenue
1226 Makati City

Gentlemen :
This refers to your application for relief from double taxation dated October 12, 2000, requesting
for a confirmation of your opinion that the gains derived by Singapore Network Services Pte Ltd. (SNS)
from the transfer of its shares of stocks in EDINET Philippines, Inc. (EPI) are exempt from capital gains
tax under the RP-Singapore Tax Treaty.
It is represented that SNS is a corporation duly organized and existing under the laws of the
Republic of Singapore with principal office address at 31 Science Park Road, SNS Hub, Singapore
117611; that it is not registered either as a corporation or as a partnership licensed to do business in the
Philippines as per certification dated October 17, 2000 issued by the Securities and Exchange
Commission; that EPI is a corporation organized and existing under the laws of the Philippines having its
principal office at 6/F Ayala Life Building, Makati City; that SNS owns 3,000,000 shares of EPI with a par
value of P10 per share with a total value of P30,000,000.00 representing forty percent (40%) of EPI's
outstanding total shares of stocks; that SNS entered into a Stock Purchase Agreement dated March 6, 2001
with Ayala Corporation (AYALA), a corporation duly organized and existing under the laws of the
Philippines, with principal office at 34th Floor, Tower One, Ayala Triangle, Ayala Avenue, Makati City;
that pursuant to the Agreement, SNS sold all of its shares of stock in EPI to AYALA for US$1,950,000.00;
that the purchase price shall be payable by the same funds directly transferred to a bank account
designated by SNS; and that the assets of EPI do not consist principally of immovable property situated in
the Philippines as evidenced by the company's financial statements.
In reply, please be informed that Article 13 of the RP-Singapore Tax Treaty provides, viz:
"Article 13
"1. Gains from the alienation of immovable property may be taxed in the Contracting State
permanent establishment which an enterprises 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 and aircraft operated in international
traffic and movable property pertaining to the operations of such ships or aircraft, shall be taxable
only in that State. CScaDH
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 paragraph 1, 2
and 3 shall 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 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:"
it shall be understood to include real properties as understood under Philippines Laws;
b) 'Principally', 'wholly or partially', directly principally' or 'attributable' — more than 50%

of the entire assets in terms of value;
xxx xxx xxx"
Verification of the December 31, 2000 and 1999 Audited Financial Statement of EPI disclose that
its net property and equipment located in the Philippines are respectively valued at P12,204,647 and
P14,053,777 representing less than fifty percent (50%) of its respective total assets of P31,977,656 and
P39,921,408 thereby making the assets of EPI not consisted principally of real property located in the
Philippines. Hence, the gains from the sale of the 3,000,000 shares of stock of SNS in EPI to AYALA is
not taxable in the Philippines. (BIR Ruling No. 067-90)
However, a certificate of authority to register the said transaction in the books of EPI must be
secured. Thus, SNS, a nonresident foreign corporation, is required to file, although not required to pay the
capital gains tax as above mentioned, a Capital Gains Tax Return (BIR Form No. 1707) accompanied by
copies of the Stock Purchase Agreement and this ruling, with Revenue District Office No. 39 — South
Quezon City, so that the latter may issue a Certificate Authorizing Registration (CAR) of the said shares of
stock in favor of AYALA.
Moreover, Section 176 of the National Internal Revenue Code (Tax Code) of 1997 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 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: . . ."
upon the parties to the contract and leaves the tax to be paid indifferently by either party, and accordingly,
In view thereof, 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 EPI or AYALA in
accordance with the provisions of the Tax Code of 1997. cTCEIS
investigation it shall be disclosed or discovered that said facts are different, this ruling shall be considered
as null and void.
Very truly yours,
By:

Deputy Commissioner
August 15, 2001
Article 13 — Philippines United States Tax Treaty

BIR Ruling No. ITAD-151-00;
DA-ITAD 067-00

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

Tax Partner
Gentlemen :
This refers to your letter dated April 30, 2001 requesting confirmation of your opinion that royalties
paid under a Franchise Agreement by Warner Bros. (F.E.), Inc. — Philippine Branch (WB
(FE)-Philippines) to Warner Bros. (WB-USA) are subject to a preferential tax rate of 15 percent pursuant
to Article 13(2)(b)(iii) of the Philippines-United States Tax Treaty in relation to the Royalties article of the
existing Philippine tax treaties with Denmark, Finland, Malaysia, and the United Kingdom.
It is represented that WB-USA, a division of Time Warner Entertainment, L.P. (U.S.A.), is a

corporation organized and existing under the laws of the United States of America with principal office at
4000 Warner Boulevard, Burbank, California, United States of America; that WB-USA is not registered as
a corporation or partnership licensed to do business in the Philippines as per certification issued by the
Securities and Exchange Commission dated March 22, 2001; that WB(FE)-Philippines is a corporation
organized and existing under the laws of the Philippines with principal office at Room 3111, PPL
Building, 1000 United Nations Avenue, Manila, Philippines; that, on December 1, 1996, a Franchise
Agreement was entered into by and between WB-USA and WB(FE)-Philippines wherein WB-USA grants
WB(FE)-Philippines the following rights which use are limited solely within the territory of the
Philippines and during the term of the Agreement:
(A) the sole and exclusive right to distribute, advertise, promote and publicize WB-USA
theatrical pictures and trailers in theatrical and non-theatrical distributions, and to use
and perform simultaneously, and in synchronization with such theatrical pictures, any
and all music and lyrics contained in such theatrical pictures and or recorded in its
soundtrack; ("Theatrical and Non-Theatrical Rights"); TaDAHE
(B) the sole and exclusive right to manufacture and sell devices containing copies of
WB-USA homevideo pictures, and to exploit such devices for the intended purpose of
homevideo use by consumers in their places of dwelling in such manner that viewing
frequency may be freely controlled by such consumers; ("Homevideo Rights")
(C) the non-exclusive right to distribute, sell, advertise, merchandise, manufacture, publish,
and retail WB-USA properties, and to engage in any form of exploitation or use of such
properties, including the granting of any or all such rights to third parties under license
agreements; ("Rights to Properties")
that, in consideration of the aforementioned rights, WB(FE)-Philippines shall pay to WB-USA a royalty
equal to the percentage of combined gross receipts accrued in each year of the term of the Agreement from
and after December 1, 1996, and reduced by 100 percent of the combined allowable distribution expenses,
as defined in the Agreement.
In reply, please be informed that paragraphs 1, 2, and 3, Article 13 (Royalties) of the

Philippines-United States Tax Treaty provide:
"Article 13
ROYALTIES
1. Royalties delivered by a resident of one of the Contracting States from sources within the
3. The term "royalties" as used in this Article means payments of any kind received as a
xxx xxx xxx
Applying paragraph 3 of the foregoing Article, royalties in respect of theatrical and non-theatrical
rights, homevideo rights, and rights to properties, granted by WB-USA to WB (FE)-Philippines are
payments of any kind received as a consideration for the use of, or the right to use, any copyright of
literary, artistic or scientific work, including cinematographic films or films or tapes used for radio or
television broadcasting, and, are, therefore, royalties within the scope of the Article. Rather than imposing
a tax which shall not exceed 25 percent of the gross amount of the royalties under paragraph 2(b)(ii) of the
Article, its paragraph 2(b)(iii) provides that such royalties may be subject to 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 (otherwise known as the most favored nation treatment).
The Supreme Court, in the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son Inc.
and Court of Appeals (G.R. No. 127105 dated June 25, 1999), had interpreted the most favored nation
clause, in particular, the phrase paid under similar circumstances, as referring both to the income in which
the tax is paid (i.e., royalties) and to the manner in which the tax is paid, and further declared: EDHTAI
"The purpose of a most favored nation clause is to grant to the contracting party treatment not less
favorable than that which has been or may be granted to the 'most favored' among other countries.
The most favored nation clause is intended to establish the principle of equality of international
treatment by providing that the citizens or subject of the contracting nations may enjoy the
privileges accorded by either party to those of the most favored nation. The essence of the principle
is to allow the taxpayer in one State to avail of more liberal provisions granted in another tax treaty
to which the country of residence of such taxpayer is also a party provided that the subject matter of
taxation, in this case royalty income, is the same as that in the tax treaty under which the taxpayer is
liable. Both Article 13 of the RP-US Tax Treaty and Article 12(2)(b)of the RP-West Germany Tax
Treaty, above quoted, speaks of tax on royalties for the use of trademark, patent and technology.
The entitlement of the 10% rate by U.S. firms despite the absence of a matching credit (20% for
royalties) would derogate from the design behind the most favored clause to grant equality of
international treatment since the tax burden laid upon the income of the investor is not the same in
the two countries. The similarity in the circumstances of payment of taxes is a condition for the
treatment." cHaICD
Hence, the most favored nation clause in Article 13 of the Philippines-United States Tax Treaty must be
interpreted in relation both to the Royalties article of the tax treaty of the relevant third State with the
Philippines, and to its Relief from Double Taxation article, vis-a-vis that of the Philippines-United States
Tax Treaty.
In connection therewith, the Royalties article of the existing Philippine tax treaties with Denmark,
Finland, Malaysia, and the United Kingdom, included in their definition of royalties, "payments of any
kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or
scientific work, including cinematographic films or films or tapes used for radio or television broadcasting
. . ." and provide that such royalties shall be taxed at a rate not to exceed 15 percent of the gross amount
thereof. Further, a perusal of the Relief from Double Taxation article of these treaties vis-a-vis that of the
Philippines-United States Tax Treaty reveals that a similarity on the manner of payment of taxes does, in
fact, exist, that is, the foreign tax credit allowed on these treaties are those which are actually paid in the
Philippines.
Hence, your opinion that royalties in respect of theatrical and non-theatrical rights, homevideo
rights, and rights to properties, paid by WB(FE)-Philippines to WB-USA are subject to a preferential tax
rate of 15 percent pursuant to Article 13(2)(b)(iii) of the Philippines-United States Tax Treaty in relation
to the Royalties article of the existing Philippine tax treaties with Denmark, Finland, Malaysia, and the
United Kingdom, is hereby confirmed. (BIR Ruling No. ITAD 151-00 dated October 23, 2000)
Finally, such royalties shall be subject to 10 percent value added tax (VAT) imposed under Section
108(A)(3) of the National Internal Revenue Code of 1997. Section 4.102-1(b) of Revenue Regulations No.
7-95 provides:
"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 on 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
declaration/return is sufficient evidence in claiming input tax credit by &e licensee."
In fine, royalties in respect of theatrical and non-theatrical rights, homevideo rights, and rights to
properties, paid by WB(EE)-Philippines to WB-USA are subject to a final withholding income tax of 15
percent of the gross amount thereof, and to a value-added tax of 10 percent based on the contract price of
such royalties.
investigation, it will be disclosed that the facts are materially different, then this ruling shall be considered
null and void.
Very truly yours,
By:

Deputy Commissioner
August 15, 2001
Article 13 — Philippines-Netherlands Tax Treaty BIR

Ruling No. ITAD 11-01 DA-ITAD 066-01
Picazo Buyco Tan Fider & Santos
Law Offices
4th 6th and 8th Floors,
Singapore Airlines Building
138 H.V. dela Costa Street
Salcedo Village, Makati City
Attention: Atty. Charlie C. Yalung

Atty. Rodell A. Molina
Gentlemen :
This refers to your letter dated May 18, 2001 requesting confirmation of your opinion that the sale
by IRR Exhibitions Holdings B.V. (IIR Holdings) of its shares of stock in IIR Exhibitions Philippines Inc.
(IRR Philippines) to the Institute for International Research (IIR) B.V. (Institute) is exempt from capital
gains tax imposed under Section 25(B)(5)(c) of the National Internal Revenue Code of 1997 (NIRC of
1997), pursuant to Article 13 (Gains from the Alienation of Property) of the Philippines-Netherlands Tax
Treaty.
It is represented that IIR Holdings and the Institute are companies organized and registered under
the laws of the Netherlands with the same registered office at Strawinskylaan 335, 1077XX Amsterdam,
Netherlands; that IIR Holdings is not registered as a corporation or partnership licensed to do business in
the Philippines as per certification issued by the Securities and Exchange Commission dated April 3, 2001;
that IRR Philippines is a company organized and registered under the laws of the Philippines with
registered office at Antel 2000 Corporate Centre, 121 Valero corner Herrera Street, Salcedo Village,
Makati City, Philippines; that, on December 22, 1999, a Sale and Purchase Agreement was entered into by
and between IIR Holdings and the Institute wherein IIR Holdings in consideration of the amount of US$
422,091.00, sold its 52,682 shares of stock in IIR Philippines to the Institute each share of stock having a
par value of Ph P100.00.
In reply, please be informed that Article 13 of the Philippines-Netherlands Tax Treaty provides as
follows:
"Article 13
1. Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6,

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

States from the alienation of ships and aircraft operated in international traffic and movable property
pertaining to the operation of such ships or aircraft shall be taxable only in that State.
4. Gains from the alienation of any property other than those mentioned in paragraphs 1, 2
and 3, shall be taxable only in the State of which the alienator is a resident.
xxx xxx xxx
It is clear from the aforequoted provisions 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 capital gains derived by IIR Holdings on the sale of its shares of stock in
IRR Philippines to the Institute are not among those mentioned in the foregoing paragraphs, such gains
shall be taxable only in the Netherlands, where the alienator is a resident, and, therefore, exempt from
Philippine capital gains tax imposed under Section 25(B)(5)(c) of the NIRC of 1997. (BIR Ruling No.
ITAD 11-01 dated February 14, 2001.)
Although the gains derived by IIR Holdings on the sale of its shares of stock in IIR Philippines to
the Institute are exempt from capital gains tax, the sale, however, is subject to the documentary stamp tax
imposed under Section 176 of the NIRC of 1997, 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
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 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."
Moreover, Section 201 of the NIRC of 1997 mentions:
"SEC. 201 Effect of Failure to Stamp Taxable Document. — An instrument, document or paper
which is required by law to be stamped and which has been signed, issued, accepted or transferred
without being duly stamped, shall not be recorded, nor shall it or any copy thereof or any record of
transfer of the same be admitted or used in evidence in any court until the requisite stamp or stamps
shall have been affixed thereto and cancelled.
xxx xxx xxx
Since the corresponding documentary stamp tax on the transfer (including penalties thereon) amounting to
PhP 63,193.65 was paid to the Bureau of Internal Revenue (Revenue District Office No. 39 — South,
Quezon City) on September 12, 2000 as evidenced by Development Bank of the Philippines (Quezon
Avenue Branch) Official Receipt No. 2936341-00, the Corporate Secretary of IIR Philippines, upon a
presentation to him of the Certificate Authorizing Registration, is authorized to record in the Stock and
Transfer Book of IRR Philippines the transfer of IIR Philippines shares of stock from IRR Holdings to the
Institute, cancel stock certificates previously issued to IIR Holdings, and issue new stock certificates in the
name of the Institute.
void.
Very truly yours,
By:

Deputy Commissioner
July 31, 2001
Sec. 106, Sec. 108 & Sec. 149

DA-ITAD-065-01
Embassy of Australia
4/F Prince Building
117 Rada St., Legaspi Village
Makati City
Gentlemen :
This has reference to your Note No. 20.84/1/01 dated May 17, 2001 referred to this Office by the
Immunities and Privileges Division, Office of Protocol of the Department of Foreign Affairs (DFA),
requesting for issuance of value added tax (VAT) exemption certificate for the Embassy and its staff.
"ARTICLE 34
the goods and services; aAHTDS
"xxx xxx xxx"
prescribed under Sections 106 and 108, and ad valorem taxes under Section 149, both of the National
Austria 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 February 22, 2001 that 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)
Hence, the Embassy of Austria is exempt from value added tax and ad valorem taxes on its
purchases of local goods and/or services.
Very truly yours,
By:

Deputy Commissioner
July 31, 2001
RP-France Protocol Art. 10/5 ITAD 20-99/41-99
SyCip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City Philippines
Attention: M.F.A. Balili

Tax Division
Gentlemen :
This refers to your application for relief from double taxation dated June 5, 2000 on behalf of
Rhodia Philippines, Inc. (RHODIA), requesting for refund or tax credit of the excess/overpaid withholding
tax amounting to P501,000.00 on cash dividend payment to Rhone Poulenc S A-France (RHONE)
applying the ten percent (10%) tax treaty rate provided for under Article 5 of the Protocol amending
Paragraph 2 of Article 10 of the RP-France Tax Treaty. EaScHT
It is represented that RHONE is a non-resident foreign corporation duly established under the laws
of France with principal office at 25 Quia Paul Doumer 92408 Courbevoie, Cedex, France; that it is not
June 14, 2000 issued by the Securities and Exchange Commission; that RHODIA is a corporation duly
registered and organized under Philippine laws with principal office at the 5th Floor, Gammon House, 110
Rada St. Legaspi Village, Makati City; that RHONE holds thirty percent (30%) of the voting stock of
RHODIA; that on May 18, 1998, RHODIA declared a cash dividend to RHONE in the amount of
P10,020,000.00 on which RHODIA withheld the amount of P1,503,000.00 representing the 15%
withholding tax on dividends; and that this P1,503,000.00 was paid and remitted by RHODIA to BIR on
June 5, 1998.
In reply, please be informed that Article 10 of the RP-France 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 be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the laws of that State, but if the recipient is the
beneficial owner of the dividends the tax so charged shall not exceed:
"a) 15 percent of the gross amount of the dividends if the recipient is a company
(excluding partnership) which holds directly at least 15 per cent of the voting shares of the
company paying the dividends;
b) in all other cases, 25 per cent of the gross amount of the dividends."
Pursuant to Article 5 of the Protocol to the Tax Convention between the Government of the
Republic of the Philippines and the Government of the French Republic signed on January 9, 1976 and
which became effective on January 1, 1998, the above-mentioned rates were reduced to 10% and 15%,
respectively, which reads, viz:.
"Article 5
"In Article 10 of the Convention:
in paragraph 2, the rates of "15 percent" and "25 percent" are replaced respectively by
"10 percent and 15 percent";
xxx xxx xxx
In view of the foregoing, and since RHONE holds thirty per cent (30%) of the voting stock of
RHODIA and considering the fact that it was on May 18, 1998, after the Protocol took effect on January 1,
1998, when RHODIA through its Board of Directors declared a cash dividend to RHONE in the amount of
P10,020,000.00, the applicable rate is 10% pursuant to the Protocol. EaICAD
With respect to your application for refund on behalf of RHODIA, we have endorsed the same to
the Office of the Deputy Commissioner-Operations Group for processing. Relative thereto, please address
your communication to the following:
Office of the Deputy Commissioner
Operations Group
4th Floor, BIR Building, Diliman,
Quezon City, Philippines
Tel. No. 920-75-08
Fax No. 920-75-10
void.
Very truly yours,
By:

Deputy Commissioner
July 31, 2001
Article 10, RP-Japan BIR Ruling No. ITAD-07-01
Miyasaka Polymer (Phils.), Inc.

20 Ampere St., LISPP,
Bo. Diezmo, Cabuyao, Laguna
Attention: Noboru Nagashima

Managing Director
Gentlemen :
This refers to your letter dated March 30, 2001 requesting confirmation of your opinion that
dividends to be remitted by MIYASAKA POLYMER PHILS., INC. ("Miyasaka Polymer") to
MIYASAKA RUBBER CO., LTD. ("Miyasaka Rubber"), are subject to the 10% tax rate pursuant to the
RP-Japan Tax Treaty.
It is represented that Miyasaka Rubber is a corporation duly organized and existing under the laws
of Japan, with business address at 5350 Toyohira Chino-shi, Nagano-ken, Japan; that it is not licensed to
engage in business in the Philippines per Securities and Exchange Commission certificate dated March 26,
2001; that Miyasaka Polymer, on the other hand, is a corporation duly organized and existing under the
laws of the Philippines; that as of October 25, 2000, Miyasaka Rubber holds One Million Two Hundred
Forty Nine Thousand Nine Hundred Ninety Five (1,249,995) shares valued at One Hundred Twenty Four
Million Nine Hundred Ninety Nine Thousand Five Hundred Pesos (P124,999,500.00) and constituting
99.99996% of ownership in Miyasaka Polymer; that on March 12, 2001, the Board of Directors of
Miyasaka Polymer passed and approved the declaration of cash dividends equivalent to Eighteen Million
Seven Hundred Fifty Thousand Pesos (P18,750,000.00), to be distributed among all its stockholders of
record of which Miyasaka Polymer will receive an amount equivalent to Eighteen Million Seven Hundred
Forty Nine Thousand Nine Hundred Twenty Five Pesos (P18,749,925.00).
"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 that Contracting State but if
"(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; SIcCTD
"(b) 75 per cent of the gross amount of the dividends in all other cases.
The provisions of this paragraph shall not affect the taxation of the company in respect of the
"xxx xxx xxx
"(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"
Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company
which is a resident thereof to a company which is a resident of Japan at a rate not exceeding 10 percent if
the last-mentioned company holds directly at least 25 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 or not exceeding 25 per cent of the gross amount of the dividends in all other
cases.
In view thereof, since Miyasaka Rubber holds directly 99.99996% of the voting shares of Miyasaka
Polymer for a period of six months before the latter declared dividends, said dividends to be paid by
Miyasaka Polymer Phils., Inc. to Miyasaka Rubber Co., Ltd. are subject to the 10 percent preferential tax
rate pursuant to the RP-Japan Tax Treaty. (BIR Ruling No. ITAD-07-01 dated February 12, 2001)
void.
Very truly yours,
By:

Deputy Commissioner
July 31, 2001
RP Japan, Article 11
BIR Ruling 232-82
DA-ITAD-062-01
Joaquin Cunanan & Co.,

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

Principal
Gentlemen :
This refers to your letter dated December 14, 1999, requesting on behalf of your client, Kawasho
Corporation Japan (Kawasho), for a ruling that the interest payments on the portion of the loan extended
by Kawasho to K & K Molding, Inc. (K & K) which was financed by Export-Import Bank of Japan
(Eximbank) (succeeded by Japan Bank for International Cooperation) are not subject to any Philippine
income/withholding tax while the interest payments on the balance of the said loan are subject to the 15%
withholding; tax pursuant to the RP-Japan Tax Treaty.
It is represented that K & K is a corporation organized and existing under the laws of the
Philippines; that on December 10, 1998, K & K entered into a loan agreement with Kasei Industry Co.,
Ltd. (Kasei) as the guarantor and Kawasho as the lender; that Kawasho and Kasei are non-resident foreign
corporations organized and existing under the laws of Japan; that on December 10, 1998, K & K obtained
a US$ 5,400,000 loan from Kawasho for its business operations; that US$ 3,240,000 of such loan will be
obtained by Kawasho from Eximbank.
In reply, please be informed that Article 11 of the RP-Japan Treaty provides as follows:
"INTEREST
1. Interest arising in a Contracting State and paid to a resident of the other Contracting
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;
b) 15 per cent of the gross amount of the interest in all other cases.
xxx xxx xxx
Notwithstanding the provisions of paragraph 2 and 3 interest arising in a Contracting State

and derived by the Government of the other Contracting State including political subdivisions and
local authorities thereof, the Central Bank of that other Contracting State or any other financial
institution wholly owned by that Government or by any resident of the other Contracting State with
respect to debt claims guaranteed or indirectly financed by the Government of that other Contracting
State including political subdivisions and local authorities thereof, the Central Bank of that other
Contracting State or any financial institution wholly owned by that Government shall be exempt from
tax in the first-mentioned Contracting State.
For the purposes of this paragraph the term "financial institution wholly owned by the
Government" means: DCSTAH
a) In the case of Japan, the Export Import Bank of Japan the Overseas Economic
Cooperation Fund and the Japan International Cooperation Agency;
b) In the case of the Philippines, the Development Bank of the Philippines; and
c) Any such financial institution the capital of which is wholly owned by the Government of
either Contracting State, other than those referred to in sub-paragraphs (a) and (b) above, as may be
agreed from time to time between the Governments of the two Contracting States.
5. The term "interest" as used in this Article means income from debt-claims of every kind,
xxx xxx xxx"
Inasmuch as the Eximbank is considered as financial institution wholly owned by the government, the
interest payments to be remitted to Kawasho by K & K relative to the portion which was financed by
Eximbank shall be exempted from Philippine income tax imposed pursuant to Article 11 (4) of RP —
Japan Tax Treaty and the portion which was directly financed by Kawasho shall be subject to a tax of 15%
of the gross amount of interest imposed pursuant to Article 11 (2) of the RP - Japan Tax Treaty. However,
the said loan agreement executed is subject to documentary stamp tax in accordance with Section 180 of
the Tax Code, as amended. (BIR Ruling 232-82)
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 rendered null and
void.
Very truly yours,
By:

Deputy Commissioner
July 26, 2001

DA-ITAD- 061-01
Canadian Embassy
Ninth Floor
Allied Bank Center
6754 Ayala Avenue
Makati City
Gentlemen :
This has reference to your letter dated June 18, 2001 referred to this Office by the Department of
Foreign Affairs (DFA), requesting for exemption from a tax-free local purchase of a motor vehicle, one (1)
Honda Accord 2.3 VTi-L A/T specifically described as follows: HSDaTC
Type of use: Official

Make: Honda Accord 2.3 VTi-L A/T (4 door
sedan, gas, 2254cc., VTEC, 4-speed
automatic transmission, 157 hp)
Model year: 2001
Color: Taffeta White
Chassis Number: PADCG 5650YV200712
Engine Number: PAHP5-Y200712
Relations, pertinent portion of which reads: aDcHIS
"Article 34
services;
xxx xxx xxx"
exemption to the Canadian Embassy or its personnel on their local purchases of goods and/or services it
Hence, the local purchase of one (1) Honda Accord 2.3 VTi-L A/T, for the official use of the
Canadian Embassy is exempt from VAT and ad valorem. (BIR Ruling No. ITAD-35-00 dated February 4,
2000)
Very truly yours,

Deputy Commissioner
July 19, 2001
Article 14, RP-US Tax Treaty

DA-ITAD 060-01

6760 Ayala Avenue, 1226 Makati City
Attention: C. P. Noel
Tax Division
Gentlemen :
This refers to your application for relief from double taxation dated May 17, 2001 on behalf of your
client, GE Capital International Holdings Corporation (GE Capital), requesting confirmation of your
opinion that the gains to be realized from the contemplated sale by GE Capital of all its shareholdings in
GE Life Insurance Co., Inc. (GE Life) in favor of ATR-Kim Eng Capital Partners, Inc. (ATR-Kim Eng)
and ATR-Kim Eng Capital Partners, Inc. — Trust Department (ATR-Kim Eng-Trust Department) as
trustee for the TPG Corporation Trust Fund (TPG) are exempt from capital gains tax pursuant to the
RP-US Tax Treaty.
It is represented that GE Capital is a corporation duly organized and existing under the laws of
Delaware, USA, with principal offices located at 1209 Orange City of Wilmington, County of New Castle
Delaware, USA; that it is not registered either as a corporation or as a partnership and has not been
licensed to do business in the Philippines as per certification issued by the Securities and Exchange
Commission dated June 18, 2001; that GE Life is a corporation organized and existing under Philippine
laws with principal office address at 5th Floor, Philasia Life, Champaca II Building, 162 Alfaro Street,
Salcedo Village, Makati City; that GE Life's current capital structure is as follows:
Name of Stockholder No. of Shares
GE Capital International Holdings Corp. 24,999,987

Manuel M. Alfonso 1
Eulogio A. Mendoza 1
Pacito V. del Rosario 1
Modesta M. Mammuad 1
Felix B. Amparo 1
Antonio Borromeo 1
Oscar M. Alejandro 1
Henry Joseph M. Herrera 1
Manuel G. Lopez 1
Antonio Ortiguerra 1
Rene Vargas 1
Jose Tamayo 1
Bienvenido 1
——————
Total 25,000,000
that GE Life is a wholly owned subsidiary of GE Capital and the thirteen (13) individual shareholders
enumerated above merely hold their respective GE Life shares as nominees and in trust for GE Capital;
that ATR-Kim Eng is a corporation organized and existing under the laws of the Philippines with principal
office address at 17th Floor Tower One Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City; that
GE Capital intends to sell its 19,500,000 shares of capital stock in GE Life with a total par value of
P195,000,000 in favor of ATR-Kim Eng and the remaining 5,500,000 shares with a total par value of
P55,000,000 in favor of the Trust Department of ATR-Kim Eng as trustee for TPG; that in consideration
of the said shares, ATR-Kim Eng and ATR-Kim Eng-Trust Department shall pay GE Capital a total
purchase price of P306,884,866 or P12.275 per share; that as of December 31, 2000, the Balance Sheet of
GE Life shows that its Property and Equipment amount to only P5,152,611.00 (Net of Accumulated
Depreciation) while its total assets amount to P481,055,426.00, thereby showing that GE Life's real
properties in the Philippines do not comprise more than 50% of its total assets as such real properties
approximately comprise one percent (1%) only of the total asset.
"Article 14
"CAPITAL GAINS
"1. Gains from the alienation of tangible personal (movable) property forming part of 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 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 provisions of Article 13. cHaADC
"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."
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."
It is clear from the aforequoted provisions that any capital gains which may be derived by GE
Capital 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. However, 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 GE Life located in the Philippines as
appealing in its audited financial statements for the calendar year December 31, 2000 is less than 50% of
the value of its total assets.
Accordingly, this office is of the opinion and so holds that any gain that may be realized by GE
Capital from the sale of its shares in GE Life to ATR-Kim Eng and ATR-Kim Eng-Trust Department 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 as the assets of GE Life as of December 31, 2000, as represented, do not consist
principally of real property interest located in the Philippines. (BIR Ruling No. ITAD 127-00)
However, a certificate of authority to register the said transaction in the books of GE Life must be
secured. Thus, GE Capital, being a nonresident foreign corporation, is required to file, although not
required to pay 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 Certificate Authorizing Registration (CAR) of the said shares of stock in favor
of ATR-Kim Eng and ATR-Kim Eng-Trust Department.
Moreover, Section 176 of the Tax Code of 1997 (Tax Code) provides, viz:
Transfer of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. — On all sales, or
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
fractional part thereof, of the par value of such due-bill, certificate of obligation or stock: Provided,
TAcSCH
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, 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 GE Capital or
GE Life in accordance with the provisions of the Tax Code of 1997.
Upon presentment of proof of payment of the documentary stamp tax thereon, the corporate
secretary of GE Life shall then be authorized to register the transfer of the shares from GE Capital to
ATR-Kim Eng, and ATR-Kim Eng-Trust Department in the Stock and Transfer Book of GE Life and to
cancel and issue new certificates in the name of ATR-Kim Eng and ATR-Kim Eng-Trust Department as
trustee for TPG.
ruling is based are consonant with the actual facts of the transaction. (BIR Ruling No. ITAD-36-01)
Very truly yours,
By:

Deputy Commissioner
July 17, 2001
Article 13, RP-Japan Tax Treaty NIRC-SEC. 176 BIR

Ruling No. ITAD-24-99
DA-ITAD-059-01
14TH Floor, Multinational Bancorporation Centre
Attention: George J. Lavadia

Principal, Tax Services Department
Gentlemen :
This refers to your letter dated December 17, 1999 requesting confirmation of your opinion that the
sale/transfer by ITOCHU CORPORATION (hereinafter referred to as Itochu-Japan) of its shares of stock
in SOUTHERN CROSS CEMENT CORPORATION (hereinafter referred to as SCCC) is not subject to
Philippine income/withholding tax pursuant to Article 13 of the RP-Japan Tax Treaty.
It is represented that Itochu-Japan is a foreign corporation organized and existing under the laws of
Japan with principal address at 5-1, Kita-Aoyama, 2-chome, Minato-ku, Tokyo, 107-8077, Japan; that
Itochu-Japan has an existing branch in the Philippines with office address at 16/F 6788 Ayala Avenue,
Oledan Square, Makati City; that SCCC is a corporation existing under the laws of the Philippines,
registered with the Securities and Exchange Commission; that Itochu-Japan is the beneficial and record
owner of Three Hundred Sixty Four Thousand Eight Hundred (364,800) shares of SCCC; that due to
SCCC's ongoing corporate restructuring, Itochu-Japan directly offered to sell/transfer without the
involvement of its Philippine branch all of its SCCC shares to two (2) Japanese companies, TAIHEIYO
CEMENT CORPORATION (hereinafter referred to as Taiheiyo Cement) and TOKUYAMA
CORPORATION (hereinafter referred to as Tokuyama), both foreign corporations organized and existing
under the laws of Japan; that the One Hundred Eighty Two Thousand Four Hundred (182,400) shares are
to be transferred to Taiheiyo Cement and the remaining One Hundred Eighty Two Thousand Four
Hundred (182,400) shares to Tokuyama; and that Itochu-Japan's Philippine branch has no participation in
its investment in SCCC since the branch was organized to engage in trading and construction businesses in
the Philippines.
In reply, please be informed that Article 7 of the RP-Japan Tax Treaty provides:
"Article 7
"(1) The profits of an enterprise of a Contracting State shall be taxable only in that
Contracting State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as foresaid, 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. (Emphasis supplied)
"(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 it is a permanent establishment. aCSEcA
"(3) In determining the profits of a permanent establishment, there shall be allowed as

deductions expenses which are incurred for the purposes of the permanent establishment, including
executive and general administrative expenses so incurred, whether in the Contracting State in which
the permanent establishment is situated elsewhere.
"xxx xxx xxx"
Moreover, in the case of Marubeni vs. CIR (G.R. No. 76573 dated September 14, 1989), it was held
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. Corollary,
if the business transaction is conducted through the branch office, the latter becomes the taxpayer,
and not the foreign corporation." (Emphasis supplied)
Thus, in the instant case, income derived by Itochu-Japan in the sale of its shares in SCCC made
independently of its Philippine branch shall be considered as income of Itochu-Japan and shall be
governed by the provisions of Article 13 of the RP-Japan Tax Treaty, which provides as follows:
"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.
"(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
"(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 Itochu-Japan from the sale of its shares
of stock in SCCC to Taiheiyo Cement and Tokuyama shall be taxed only in Japan. However, the
Philippines may tax the gains derived from such disposition if SCCC's assets consist principally of real
property interest located in the Philippines. "Real Property Interest" means interest on property
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 Audited Financial Statement of SCCC discloses that out of its total
assets of P621,901,642.00 in December 1999 and P573,621,375.00 in December 1998, its real property
assets located in the Philippines consist of P248,251,428.00 or 39.92% and P263,153,475.00 or 45.88% of
its total assets, respectively, thereby making the assets of SCCC not consisted principally of real property
interest located in the Philippines.
In view thereof, this Office is of the opinion and so holds that the sale/transfer of ITOCHU-Japan of
its shares of stock in SCCC to Taiheiyo Cement and Tokuyama is not subject to Philippine income tax.
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. ITAD-24-99 dated September 10, 1999)
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. AIECSD
Very truly yours,
By:

Deputy Commissioner
July 12, 2001
Sec 106, Sec 108 & Sec 49, NIRC

DA-ITAD-058-01
PO Box 1274 MCC
Makati City
Gentlemen :
This has reference to your letter dated May 24, 2001 which was referred to this Office by the
Department of Foreign Affairs (DFA), requesting for a tax-free local purchase of one (1) 2000 Toyota
Camry GXE for the official use of the Embassy of Australia, specifically described as follows:
Type of Use: Official
Make: Toyota Camry GXE
Model Year: 2000
Color: Freedom Beige
Chassis Number: 53SK20-07000405
Engine Number: 5S-4325167
"ARTICLE 34
services;
"xxx xxx xxx"
However, applying the principle of reciprocity, this Office may grant tax exemption to the Embassy
of Australia or its personnel on their local purchases of goods and/or services it appearing from the list
Philippine Embassy personnel on their purchase of goods and services in your country. EaScHT
Hence, the local purchase of one (1) Toyota Camry GXE 2000, for the official use of the Embassy
of Australia, is exempt from VAT and ad valorem taxes. (BIR Ruling No. DA-ITAD 24-01 dated March
12, 2001)
Very truly yours,
By:

Deputy Commissioner
July 2, 2001

Embassy of the Republic of Singapore

35/F Enterprise Bldg. Tower I,
Ayala Avenue cor. Paseo de Roxas, Makati City
Attention: Mr. Paul Koh Kok Hong

Counselor
Gentlemen :
This has reference to your letter dated May 24, 2001 referred to this Office by the Department of
tax on the local purchase of one (1) Honda CRV 2.0 A/T specifically described as follows:
Make: Honda CRV 2.0 A/T (4 door sedan, gas,

2.0li., PGM-FI, 4-speed automatic
transmission, 150 hp)
Model Year: 2001
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods
and services;
"xxx xxx xxx"
exemption to the Embassy of Republic of Singapore or its personnel on their local purchases of goods
and/or services it appearing from the list submitted by the Department of Foreign Affairs as of February
Hence, the local purchase of one (1) Honda CRV 2.0 A/T, for the personal use of Mr. Paul Koh
Kok Hong, Counselor of the Embassy of the Republic of Singapore is exempt from VAT and ad valorem.
(BIR Ruling No. ITAD-169-00 dated October 30, 2000) caSDCA
Very truly yours,

Deputy Commissioner
July 2, 2001

Salustiana D. Ty Tower
104 Paseo de Roxas
Makati City
Attention: Ms. Clare Gatehouse

Second Secretary
Gentlemen :
This has reference to your letter dated May 22, 2001 referred to this Office by the Department of
tax on the local purchase of one (1) Honda CRV 2.0 A/T specifically described as follows:

Make: Honda CRV 2.0 A/T (5 door sedan, gas,
2.0li., PGM-FI, 4-speed automatic
transmission, 150 hp)
Model Year: 2001
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods
and services;
"xxx xxx xxx"
exemption to the Embassy of Australia or its personnel on their local purchases of goods and/or services it
Hence, the local purchase of one (1) Honda CRV 2.0 A/T, for the personal use of Ms. Clare
Gatehouse, Second Secretary of the Embassy of Australia is exempt from VAT and ad valorem. (BIR
Ruling No. ITAD-24-01 dated March 12, 2001) EHTSCD
Very truly yours,

Deputy Commissioner
June 28, 2001
RP-Japan Article 10
Sec. 109 (w), 173, and 176 of 1997 Tax Code

3rd Floor, Insular Life Building
Cor. Gorordo & Gen. Maxilom Avenues
Cebu City
Attention: Lauris L. dela Peña

Tax Division
Gentlemen :
This refers to your letter dated December 01, 2000, requesting confirmation of your opinion that the
cash and property dividends to be remitted by FAS Cebu Corporation (FAS) to Nissan Altia Co., Ltd.
(NISSAN) are subject to 10% withholding tax pursuant to the RP-Japan Tax Treaty.
It is represented that FAS is a corporation organized and existing under the laws of the Philippines
with business address at Mactan Economic Zone, Lapu-lapu City, Cebu; that during the regular meeting of
FAS' Board of Directors held on December 01, 2000, the Board declared cash dividends in the amount of
P8,000,000.00 and property dividends in the form of treasury shares in the total number of 5,999,998 to all
stockholders of record as of October 31, 2000; that NISSAN is a stockholder of FAS from September 20,
1995, the date of incorporation, up to October 31, 2000; that as of July 3, 2000, Nissan's shareholdings in
FAS amounted to 99.99% of the total subscribed and issued capital stock of the latter; that NISSAN is a
non-resident foreign corporation, organized and existing under the laws of Japan with principal office at
Minato-ku Tokyo Japan; and 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 November
21, 2000.
"Article 10
paying the dividends is a resident and according to the laws of that Contracting State but if
a) 10 percent 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
xxx xxx xxx
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. TAEcCS
"5. To be entitled to the application of the 10% preferential tax rate on dividends, 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 six months immediately preceding the date of payment of the dividends. Since NISSAN
owns 99.99% of the total outstanding stocks of FAS as of record date and having been the holder thereof
from September 20, 1995 to October 31, 2000, the property dividend in the amount of P5,999,995 and
cash dividend in the amount of P7,999,996 remitted by FAS to NISSAN are entitled to the 10%
preferential tax rate under Article 10 (2)(a) of the RP-Japan Tax Treaty.
On the other hand, the issuance of the property dividend consisting of shares of stock in the amount
of P5,999,995 is not subject to the 10 percent (10%) output VAT as the said shares of stock were not
primarily held for sale to customers or held for lease in the ordinary course of business as enunciated in
BIR Ruling DA-488-08-26-99 dated August 26, 1999, citing Sec. 109(w) of the Tax Code of 1997:
"5. . . . Moreover, the declaration by Program of the property dividend consisting of shares
of stock of Tondo Realty Co. is not subject to value-added tax inasmuch as the shares of stock
distributed as property dividend was not primarily held for sale to customers or held for lease in the
ordinary course of business of Program [Sec. 109 (w) of the 1997 Tax Code]
However, the certificate of stocks representing the property dividends issued by FAS to NISSAN,
shall be subject to the documentary stamp tax under Section 176 of the 1992 Tax Code.
void.
Very truly yours,
By:

Deputy Commissioner
June 11, 2001
Articles 5, 7- RP-Singapore Tax Treaty

DA-ITAD-42-01
Caltex (Philippines), Inc.

6/F 6750 Ayala Avenue
1226 Makati City
Attention: Josue C. Bañez

General Manager
Fiscal Services
Gentlemen :
This refers to your letter dated January 11, 2001, requesting confirmation of the following: 1) that
the service fees that Caltex Services Pte. Ltd. (CSPL) will receive from Caltex Philippines Inc. (CPI) are
not subject to Philippine income tax pursuant to RP-Singapore Tax Treaty; 2) that the said payments are
not subject to value-added tax (VAT); and 3) that the said payments are considered ordinary and necessary
business expenses and deductible from CPI's gross income under the National Internal Revenue Code of
1997 (NIRC).
It is represented that Caltex Services Pte. Ltd. (CSPL) is a non-resident foreign corporation
organized and existing under the laws of Singapore with registered office address at 30 Raffles Place,
#25-00 Caltex House, Singapore; that CSPL is not registered as a corporation/partnership licensed to do
business in the Philippines as per certification issued by Securities and Exchange Commission (SEC)
dated March 16, 2001; that CSPL operates a Global Operational Headquarters ("GOHQ") which has been
approved under section 43E of the Income Tax Act (Cap 134), 1996 Edition ("Income Tax Act); that it
plans to enter into a continuing Service Agreement between Caltex Philippines, Inc. (CPI); that CPI is a
domestic corporation duly organized and existing under the laws of the Philippines, engaged in the
manufacture, distribution, trading and marketing of petroleum products; that under the agreement, CSPL
shall provide to CPI, unless otherwise terminated by a previous notice in writing by either party, advice,
assistance and coordination in the areas of general management and administration, corporate finance,
business planning and coordination, training and personnel management, procurement of raw materials
and components, economic and investment research and analysis, marketing control and sales promotion
planning and environment, health and safety matters as enumerated in the "Schedule of Services" of the
Service Agreement; that these services shall neither involve the grant of a license for the use of CSPL's
proprietary rights nor will these involve the transfer of technology; that all these services shall be
performed by CSPL in Singapore, except for occasional visits or consultations with CPI of short duration,
which in no case shall exceed an aggregate of 183 days during the period of the Service Agreement; that
CSPL will be paid a service fee equivalent to all costs and expenses properly incurred by CSPL in
connection with the provision of the services to CPI; that the costs attributable to CPI in connection with
the provision of the above-mentioned services to CPI shall be determined based on actual time spent
and/or any other basis acceptable to both CSPL and CPI.
In reply, please be informed of the following provisions of the RP-Singapore Tax Treaty, to wit;
"Article 5
Permanent Establishment
(1) For the purposes of this Convention, the term "permanent establishment" means a fixed
(2) The term "permanent establishment" includes specially but is not limited to:
a) ...
f) 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)
"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. (emphasis supplied)
xxx xxx xxx
Based on the aforequoted provisions, a corporation which is a resident of Singapore may be deemed
to have a permanent establishment in the Philippines if the furnishing of services by such
Singapore-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 there is no transfer of technology and CSPL will perform the service entirely in
Singapore except for occasional visits or consultations with CPI of short duration, which in no case shall
exceed an aggregate of 183 days during the period of the service agreement, CSPL is deemed not to have a
permanent establishment in the Philippines and, as such, your opinion that the service payments made by
CPI to CSPL are not subject to Philippine income tax is hereby confirmed.
However, the fees paid by CPI to CSPL for the services rendered in the Philippines are subject to
10% value-added tax (VAT) pursuant to Section 108 of the Tax Code. Accordingly, CPI shall be
responsible for the payment of VAT on behalf of CSPL by filing a separate VAT declaration/return (BIR
Form 1600 — Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld)
and the said return can be used by CPI as evidence in claiming input tax credit (Section 4.102-1(b),
Revenue Regulations No. 7-95)[BIR Ruling No. DA-ITAD-42-01 dated April 10, 2001].
Finally, the payment of fees by CPI to CSPL may qualify as deduction from the former's gross
income provided all the requirements for deductibility of an expense under Section 34 of the Tax Code of
1997 are present and that proof is shown that the said services are ordinary, necessary and actually
resulted in benefits to the business operation of CPI.
This ruling is issued on the basis of the facts as represented. However, if upon investigation it
would be disclosed that the facts are materially different, then this ruling shall be considered automatically
revoked.
Very truly yours,
By:

Officer-in-Charge
August 7, 2001
Sec 4.103-1 (w) (4)

053-2001
Shelter Systems Development Corporation

12 Mother Ignacia Street
Quezon City
Attention: Mr. Jose Dennis A. dela Cruz

Vice President
Gentlemen :
This refers to your letter dated November 15, 2000, requesting information as to whether or not you
are exempt from the payment of VAT on the sale of house and lots, the selling price of which do not
exceed one million pesos (P1,000,000.00) each.
In reply, please be informed that pursuant to Article 4.103-1(w)(4) of Revenue Regulations No.
7-95, as amended by Revenue Regulations No. 6-97, the sale by real estate dealers and/or lessors of house
and lot and other residential dwellings valued at One Million Pesos (P1,000,000.00) and below shall be
exempt from VAT. Accordingly, since the price of the house and lot you are selling does not exceed
P1,000,000.00 each, you are exempt from VAT on your said transaction, pursuant to Section 109(w) of the
Tax Code of 1997. Likewise, you are not subject to the 3% gross receipts tax imposed under Section 116
of the same Code. (BIR ruling No. 110-98, as modified by BIR Ruling No. 120-99).
Very truly yours,
By:

Deputy Commissioner
June 6, 2001
Article 11, RP-Belgium Tax Treaty

Section 2.24, RR 10-98
ITAD 196-00
Mr. Ivanhoe F. Sandoval

United Coconut Planters Bank
P.O. Box 4230, MCCPO Box 3029
Sir:
This refers to your fax letter dated 29 May 2001 which serves as an addendum concerning the
request of Ms. Amelia Reyes de Forthomme on behalf of her husband, Mr. Denis W. P. Forthomme, a
prospective depositor of UCPB, for exemption from the 7.5% final tax on interest income on Foreign
Currency Deposits (FCDU) under Revenue Regulations No. 10-98, and for the application of the
preferential tax rate of 10% final tax on interest income on Philippine Peso Currency deposits pursuant to
the RP-Belgium Tax Treaty.
It is represented that Mr. Denis Forthomme is a Belgian citizen and is a permanent resident of
Bruxelles, Belgium; that he is a non-resident individual and has no existing business in the Philippines
from which he can derive income; that he is not in the Bureau of Immigration's list of registered permanent
resident aliens as per the said Bureau's Certification (Control No. 00967) dated May 8, 2001; that he is a
holder of Belgian Passport No. EB Nr. 790287 issued at Bruxelles, Belgium on May 8, 1999 expiring on
April 8, 2004; and that he is a future client of United Coconut Planters Bank, T.M. Kalaw branch.
In reply, please be informed as follows:
1. On the imposition of income tax on derived under the Foreign Currency Deposit
Under Section 24 (B)(l) of the 1997 Tax Code, the interest income received by a non-resident
individual from a depository bank under the expanded foreign currency deposit system shall not be subject
to a final income tax at the rate of 7½%.
Furthermore, Section 2.24 of Revenue Regulations No. 10-98 1(1) provides, viz:
"SEC. 2.24. Income Tax Rate of Interest Income from Foreign Currency Deposit —
"xxx xxx xxx
"(B) Compliance and Administrative Procedures for Non-Resident Citizen and Non-Resident
Alien. The tax on interest income from foreign currency deposit shall be imposed unless the depositor
who is a non-resident citizen alien can present documentary evidence that he is not a resident of the
Philippines. Such evidence shall consist of the original or certified copy of any of the following:
"xxx xxx xxx
"(4) a certification from the Bureau of Immigration of the Philippines that a non-resident alien
is not a resident of the Philippine; or
"xxx xxx xxx"
Since Mr. Denis W. P. Forthomme is a non-resident alien individual in the Philippines and has
complied with the requirement of Revenue Regulations No. 10-98, the interest income which he may
derive from his foreign currency deposit here in the Philippines shall be exempt from the final withholding
tax of 7½%.
II. On the imposition of income tax on interest income from other deposits.
Article 11 of the RP-Belgium Tax Treaty provides as follows, viz:
"Article II
"INTEREST
"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 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.
"xxx xxx xxx.
"4. 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
assimilated to or taxed in the same way as income from money lent by the taxation law of the State in
which the income arises, including interest on deferred payments. However, the term "interest" shall
not include for the purpose of this Article interest regarded as dividends under paragraph 3 of Article
10.
"xxx xxx xxx."
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." (BIR Ruling No. ITAD-196-00 dated December 7, 2000).
Thus, applying Article 11 of the RP-Belgium Tax Treaty, the interest income which may be derived
by Mr. Forthomme on Philippine Peso Currency deposits shall be subject to the 10% preferential tax rate
pursuant to Article 11 (2) of the RP-Belgium Tax Treaty.
Very truly yours,
By:

OIC-Commissioner
Footnotes
1. Implementing the Provisions of the National Internal Revenue Code, As Amended by Republic Act No.
8424, Relative to the Imposition of Income Taxes on Income Derived under the Foreign Currency Deposit
and Offshore Banking Systems
May 31, 2001
Sec 101 (b) (1); Sec 109 (q)
Embassy of the United States of America

1201 Roxas Boulevard,
Manila
Attention: H.E. Michael E. Malinowski

Charge d'Affaires, a.i.
Gentlemen :
This has reference to your letter dated May 7, 2001 requesting for exemption from Philippine tax of
the US Government's donation of Fifty One Thousand Dollars ($51,000.00) worth of equipment pursuant
to the Letter of Agreement on Narcotics Control and Law Enforcement Between The Government of the
United States of America and The Government of the Republic of The Philippines (Letter of Agreement) to
support the establishment of the Philippine Drug Data Center at the National Drug Law Enforcement and
Prevention Coordinating Center.
In reply, please be informed that pursuant to Section 109 (q) of the Tax Code of 1997:
"SEC. 109. Exempt Transactions. — The following shall be exempt from the value added
tax:
"xxx xxx xxx
(q) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and
1590"
In the exchange of letters outlining the above Letter of Agreement as confirmed by then Secretary
of the Department of Interior and Local Government, Alfredo S. Lim, dated September 25, 2000, it is
acknowledged "that it is the understanding of our government that any funds, materials and equipment
provided under the terms of the Letter of Agreement between our two governments for the benefits of the
Government of the Republic of the Philippines shall be treated as exempt from taxation . . . Specifically,
such funds, materials, and equipment shall be exempt from taxes, service charges and investment or
deposit requirements and currency control in the Philippines, and the import, export, acquisition, use or
disposition of any such property or funds in connection with the Letter of Agreement shall be exempt from
any tariffs, customs duties, import and export taxes, on purchase or disposition and any other taxes or
similar charges in the Philippines." (Emphasis supplied)
Such being the case and since the Philippines is a signatory to the subject Letter of Agreement, the
U.S. Government is exempt from value-added tax (VAT) on the importation, or acquisition, use or
disposition of any such property or funds in connection with the Agreement.
This modifies BIR Ruling No. DA-402-2000 dated November 21, 2000 to the extent that said
importation is subject to VAT.
Very truly yours,
(SGD.) RENÉ G. BAÑEZ

Commissioner
May 28, 2001
Art. 13, RP-Netherlands ITAD-41-00

20th Floor, Tower I
Attention: Atty. Marivic C. España

Tax Partner
Gentlemen :
This refers to your letter dated March 13, 2001 requesting confirmation of your opinion that the
gains realized from the sale of shares of stock in Blue Circle Philippines, Inc. (BCPI) by Blue Circle
International Investments, BV (BCII) to its affiliate company, Blue Circle Global Investment Ltd. (BCGI)
are not subject to capital gains tax pursuant to the RP-Netherlands Tax Treaty. CAcIES
It is represented that BCII is a non-resident foreign corporation organized and existing under the
laws of The Netherlands with principal office in Leidercorp (2351 AJ) The Netherlands, Hoofdstraat 2;
that it is not registered as a corporation/partnership licensed to do business in the Philippines as per
certification issued by the Securities & Exchange Commission dated February 28, 2001; that BCGI is a
non-resident foreign corporation organized and existing under the laws of England with registered office at
84 Eccleston Square, London SW IV PX, United Kingdom; that BCPI is a corporation organized and
existing under Philippine laws with principal office at 9th Floor 1004 Antel Corporate Center, 139 Valero
Street, Salcedo Village, Makati City; and that on October 17, 2000, BCII executed a Share Transfer
Agreement of its 52,581 shares of stock in BCPI in favor of BCGI for and in consideration of the amount
of € 2,275,748 (NLG5,051,089)
In reply, please be informed that Article 13 of the RP-Netherlands tax treaty provides as follows:
"ARTICLE 13
"3. Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of

"4. Gains from the alienation of any property other than those mentioned in paragraphs 1, 2
xxx xxx xxx
Based on the aforequoted provisions of the RP-Netherlands Tax Treaty, capital gains from the
alienation of 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 alienation of shares of stock is not among
those mentioned in said paragraphs 1, 2 and 3, the gains that may be derived by BCII, a resident of The
Netherlands, from the sale of its shares of stock in BCPI to BCGI are taxable only in The Netherlands and
therefore exempt from the capital gains tax imposed under Section 28(b)(5)(c) of the Tax Code of 1997.
(ITAD 41-00 dated February 10, 2000)
However, the said Share Transfer Agreement evidencing the sale shall be subject to documentary
stamp tax in accordance with Section 176 of the Tax Code of 1997.
void.
Very truly yours,
By:

Deputy Commissioner
May 17, 2001
Arts. 32 & 60, Vienna Convention on Consular Relations;

Section 173, NIRC
Embassy of the Republic of Singapore

6/F, ODC International Plaza Building
219 Salcedo Street, Legaspi Village
Makati City
Attention: Ms. Angeline Thangaperakasam

Third Secretary
Gentlemen :
This refers to your letter dated April 7, 2000 requesting confirmation of your opinion that the
Embassy of the Republic of Singapore is exempted from payment of documentary stamp tax, transfer tax
and the registration tax on its purchase of real property. cAEDTa
It is represented that the Singapore Embassy is currently in the final stages of negotiations to
purchase a new chancery; and that it seeks clarification as to its exemption from payment of taxes and
other tax consequences of the above transaction.
In reply, please be informed of Article 32 in relation to Article 60 of the Vienna Convention on

Consular Relations dated April 18, 1961 pertinent portions of which read —
"ARTICLE 32
EXEMPTION FROM TAXATION OF CONSULAR PREMISES
"1. Consular premises and the residence of the career head of consular post of which the
sending State or any person acting on its behalf is the owner or lessee shall be exempt from all
national, regional or municipal dues and taxes whatsoever other than such as represent payment for
specific services rendered.
"2. The exemption from taxation referred to in paragraph 1 of this Article shall not apply to
such dues and taxes if under the law of the receiving State, they are payable by the person who
contracted with the sending State or with the person acting on its behalf."
"ARTICLE 60
"EXEMPTION FROM TAXATION OF CONSULAR PREMISES
"1. Consular premises of a consular post headed by an honorary consular officer of which
the sending State is the owner or lessee shall be exempt from all national, regional or municipal dues
and taxes whatsoever, other than such as represent payment for specific services rendered.
2. The exemption from taxation referred to in paragraph 1 of this Article shall not apply to
such dues and taxes if, under the laws and regulations of the receiving State, they are payable by the
person who contracted with the sending State."
Based on the aforequoted provision of the Convention, the Embassy of the Republic of Singapore is
exempt from payment of internal revenue taxes for which it is directly liable, i.e. documentary stamp
taxes. However, Section 173 of the Tax Code of 1997, provides among others, that whenever one party to
the taxable document enjoys exemption from the documentary stamp tax, the other party thereto who is
not exempt shall be the one directly liable to the tax. Accordingly, the seller shall be the party directly
liable for the payment of the documentary stamp tax considering that the Embassy is tax-exempt.
The Embassy is not liable to pay the capital gains tax since this is a tax imposed on the capital gains
or income derived from the sale, exchange or other disposition of real property classified as capital asset.
Accordingly, the seller or the other party who realized capital gains from the transaction shall be the party
directly liable for the payment of the capital gains tax.
As regards the exemption of the Embassy with respect to transfer tax (local government tax), real
estate tax and registration fee, please address your query to the Department of Interior and Local
Government-Finance which has jurisdiction on the matter. HcDSaT
Very truly yours,
(SGD.) RENÉ G. BAÑEZ

Commissioner
May 15, 2001
Sec 106, Sec 108 & Sec 149

Embassy of the Islamic

Republic of Iran
2224 Paraiso corner Pasay Road
Dasmariñas Village, Makati City
Gentlemen :
This has reference to your letter dated February 21, 2001 referred to this Office by the Immunities
and Privileges Division, Office of Protocol of the Department of Foreign Affairs (DFA), requesting for a
tax-free local purchase of one (1) Toyota Hi-Ace Super Grandia for the official use of the Embassy of Iran
specifically described as follows:
Make: Toyota Hi-Ace Super Grandia
Model Year: 2001
Color: Elegant Pearl
Chassis Number: LH154-1000046
Engine Number: 5L-5064049
"ARTICLE 34
services;
"xxx xxx xxx"
However, based on reciprocity, this Office may grant tax exemption to the Embassy of Iran on its
local purchases of goods and/or services it appearing from the list submitted by the Department of Foreign
Affairs that your Government allows similar exemption to Philippine Embassy personnel on their purchase
of goods and services in your country.
Hence, the local purchase of one (1) Toyota Hi-Ace Super Grandia, for the official use of the
Embassy of the Islamic Republic of Iran is exempt from VAT and ad valorem taxes. (BIR Ruling No.
ITAD-95-00 dated August 1, 2000)
Very truly yours,
By:
Deputy Commissioner
May 15, 2001
Sec 106, Sec 108 & Sec 149

Embassy of the Republic of Korea

10th Floor, The Pacific Star Bldg.,
Attention: Mr. Soon-chun Lee

Minister and Deputy Chief of Mission
Gentlemen :
This has reference to your letter dated March 27, 2001 referred to this Office by the Immunities and
Privileges Division, Office of Protocol of the Department of Foreign Affairs (DFA), requesting for a
tax-free local purchase of one (1) 2001 Honda Civic 1.6 VTi A/T specifically described as follows:
Make: Honda Civic 1.6 VTi A/T
Model Year: 2001
Color: Titanium Silver Metallic
Chassis Number: PADES56501V000122
Engine Number: PSJD5-1000197
"ARTICLE 34
regional or municipal except:
services;
"xxx xxx xxx"
prescribed under Sections 106 and 108, and ad valorem taxes under Section 149, all of the National
However, applying the principle of reciprocity, this Office may grant tax exemptions to the
Embassy of the Republic of Korea or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs that your Government allows
similar exemption to Philippine Embassy personnel on their purchase of goods and services in your
country.
Hence, the local purchase of one (1) Honda Civic 1.6 VTi A/T Model 2001, for the personal use of
Mr. Soon-chun Lee, Minister and Deputy Chief of Mission of the Embassy of Korea is exempt from VAT
and ad valorem taxes. (BIR Ruling No. 172-00 dated November 10, 2000)
Very truly yours,
By:

Deputy Commissioner
Legal and Inspection Service
May 11, 2001
Articles 13 & 23, RP-US Tax Treaty

Articles 12 & 13, RP-Denmark Tax Treaty

Ernst & Young International
20th Floor, Tower I
6766 Ayala Avenue 1200 Makati City

Tax Partner
Gentlemen :
This refers to your application for relief from double taxation dated January 19, 2000, on behalf of
your client, UNISYS AUSTRALIA LIMITED — Philippine Branch (UAL-PB), requesting for
confirmation of your opinion that the payments to be made by the latter to UNISYS CORPORATION
(UNISYS) are considered royalties and, thus, subject to the preferential tax rate of 15%, pursuant to the
"most-favored-nation" clause [Article 13(2)(b)(iii)] of the RP-US Tax Treaty in relation to Article 12(2) of
the RP-Denmark Tax Treaty.
It is represented that UAL-PB is a branch of Unisys Australia Limited, a corporation organized and
existing under the laws of Michigan, U.S.A., duly registered with the Philippine Securities and Exchange
Commission; that it is doing business in the Philippines under the business style "Unisys Philippines"; that
it is primarily engaged in the business of designing, manufacturing and marketing components, products,
systems and forms and supplies for the recording, storing, handling, computing, processing and
communicating of information and data, and of providing related services; that UNISYS 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 July 6, 2000 issued by the Securities and Exchange Commission;
that it is likewise engaged in the business of designing, manufacturing and marketing components,
products, systems and forms and supplies for the recording, storing, handling, computing, processing and
communicating of information and data, and of providing related services; that in 1998, UAL-PB entered
into an Intellectual Property License Agreement with UNISYS, effective October 1, 1998, for a period of
two (2) years, subject to automatic and successive renewal for additional periods of one year, unless a
notice of termination is given by either party; that the said Agreement complies with the provisions of the
Intellectual Property Code on Voluntary Licensing as per Certificate of Compliance No. 5-1998-00089
dated January 4, 1999 issued by the Intellectual Property Office of the Department of Trade and Industry;
that said Agreement grants UAL-PB a non-exclusive license to reproduce, translate, distribute and prepare
derivative works of, and use in its business such present and future rights in patents, copyrights,
trademarks, trade secrets, software, documentation, know-how, maintenance and products support
materials and professional service support materials under patent, copyright and mask work, trade secret
and trademark law in the Philippines; that in consideration for the said grant, UAL-PB pays UNISYS
royalties, to wit: (1) an amount equal to fifty percent (50%) of UAL-PB's Software Revenue, (2) an
amount equal to ten percent (10%) of UAL-PB's Maintenance Revenue, (3) an amount equal to five
percent (5%) of UAL-PB's Professional Services Revenue, and (4) an amount equal to either, at UAL-PB's
option, (a) three percent (3%) of revenues from UAL-PB's OEM Products or (b) four and four-fifths
percent (4.8%) of UAL-PB's OEM Product Costs.
"Article 13
"ROYALTIES
"1. Royalties derived by a resident of one of the Contracting States from sources within the
royalties, and

royalties are paid by a corporation registered with the Philippine
Board of Investments and engaged in preferred areas of
activities, and
(iii) the lowest rate of Philippine tax that may be imposed on

royalties of the same kind paid under similar circumstances to a
resident of a third State. EHCaDS
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 ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
(OECD) Committee on Fiscal Affairs on the Model Tax Convention [par. 11, Commentary on Article 12
(Royalties),© 1998, p. 151], such information alludes to the concept of "know-how". The definition of
of the progress of technique.'' In the know-how contract, one of the parties agrees to impart to the other, so
that he can use them for his own account, his special knowledge and experience which remain unrevealed
to the public.
As thus defined by the Intellectual Property License Agreement by and between UAL-PB and
UNISYS, the information to be imparted by UNISYS falls under the purview of know-how. Hence,
payments received by UNISYS in consideration for the said grant are deemed royalties.
The RP-US Tax Treaty also speaks of 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." This is known
as the most-favored-nation clause of the RP-US Tax Treaty. The purpose of a most favored nation clause
is to grant to the Contracting State treatment no less favorable than that which has been or may be granted
to the "most favored" among other countries.
Pursuant therefore to the most favored nation clause of the RP-US Tax Treaty, it is your stand that
the phrase "paid under similar circumstances" is to be interpreted, according to some Court of Tax
Appeals decisions, to refer to the royalties paid and not to the payment of taxes since what is paid to a
resident of a third State is royalty and not the tax, and that the provisions of Article 12 of the RP-Denmark
Tax Treaty, particularly the preferential tax rate of 15%, may be made to apply in the case of UNISYS.
Said Article 12 reads:
"Article 12
"Royalties
"The competent authorities of the Contracting States may by mutual agreement settle the mode
"xxx xxx xxx"
Appeals (G.R. No. 127105, June 25, 1999), the interpretation of the Court of Tax Appeals of the phrase
"paid under similar circumstances" was not sustained, thus:
"We are unable to sustain the position of the Court of Tax Appeals, which was upheld by the
Court of Appeals, that the phrase 'paid under similar circumstances' in Article 13 (2) (b) (iii) of the
RP-US Tax Treaty should be interpreted to refer to payment of royalty, and not to the payment of the
tax, for the reason that the phrase, 'paid under similar circumstances' is followed by the phrase 'to a
resident of a third state.' The respondent court held that "Words are to be understood in the context in
which they are used', and since what is paid to a resident of a third state is not a tax but a royalty 'logic
instructs' that the treaty provision in question should refer to royalties of the same kind paid under
similar circumstances.
"The above construction is based principally on syntax or sentence structure but fails to take
into account the purpose animating the treaty provisions in point. To begin with, we are not aware of
any law or rule pertinent to the payment of royalties, and none has been brought to our attention,
which provides for the payment of royalties under dissimilar circumstances. The tax rates on royalties
and the circumstances of payment thereof are the same for all the recipients of such royalties and
there is no disparity based on nationality in the circumstances of such payment. On the other hand, a
cursory reading of the various tax treaties will show that there is no similarity in the provisions on
relief from or avoidance of double taxation as this is a matter of negotiation between the contracting
parties.
"xxx xxx xxx
"The reason for construing the phrase 'paid under similar circumstances' as used in Article 13
(2) (b) (iii) of the RP-US Tax Treaty as referring to taxes is anchored upon a logical reading of the text
in the light of the fundamental purpose of such treaty which is to grant an incentive to the foreign
investor by lowering the tax and at the same time crediting against the domestic tax abroad a figure
higher than what was collected in the Philippines."
Article 23 of RP-US Tax Treaty reads:
"Article 23
"RELIEF FROM DOUBLE TAXATION
"Double taxation of income shall be avoided in the following manner:
"1. In accordance with the provisions and subject to the limitations of the United States (as it
may be amended from time to time without changing the general principle hereof), the United States
shall allow to a citizen or resident of the United States as a credit against the United States tax the
appropriate amount of taxes paid or accrued to the Philippines and, in the case of a United States
corporation owning at least 10 percent of the voting stock of a Philippine corporation from which it
receives dividends in any taxable year, shall allow credit for the appropriate amount of taxes paid or
accrued to the Philippines by the Philippine corporation paying such dividends with respect to the
profits out of which such dividends are paid. Such appropriate amount shall be based upon the amount
of tax paid or accrued to the Philippines, but the credit shall not exceed the limitations (for the
purpose of limiting the credit to the United States tax on income from sources within the Philippines
or on income from sources outside the United States) provided by United States law for the taxable
year. . . ."
On the other hand, Article 23 of the RP-Denmark Tax Treaty provides, viz:
"Article 23
"ELIMINATION OF DOUBLE TAXATION
"xxx xxx xxx
"2. In Denmark, in accordance with the provisions and subject to the limitations of the laws
of Denmark, as may be amended from time to time without changing the general principle hereof,
double taxation shall be eliminated as follows:
a) Subject to the provisions of sub-paragraph (c), where a resident of Denmark derives

income which, in accordance with the provisions of this Convention, may be taxed in the Philippines,
Denmark shall allow as a deduction from the tax on the income of that resident, an amount equal to
the income tax paid in the Philippines;
b) such deduction shall not, however, exceed that part of the income tax, as computed
before the deduction is given, which is attributable to the income which may be taxed in the
Philippines;
c) where a resident of Denmark derives income which, in accordance with the provisions of
this Convention shall be taxable only in the Philippines, Denmark may include this income in the tax
base, but shall allow as a deduction from the income tax that part of the income tax, which is
attributable to the income derived from the Philippines;
"xxx xxx xxx."
A cursory reading of the above-quoted Article 23 of the RP-US Tax Treaty and Article 23 of the
RP-Denmark Tax Treaty, though differently worded, will reveal that they grant the same relief from
double taxation to their respective residents who are covered thereby. Thus, the tax on royalties by Danish
residents and US residents are paid under similar circumstances. US residents may, therefore, invoke the
preferential tax rate of 15% under the RP-Denmark Tax Treaty Pursuant to the most favored nation clause
of the RP-US Tax Treaty.
Such being the case, this Office confirms your opinion that the payments to be made by UAL-PB to
UNISYS as stipulated in their Intellectual Property License Agreement are deemed royalties and, thus,
subject to the preferential rate of 15%, pursuant to the most favored nation clause [Article 13 (2) (b) (iii)]
of the RP-US Tax Treaty in relation to Article 12 (2) of the RP-Denmark Tax Treaty. (BIR Ruling No.
ITAD 123-00 September 1, 2000)
Furthermore, under Section 108 of the said Code, the royalty payments to be remitted by UAL-PB
is subject to the 10% value-added tax. Section 4.102-1 (b) of Revenue Regulations No. 7-95 provides that:
filing a separate VAT declaration/return (BIR Form No 1600 — Monthly Remittance Return of
In view of all the foregoing, UAL-PB shall be responsible for the withholding of income tax at the
rate of 15% of the gross amount of royalties and the value-added tax at the rate of 10% of the contract
amount.
Very truly yours,
By:

Deputy Commissioner
April 25, 2001
Art. 34, Vienna Convention on Diplomatic Relations;

Sections 106 and 108, NIRC
Embassy of the Islamic

Republic of Pakistan
6th Floor Alexander House,
132 Amorsolo St.
Legaspi Village, Makati
Gentlemen :
This refers to your Note NO. TX-ref/1-2000 dated January 22, 2001 which was referred to this
Office by the Department of Foreign Affairs relative to your request for exemption from the value-added
tax (VAT) on items purchased at the Pilipinas Makro, Inc.
"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 purchases of goods and service. In other words, purchases by that
and 108, both of the National Internal Revenue Code of 1997.
However, based on reciprocity, this Office may grant exemption to the Embassy of The Islamic
Republic of Pakistan on its local purchases of goods and/or services it appearing from the list submitted by
the Department of Foreign Affairs dated February 22, 2001 and in its Indorsement dated February 13,
2001 that your Government allows similar exemption to the Philippine Embassy on its purchase of goods
and services in your country. (BIR Ruling 206-93 dated May 11, 1993)
Hence, the Embassy of The Islamic Republic of Pakistan is entitled to VAT exemption on its local
purchase of goods and/or services.
Very truly yours,
By:

Deputy Commissioner
April 19, 2001
RP-Australia Art 7 (1) Art. 5 (2) (k)

ITAD 2-00/85-00

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

Principal, Tax Services Dept.
Gentlemen :
This refers to your letter dated August 4, 2000 on behalf of your client Lincolne Scott Pty. Ltd.
(LSPL), requesting confirmation of your opinion that Lincolne Scott CCF, Inc.'s (LSCCF) payments to
LSPL pursuant to their service agreement are not subject to Philippine tax and that the same will qualify as
part of LSCCF's deductible business expenses pursuant to Article 5(2)(k) and Article 7(1) of the
RP-Australia Tax Treaty.
It is represented that LSPL is a non-resident foreign corporation organized and existing under the
laws of Australia; that it is not registered as a corporation/partnership 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 LSCCF is a domestic corporation organized and existing under
Philippine laws; that both companies are engaged in consultancy engineering business and are members of
the Lincolne Scott Group of Companies (Group) operating in Australia, New Zealand, Singapore,
Thailand, Philippines, Fiji and Hawaii whose Head Office is in Australia; that to streamline operations
among its various affiliate companies, the Group provides to them through LSPL, centralized corporate
support services in the areas of management, accounting and administration, marketing support and
engineering support; that in consideration of the aforementioned services, LSPL and LSCCF entered into
an Agreement for Corporate Support Services (Agreement) which duration is continuous and which shall
neither involve the grant of a license for the use of LSPL's proprietary rights nor will it involve transfer of
technology; that the services under the Agreement will be performed entirely by LSPL in Australia; that in
cases where LSPL's corporate support staff need to make occasional visits to the Philippines, such visits
shall not exceed a period of six months in any calendar year; and that in consideration of the services
rendered, LSCCF agrees to reimburse the amount representing the actual cost incurred by LSPL based on
agreed allocation ratios without mark-up or profit element.
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 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.
"xxx xxx xxx"
"Article 5
"(1) For the purpose of this Agreement, the term "permanent establishment" means "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 periods aggregating more than six months in any taxable year or
year of income, as the case may be, in relation to a particular project, or to
any project connected therewith."
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, among others, 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. Considering that the services to be rendered by LSPL's staff
in their occasional visit to the Philippines will not exceed a period of six months, LSPL cannot be
considered to have a permanent establishment in the Philippines. Further, the amounts do not constitute
income as they are mere reimbursement of the actual costs and expenses with no mark-up or profit element
incurred by LSPL in rendering the services to LSCCF.
Such being the case, your opinion that the service fees paid by LSCCF to LSPL are not subject to
Philippine income tax pursuant to the RP-Australia Tax Treaty and such will qualify as part of LSCCF
deductible business expenses is hereby confirmed. (ITAD Ruling No. 2-00 and 85-00).
However, the service fees paid by LSCCF covering the services rendered during the occasional
visits to the Philippines by LSPL's corporate staff are subject to the 10% value added tax pursuant to
Section 108 of 1997 Tax Code. Accordingly, LSCCF shall be responsible for the payment of VAT on such
fees on behalf of LSPL by filing a separate VAT declaration/return using BIR Form No. 1600. The said
VAT declaration/return can be used by LSCCF as evidence in claiming input tax credit. (Sec. 4. 102-1(b),
void.
Very truly yours,
By:

Deputy Commissioner
April 16, 2001
RP-UK Tax Treaty Art. 12

RP-Singapore Tax Treaty Art. 12
Tax Code of 1997 - Sec. 176
BIR Ruling Nos. ITAD - 29-00 & 93-00

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

Principal
Gentlemen :
This refers to your letter dated August 23, 2000 requesting on behalf of your clients, BG Plc (BGP),
BG Overseas Holdings Limited (BGOHL) and British Gas Asia Pacific Holdings Pte. Ltd. (BGAPHPL),
confirmation of your opinion that the assignments of First Gas Holdings Corporation's (FGHC) shares of
stocks under the facts and circumstances described hereunder are exempt from the payment of capital
gains tax pursuant to the provisions of the RP-UK and RP-Singapore Tax Treaties.
It is represented that BGP and BGOHL are corporations organized and existing under the laws of
the United Kingdom with the same business address at 100 Thames Valley Park Drive, Reading, Berkshire
RG6 1PT, United Kingdom; that both are not registered as a corporation or partnership licensed to do
business in the Philippines as evidenced by a Certificate of Non-Registration issued by the Securities and
Exchange Commission dated May 16, 2000; that BGAPHPL is a corporation organized and existing under
the laws of Singapore with address at 83 Clemenceau Ave., 1408 UE Square, Singapore; that it is not
registered as a corporation or partnership licensed to do business in the Philippines as evidenced by a
Certificate of Non-Registration issued by the Securities and Exchange Commission dated September 28,
2000; that FGHC is a corporation organized and existing under the Philippine Laws with office address at
4th Floor, Benpres Bldg., Meralco Ave., Pasig City; that as of December 7, 1999, FGHC has a total
subscribed and paid-up capital of P1,260,841,000 consisting of 126,084,100 shares broken down as
follows:
Name No. of Shares

First Philippine Holdings Corp. 64,302,888
BGAPHPL 17,933,640
BGP 32,499,988
Meralco Pension Fund 11,347,569
Peter D. Garrucho, Jr. 1
Elpidio L. Ibañez 1
Oscar Lopez 1
Frank Chapman 1
Derek Fisher 1
that on the same date, BGP assigned its FGHC's 32,499,998 shares in favor of BGOHL; that subsequently,
BGOHL assigned the same shares in favor of BGAPHPL; and that BGAPHPL then later assigned to
British Gas Consolidated Holdings (Philippines), Inc. (BGCHPI), a domestic corporation with office
address at Unit 805, Tektite West Tower, PSE Centre, Exchange Road, Ortigas Center, Pasig City, a total
of 50,433,640 FGHC shares, consisting of the 32,499,998 shares transferred by BGOHL, the 17,933,640
shares issued in BGAPHPL's name, and the 2 shares held by the stockholders Messrs. Frank Chapman and
Derek Fisher. SaCDTA
In reply, please be informed that Article 12 of the RP-UK 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 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 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 (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
"(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. (Emphasis supplied)
xxx xxx xxx"
Under the above-mentioned provisions, gains from the alienation of shares of stock shall be taxable
only in the country of the alienator. Since BGP and BGOHL are residents of UK, such transfers are
taxable only in UK. (BIR Ruling No. ITAD-29-00)
On the other hand as regards the transfer of the shares from BGAPHPL to BGCHPI, 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.
permanent establishment which an enterprise of a Contracting State has in the other
Contracting State or of movable property pertaining to a fixed base available to a resident of
a Contracting State in the other Contracting State for the purpose of performing professional
services, including such gains from the alienation of such 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.
"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.
xxx xxx xxx"
Accordingly, capital gains derived by BGAPHPL from its transfer of shares of stock to BGCHPI is
generally taxable in Singapore. However, paragraph 3 of the same 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 interests located in the Philippines. "Real Property Interest" means 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 Audited Financial Statement of FGHC disclosed that its net property and
equipment located in the Philippines are valued at P209,145,817 in 1999 and P209,825,499 in 1998,
representing less than fifty percent (50%) of its total assets of P5,054,619,592 and P2,033,772,089,
respectively, thereby making the assets of FGHC not consisted principally of real property interest located
in the Philippines. cACHSE
Accordingly, this Office is of the opinion and so holds that the gains from the transfer by BGP of its
32,499,998 FGHC shares to BGOHL, the subsequent transfer of the same shares of stocks by BGOHL to
BGAPHPL, and the final transfer by BGAPHPL of its accumulated 50,433,640 FGHC shares to BGCHPI,
are not subject to Philippine income tax. (BIR Ruling No. ITAD-93-00)
However, each Deed of Assignment for the series of transfers shall be subject to the Documentary
Stamp Tax imposed under Section 176 of the Tax Code of 1997.
be disclosed that the facts are different, then this ruling shall be null and void.
Very truly yours,
By:

Deputy Commissioner
April 10, 2001
RP-Singapore
DA-030-1-20-99;
ITAD 65-00

14th Floor Multinational Bancorporation Centre
6805 Ayala Ave., 1226 Makati City

Gentlemen :
This refers to your application for relief from double taxation dated May 23, 2000, on behalf of
Caltex Sea Pte. Ltd. (Caltex-Singapore), requesting confirmation of your opinion that the service fees paid
by Caltex Philippines Inc. (Caltex-RP) are not subject to Philippine Income/Withholding Tax and Value
Added Tax (VAT), and that the payments of such fees are deductible business expenses of Caltex-RP.
It is represented that Caltex-Singapore is a non-resident foreign corporation organized and existing

under the laws of Singapore; that Caltex-Singapore operates a Finance and Treasury Centre (FTC) which
has been approved under Section 43G of the Income Tax Act (Cap 134), 1996 edition "Income Tax Act";
that it plans to enter into a continuing Service Agreement with Caltex-RP; that Caltex-RP is a domestic
corporation duly organized and existing under the laws of the Philippines, engaged in the manufacture,
distribution, trading and marketing of petroleum products; that under the agreement, FTC of
Caltex-Singapore shall provide services to Caltex-RP that shall consist of treasury, investment, and
financial services enumerated in the "Schedule of Services" of their Service Agreement which shall create
consistency across the associated companies, allow centralization of treasury, management functions and
skills, reduce duplication of staff systems and processes required to handle these functions, thereby
resulting in an overall reduction in costs; that all these services shall be performed by Caltex-Singapore in
Singapore except for occasional visits or consultation with Caltex-RP of short duration of time not
exceeding 183 days during the period of Service Agreement; that it shall neither involve the grant of a
license for the use of the former's proprietary rights nor will it involve the transfer of technology; and that
Caltex-Singapore will be paid a service fee equivalent to the cost and expenses incurred by FTC in
connection with the services plus 5% mark-up on those costs.
In reply, please be informed of the following provisions of the RP-Singapore Tax Treaty, to wit:
"Article 5
"(1) For the purposes of this Convention, the term "permanent establishment" means a fixed
"(2) The term "permanent establishment" includes specially but is not limited to:
"a) 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) aCHcIE
"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.
"xxx xxx xxx"
Based on the aforequoted provisions, a corporation which is a resident of Singapore may be deemed
to have a permanent establishment in the Philippines if the furnishing of services by such
Singapore-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 there is no transfer of technology and FTC of Caltex-Singapore will perform the service
entirely in Singapore except for occasional visits or consultations with Caltex-RP of short duration, which
in no case shall exceed an aggregate of 183 days during the period of the service agreement,
Caltex-Singapore is deemed not to have a permanent establishment in the Philippines and, as such, your
opinion that the service payments made by Caltex-RP to FTC of Caltex-Singapore are not subject to
Philippine income tax is hereby confirmed.
However, the fees paid by Caltex-RP to Caltex-Singapore for the services rendered in the
Philippines are subject to 10% value-added tax (VAT) pursuant to Sec. 108 of the Tax Code. Accordingly,
Caltex-RP shall be responsible for the payment of VAT on behalf of Caltex-Singapore by filing a separate
VAT declaration/return (BIR Form 1600-Monthly Remittance Return of Value-Added Tax and Other
Percentage Taxes Withheld) and the said return can be used by Caltex-RP 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 /
ITAD 65-00 dated April 6, 2000]
Finally, the payment of fees by Caltex-RP to Caltex-Singapore may qualify as deduction from the
former's gross income provided all the requirements for deductibility of an expense under Section 34 of
the Tax Code of 1997 are present, and that proof is shown that said services are ordinary, necessary and
actually resulted in benefits to the business operation of Caltex-RP.
This ruling is issued on the basis of the facts as represented. However, if upon investigation it
would be disclosed that the facts are materially different, then this ruling shall be considered automatically
revoked.
Very truly yours,
By:

Deputy Commissioner
April 10, 2001
RP-Japan, Article 12
ITAD No. 7-00
Isuzu Autoparts Manufacturing Corporation

114 North Main Avenue, Phase III
Special Economic Zone, Laguna Technopark
Biñan, Laguna
Attention: Masayashu Hideshima

Finance and Accounting Manager
Gentlemen :
This refers to your application for tax treaty relief dated September 15, 2000 requesting for a ruling
that royalty payments of Isuzu Autoparts Manufacturing (IAMC) to Isuzu Motors Limited (IML) be
subject to a preferential tax rate of twenty five percent (25%) pursuant to the RP-Japan Tax Treaty.
It is represented that IML is a corporation duly organized and existing under the laws of Japan with
principal office at 26-1 Minami-oi 6-chome, Shinagawa-ku, Tokyo, Japan; that IML is not registered as a
corporation/partnership licensed to do business in the Philippines, as per certification dated June 1, 2000
issued by the Securities and Exchange Commission; that IML entered into a Technical Assistance
Agreement with IAMC, a PEZA registered corporation with Certificate Registration No. 97-015 dated
February 19, 1997, organized and existing under the laws of the Philippines with principal office located
at 114 North Main Avenue Phase III, Special Economic Zone, Laguna Technopark, Biñan, Laguna; that in
the said agreement, IML granted IAMC technical information and assistance relating to manufacturing and
assembly of certain types of transmission; that in consideration of the furnishing of technical information
by IML to IAMC under this Agreement, IAMC shall pay IML in Japanese Yen a "Running Royalty"
(which excludes value-added-tax) as set forth below:
a) For each Licensed Transmission sold by IAMC, an amount equivalent to three percent (3%) of
the Net Selling Price of such Licensed Transmission, and
b) For each Licensed Component sold by IAMC to customers as repair service parts, an amount
equivalent to three percent (3%) of the Net Selling Price of such Licensed Component;
that the royalty amount to be remitted shall be converted to Japanese Yen at the rate in effect at the time of
remittance; and that the Technical Assistance Agreement & Its Supplemental & Amending Agreement is
duly registered with the Intellectual Property Office of the Department of Trade and Industry under
Certificate of Compliance No. 5-2000-0075 dated October 13, 2000.
"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 laws of that Contracting State, but if the recipient is the beneficial owner of
the royalties the tax so charged shall not exceed: aCSDIc
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;
"3) xxx xxx xxx
"4) The term royalties as used in this Article means payments 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.
xxx xxx xxx"
Based on the foregoing, the royalties arising in the Philippines and paid to a resident of Japan shall
also be taxable in the Philippines. Thus, the royalty payment of IAMC to IML being the beneficial owner
of the royalties in the amount equivalent to three percent (3%) of the Net Selling Price shall be subject to a
preferential tax rate of twenty five percent (25%) pursuant to Article 12 (2)(b) of the RP-Japan Tax Treaty.
(BIR Ruling No. ITAD-7-00 dated January 20, 2000)
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.
Very truly yours,
By:

Deputy Commissioner
April 6, 2001
Sec. 176, NIRC
Castillo Laman Tan Pantaleon & San Jose

Law Offices
The Valero Tower
122 Valero St., Salcedo Village
1227 Makati City
Attention: Atty. J . Gregson A. Castillo

Atty. Milagros P. San Jose
Gentlemen :
This refers to your letter dated March 1, 2001 requesting confirmation of your opinion to the effect
that the gains derived by Barnes & Noble, Inc. (B&N) from the sale and transfer of its shares in Electronic
Publishing Ventures, Inc. (EPVI) to CPI, Inc. (CPI) are not subject to capital gains tax pursuant to the
RP-US Tax Treaty.
It is represented that B&N is a corporation duly organized and existing under the laws of the State
of Delaware, USA with principal office address at 122 Fifth Avenue, New York, New York, USA 10011;
that it is not registered as a corporation/partnership licensed to do business in the Philippines per
certification issued by the Securities and Exchange Commission dated February 28, 2001; that EPVI is a
corporation duly organized and existing under the laws of the Philippines with principal office address at
17th Floor, Citibank Square, 1 Eastwood Avenue, Eastwood City Cyberpark, Bagumbayan, Quezon City;
that CPI is a Delaware corporation with principal executive address at Valley Office Complex, Bldg. 1,
180 Old Tappan Road, Old Tappan, New Jersey, USA; and that on February 23, 2001 by virtue of the
Acquisition Agreement executed by B&N and CPI, B&N sold and transferred to CPI 10,050,000 shares of
stock of EPVI with a par value of P1.00 per share, comprising 100 % of the entire outstanding capital of
the corporation.
"Article 14
CAPITAL GAINS
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 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 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."
Moreover, the Reservation Clause of the RP-US Tax Treaty provides:
" . . . 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
have the meaning it has under the law of the country in which the underlying real property is
located;"
It is provided under the afore-quoted Reservation Clause of the RP-US Tax Treaty that 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" 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 2001 Interim Financial Statements of EPVI disclosed that its real property
interest located in the Philippines is only 10.22% of its total assets, thereby making the assets of the same
not principally consisting of real property interest located in the Philippines.
Accordingly, your opinion that the gains derived by Barnes & Noble, Inc. (B&N) from the sale of
its shares in Electronic Publishing Ventures, Inc. (EPVI) to CPI, Inc. (CPI) are not subject to capital gains
tax is hereby confirmed. (BIR Ruling No. ITAD-111-00 dated August 28, 2000 and BIR Ruling No.
ITAD-8-01 dated February 12, 2001)
However, the Acquisition Agreement entered into by B&N and CPI shall be subject to the
documentary stamp tax imposed under Section 176 of the Tax Code of 1997. ADEaHT
Very truly yours,
By:

Deputy Commissioner
April 5, 2001
Sec 106, Sec 108 & Sec 149

Embassy of Canada
9th Floor, Allied Bank Center
Ayala Avenue
Makati City
Attention: Mr. Greg Curry

Counsellor and Consul
Gentlemen :
This has reference to your letter dated January 16, 2001 referred to this Office by the Department of
Foreign Affairs (DFA), requesting for a tax-free local purchase of one (1) Toyota Hi-Ace Grandia
specifically described as follows:
Make: Toyota Hi-Ace Grandia
Model Year: 2000
Color: Light Green
Chassis Number: DC-3960
Engine Number: 5L-5044575
"ARTICLE 34
services;
"xxx xxx xxx"
Canada 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 Hi-Ace Grandia, for the official use of the Embassy of
Canada is exempt from VAT; and ad valorem taxes. (BIR Ruling No. 95-00 dated August 1, 2000)
Very truly yours,
By:

Deputy Commissioner
Legal & Inspection Service
March 22, 2001
RP-Japan, Art. 13 ITAD 93-00
SyCip Gorres Velayo & Co

3rd Floor, Insular Life Bldg.
Cor. Corordo and Gen Maxilom Avenues
Cebu, City, Philippines
Attention: Lauris L. Dela Peña
Tax Division
Gentlemen :
This refers to your letter dated June 30, 2000, requesting confirmation of your opinion that the
capital gains from the sale of shares of stock of Sanki Kogyo Co. Ltd. (Sanki) and Fujii Sangyo Co. Ltd.
(Fujii) to FAS Cebu Corporation (FAS) are not subject to capital gains tax pursuant to the RP-Japan Tax
Treaty.
It is represented that FAS is a domestic corporation organized and existing under the laws of the
Philippines with principal office address at the Mactan Economic Zone, Lapu-lapu City; that Sanki and
Fujii are non-resident foreign corporations organized and existing under the laws of Japan; that Sanki and
Fujii are not registered as a corporation or partnership licensed to do business in the Philippines per
Securities and Exchange Commission certification dated June 14, 2000; that Sanki and Fujii each owns
Two Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Nine ( 2,999,999) common
shares of FAS, having a par value of One Peso (P1.00) per share and each comprising 20% of the
outstanding capital stock; that on July 03, 2000, Sanki and Fujii assign and transfer to FAS their entire
shareholdings.
"Article 13
"1. Gains derived by a resident of a Contracting State from the alienation of the immovable
property as defined in paragraph (2) of Article 6 and situated in the other Contracting State
"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 on 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 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 by
a resident 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 trust the property of
which consist 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."
EaHATD
Based on the foregoing, the gains which will be realized by Sanki and Kogyo from the transfer of
their shares of stock to FAS shall be taxable only in Japan. However, under paragraph 4 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"
however, exclusive of others that are similarly situated. As used in the treaties and in the Regulations, it
shall be read 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 Statements of FAS disclosed that its net property and
equipment located in the Philippines are valued at P4,084,361 net of depreciation as of March 31, 2000
representing less than fifty percent (50%) of its total assets of P51,320,398 thereby making the assets of
FAS not consisted principally of real property interest located in the Philippines up to the date of subject
sale. Hence, the gains from the sale of shares of stock of Sanki and Kogyo to FAS are not taxable in the
Philippines. (BIR Ruling No. ITAD 93-00)
Accordingly, the sale by Sanki and Kogyo of their shares of stock to FAS is exempt from capital
gains tax imposed under the Section 28(B)(5)(C) of the Tax Code of 1997. 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.
Very truly yours,
By:

Deputy Commissioner
March 21, 2001
Article 13, RP-Netherlands Tax Treaty
Law Office of A.M. Sison, Jr. & Associates

Suite 2002-A Security Bank Centre
Attention: Antonio L. Cardiño
Gentlemen :
This refers to your application for relief from double taxation dated February 12, 2001, filed on
behalf of your client, CC AMATIL NETHERLANDS BV (CCAN), requesting for a ruling that the gains,
if any, that CCAN may realize from the redemption/buyback by Coca Cola Bottlers Philippines, Inc.
(CCBPI) of a portion of its outstanding common shares held by CCAN, and from the sale of CCAN of its
remaining holding of common shares of CCBPI to San Miguel Corporation (SMC) or any of its
subsidiaries or affiliates and to The Coca Cola Company (TCCC) or any of its subsidiaries or affiliates,
may be taxed only in Netherlands, pursuant to Article 13 of the RP-Netherlands Tax Treaty.
It is represented that CCAN is a corporation duly organized and existing under the laws of
Netherlands with principal office at 101 CG Amsterdam, Herengracht 548, Netherlands; that it has no
permanent establishment or fixed base in the Philippines; that it is not registered as a corporation /
partnership licensed to do business in the Philippines, as per certification dated February 23, 2001 issued
by the Securities and Exchange Commission; that it currently owns 1,480,337 common shares of CCBPI,
including qualifying shares in the names of director nominees; that said shares have a par value of P1,000
per share or a total par value of P1,480,337,000.00; that of these common shares, 1,371,300 shares were
purchased by CCAN for A$2,582,800,000 from Coca Cola Amatil Limited (CCA), a corporation
organized in and a resident of Australia; that of the 1,371,300 shares, 1,350,000 shares were acquired by
CCA in a share swap transaction; that the other 109,037 common shares were acquired by CCAN through
direct subscription to the increase in authorized capital stock of CCBPI at the subscription price of
A$215,000,000; that CCAN paid a total amount of A$2,797,800,000 for its shares in CCBPI; that CCBPI
is a corporation duly organized and existing under the laws of the Philippines, with principal office at
Feliza Building, 108 Herrera St., Legaspi Village, Makati City; that it is engaged in the business of
manufacturing and wholesaling of non-alcoholic beverages; and that its total assets in the Philippines do
not consist "wholly" or "principally" of real or immovable property; that as part of its plan to restructure
its capital stock, CCBPI is contemplating on redeeming certain number of shares held by CCAN with
market value in Australian Dollars as of the date of said redemption equivalent to CCBPI unrestricted
retained earnings converted into Australian Dollars also as of the date of redemption; that the exact
number of shares is not determinable at present as it will depend upon a number of variables which at the
date of this request are not known with certainty; that the variables referred to include the amount of
unrestricted retained earnings in CCBPI at the date of the redemption and the Australian Dollar/Philippine
Peso; and that the principles to be applied in working out the number of shares are as follows: (1) the
shares will be bought back at market value, (2) the total amount of buyback proceeds will be the amount of
unrestricted retained earnings at the date of the buyback, and (3) the actual buyback proceeds will be paid
in Australian Dollars.
In reply, please be informed that Article 13 of the RP-Netherlands Tax Treaty provides as follows,
to wit:
"Article 13
permanent establishment which an enterprise of one of the States has in the other State, or of
movable property pertaining to a fixed base available to a resident of one of the States in the
other State for the purpose of performing professional services, including such gains from
the alienation of such a permanent establishment (alone or together with the whole
enterprise) or of such a fixed base, may be taxed in the other State.
"3. Notwithstanding the provisions of paragraph 2, gains derived by an enterprise of one of the
States from the alienation of ships and aircraft operated in international traffic and movable
property pertaining to the operation of such ships or aircraft shall be taxable only in that
State.
"4. Gains from the alienation of any property other than those mentioned in paragraphs 1, 2 and
3, shall be taxable only in the State of which the alienator is a resident.
"5. The provisions of paragraph 4 shall not affect the right of each of the States to levy
according to its domestic law a tax on gains from the alienation of any property derived by
an individual who is a resident of the other State and has been a resident of the
first-mentioned State at any time during the six years immediately preceding the alienation
of the property.
It is clear from the aforequoted provisions that the 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 CCAN from the sale of its shares of stock in CCBPI shall not be
subject to Philippine income tax under Section 28(B)(5)(c) of the National Internal Revenue Code (Tax
Code) of 1997, but are subject to tax only in The Netherlands. (BIR Ruling No. 195-90 dated October 9,
1990)
Moreover, Section 176 of the Tax Code of 1997 provides, viz:
Transfer of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. — On all sales, or
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
fractional part thereof of the par value of such due-bill, certificate of obligation or stock: Provided,
IaHCAD
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 of the parties
to the transaction in accordance with the provisions of the Tax Code of 1997.
ruling is based are consonant with the actual facts of the transaction.
Very truly yours,

Commissioner
March 21, 2001
RP-US, Article 13
RP-Netherland, Article 12
Joaquin Cunanan & Company
14th Floor Multinational Bancorporation
6805 Ayala Avenue
1226 Makati City
Attention: Ms. Mary Assumption Bautista-Villareal

Principal
Gentlemen :
This refers to your tax treaty relief application dated February 29, 2000, requesting confirmation of
your opinion that royalty payments of Asia Brewery, Inc. (ASIA) to your client Anheuser-Busch
Company, Inc. (ABI), are subject to the preferential tax rate of 15% pursuant to the "most favored nation"
(MFN) clause of the Philippines-United States Tax Treaty (RP-US Tax Treaty) in relation to the
Philippines-Netherlands Tax Treaty and that said payments are considered deductible business expenses
under Section 29(a)( 1 ) of the 1997 Tax Code.
It is represented that ABI is a corporation organized and existing under the laws of Delaware,
United States of America with principal office at One Busch Place, St. Louis, MO 63118 USA; 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 April 5, 2000; that it is engaged in the business
of brewing, packaging, selling, distributing and advertising Budweiser; that it has developed certain trade
secrets and know-how in brewing and packaging Budweiser for distribution; that ASIA is a corporation
organized and existing under the laws of the Philippines with principal place of business in Cabuyao,
Laguna; that ABI and ASIA entered into a Joint Marketing and Local Brewing Agreement dated June 19,
1996; that ABI granted ASIA the exclusive, non-transferable right and license under patent, trademark,
and copyright laws to produce and package Budweiser, and to use the trademark and other copyrighted
materials of ABI in connection with the labeling, packaging, marketing, advertising and promoting
Budweiser beer in the Philippines; and that ASIA agreed to pay ABI a royalty payment equivalent to five
(5%) percent of the net sales of Budweiser beer in the territory.
"ARTICLE 13
2. However, the tax imposed by that other Contracting State shall not exceed:
i. 25 per cent of the gross amount of the royalties,
ii. 15 percent of the gross amount of the royalties, where the royalties are paid by a
corporation registered with the Philippine Board of Investments and engaged in
preferred areas of activities, and
iii. the lowest rate of Philippine tax that may be imposed on royalties of the same kind
paid under similar circumstances to a resident of a third State. (Emphasis supplied)
3. The term "royalties" as used in this article means payments of any kind received as a
work, including cinematographic films or films or tapes used for radio or television
broadcasting, any patent, trademark, design or model, plan, secret formula or process, or
other like right or property, or for information concerning industrial, commercial or
scientific experience. The term "royalties" also includes gains derived from the sale,
exchange or other disposition of any such right or property which are contingent on the
productivity, use, or disposition thereof.
xxx xxx xxx"
The payments for the license granted by ABI to ASIA involving the right to produce and package
Budweiser and to use ABI's trademark and other copyrighted materials constitute royalties. Such being the
case, and in view of the "most favored nation" clause found in the RP-US Tax Treaty, royalty payments
made by ASIA to ABI shall be subject to the lowest rate of Philippine tax that may be imposed on
royalties of the same kind paid under similar circumstances to a resident of a third State.
In pursuance of the MFN clause under Article 13(2)(b)(iii) of the RP-US Tax Treaty, Article 12 of
the RP-Netherlands Tax Treaty in turn provides:
"Article 12
1. Royalties arising in one of the Contracting State and paid to a resident of the other
Contracting State may be taxed in that other State.
2. However, the royalties may also be taxed in the Contracting State in which they arise, and
according to the laws of the State, but 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
b) 15 per cent of the gross amount of the royalties in all other cases. SDAcaT
xxx xxx xxx"
Based on the foregoing provisions, it appearing that the lowest rate of the Philippine tax that may
be imposed on royalties of similar nature arising from the Philippines is 15% per cent of the gross amount
of the royalties provided under Article 12 (2)(b) of the RP-Netherlands Tax Treaty, the same shall be
applied in this case thereby confirming your opinion that the payment of royalties by ASIA to ABI is
subject to a fifteen percent (15%) tax rate.
Furthermore, the royalty payments to be remitted by ASIA shall be subject to the 10% value-added
tax pursuant to Section 108 of the Tax Code of 1997 as implemented by Section 4.102-1 (b) of Revenue
Regulations No. 7-95 which provides that:
filing a separate VAT declaration/return for this purpose using BIR Form 1600 (Monthly Remittance
Return of VAT and other Percentage Taxes Withheld). The duly validated VAT declaration/return is
sufficient evidence in claiming input tax credit by the licensee."
Accordingly, ASIA shall, before making payment of royalties to ABI, withhold and remit to this
Bureau the said 10% VAT due thereon, by filing a separate VAT return using BIR Form No. 1600 for and
on behalf of ABI. The duly validated VAT declaration/return is sufficient evidence for ASIA in claiming
input tax credit. [(Section 4.110-3(b) of the Revenue Regulations No. 7-95) (BIR Ruling No. 129-98)]
Very truly yours,
By:

Deputy Commissioner
March 15, 2001
RP-US, Art. 13,

RP-Germany, Art. 12 & 24
NIRC, Sec. 108 (A) (1)
Benitez Parlade Africa Herrera

Parlade & Panga Law Offices
15th Floor, Security Bank Centre
Attention: Atty. Simeon G. Hildawa
Gentlemen :
This refers to your letter dated May 8, 1999, on behalf of your client, BUSINESS ONE INC.,
(BUSINESS 1) requesting confirmation of your opinion that the royalties payable by it to OFFICE 1
SUPERSTORES INTERNATIONAL (OFFICE 1), a U.S. corporation, are subject to the preferential tax
rate of ten percent (10%) pursuant to the provisions of the RP-US Tax Treaty in relation to the RP-WEST
GERMANY Tax Treaty.
It is represented that BUSINESS 1 is a corporation organized and existing under Philippine laws
with principal office address at 270 Vito Cruz St., Makati City; that it entered into a MASTER
FRANCHISE AGREEMENT with OFFICE 1, a non-resident foreign corporation incorporated under the
laws of the State of Delaware, U.S.A.; that under the Agreement, BUSINESS 1 was granted the right to
establish and operate business establishments in the Philippines known as "OFFICE 1 SUPERSTORES",
utilizing OFFICE 1's name and mark as well as the unique and comprehensive system developed by
OFFICE 1 in the sales and distribution of office supplies and light machines and other complementary
products and services; that in consideration for the rights granted under the Agreement, BUSINESS 1 paid
an initial franchise fee of Two Hundred Twenty Five Thousand United States Dollars (US $ 225,000.00)
and undertook to pay OFFICE 1 a monthly royalty fee based on its net sales from the operations of
"OFFICE 1 SUPERSTORES" according to the following schedule: (a) Three percent (3%) on net sales up
to Three Million U.S. Dollars, (b) Two percent (2%) on net sales between Three million to Ten million
U.S. Dollars and (c) One percent (1%) on net sales over Ten Million U.S. Dollars; that BUSINESS 1 shall
withhold from the payments to OFFICE 1 the applicable income tax; that the Agreement was registered
with the Intellectual Property Office of the Department of Trade and Industry under a Certification of
Registration No. 2107, valid for ten (10) years from December 23, 1997 to December 22, 2007.
"ARTICLE 13
Royalties
(a) xxx xxx xxx

(iii) the lowest rate of the Philippine tax that may be imposed on
royalties of the same kind and under similar circumstances to a resident of a
third State.(Emphasis supplied)
"xxx xxx xxx
In this connection, the lowest rate given to a third State is 10% as provided in Article 12 of the
RP-Germany Tax Treaty, viz:
"ARTICLE 12
Royalties
(a) xxx xxx xxx
(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
experience. IACDaS
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
xxx xxx xxx
you now claim that the royalties arising as a consequence of the Master Franchise Agreement between
OFFICE 1 and BUSINESS 1 are subject to the 10% preferential rate 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 the above-quoted Article 13(2)(b)(iii) of the RP-US Tax Treaty,
otherwise known as the "most favored nation clause", must be interpreted not only in relation to Article 12
of the RP-Germany Tax Treaty but also in connection with Article 24 of the same treaty, to wit:
"ARTICLE 24
Relief from Double Taxation
as follows:
xxx xxx xxx
b) Subject to the provisions of German tax law regarding credit for foreign tax, there shall
be allowed as a credit against German income and corporation tax payable in respect of the following
items of income arising in the Republic of the Philippines, the tax paid under the laws of the
Philippines in accordance with this Agreement on:
xxx xxx xxx
xxx xxx xxx
c) For the purpose of the credit referred in subparagraph b) the Philippine tax shall be
deemed to be
xxx xxx xxx
cc) in the case of royalties for which the tax is reduced to 10 or 15 percent
according to paragraph 2 of Article 12, 20 percent of the gross amount of such
royalties. (Emphasis supplied)
xxx xxx xxx
The Supreme Court in Commissioner of Internal Revenue vs. S.C. Johnson and Son Inc. and Court
of Appeals (June 25, 1999) held that unlike the RP-US Tax Treaty, the RP-West Germany Tax Treaty
allows a tax credit of 20 percent of the gross amount of such royalties arising in the Philippines against
German income and corporation tax, where the tax rate is reduced to 10 or 15 percent under such treaty.
Therefore, the taxes on royalties under the RP-US Tax Treaty are not paid under circumstances similar to
those in the RP-Germany Tax Treaty because of the absence of the said matching credit provision in the
former convention. In so ruling, the Highest Tribunal further declares:
the taxpayer in one state to avail of more liberal provisions granted in another tax treaty to which the
Article 13 of the RP-US Tax Treaty and Article 12 (2)(b) of the RP-West Germany Tax Treaty,
treatment."
The foregoing Supreme Court decision has become final and executory in September 10, 1999.
Such being the case, your opinion that the royalties paid by your client BUSINESS 1 to OFFICE 1
are subject to the preferential tax rate of ten percent (10%) is hereby confirmed but only so much of the
royalty payments made from December 23, 1997 to September 10, 1999. With respect to royalty payments
made after September 10, 1999 and onward, the 10% tax rate shall no longer be applicable for being
contrary to the above-mentioned doctrine. In view of this, a new tax treaty relief application may be filed
for transactions covering the said period applying the "most favored nation clause" of the RP-US Tax
Treaty in relation with other RP Tax Treaties. (BIR Ruling No. ITAD-13-01 dated February 16, 2001)
Moreover, the monthly royalty fees of 3%, 2% and 1% arising in the Philippines, based on its net
sales from the operations of "OFFICE 1 SUPERSTORES," shall be subject to 10% value-added tax (VAT)
pursuant to Section 108 (A)(1) of the Tax Code and that BUSINESS 1 shall, before making payment of
royalties to OFFICE 1, withhold and remit to this Bureau the 10% VAT due thereon, by filing a quarterly
return for and on behalf of the said non-resident foreign corporation using BIR Form 1600. The duly
validated VAT declaration / return is sufficient evidence for BUSINESS 1 in claiming input tax credit.
(Section 4. 110-3(b) of the Revenue Regulations No. 7-95)
void.
Very truly yours,
By:

Deputy Commissioner
March 13, 2001
RP-Singapore - Arts. 5, 12 & 14

NIRC - Secs. 25, 28 & 108
044-97 078-97
UN 296-94
ITAD 39-99
22/F Antel 1000 Corporate Centre
Makati City 1227
Attention: Atty. Remigio A. Noval

Atty. Carolina A. Racelis
Gentlemen :
This refers to your letter dated May 24, 2000 requesting confirmation of the following: 1) that
rental income to be derived by Walter Wright Mammoet (S) Pte Ltd. (WWM-S) from the Philippines
pursuant to a proposed lease transaction between WWM-S and MOF Company Subic, Inc. (MOF) may be
exempted from income tax and consequently to the 7.5% withholding tax imposed under Section 28(B)(4)
of the Tax Code of 1997; and 2) that the manpower that may be sent by WWM-S to the Philippines to
install the machineries and equipment leased, whose stay in the Philippines will not exceed a period
aggregating more than 183 days, will not create a permanent establishment for WWM-S in the Philippines,
both pursuant to the RP-Singapore Tax Treaty.
It is represented that WWM-S is a non-resident foreign corporation organized and existing under
the laws of Singapore; that it is not registered as a corporation/partnership in the Philippines as per
certification dated April 12, 2000 issued by the Securities and Exchange Commission; that MOF, on the
other hand, is a domestic corporation organized and existing under the laws of the Philippines; that on
March 15, 2000, an Equipment Rental Agreement was entered into by and between WWM-S and MOF for
a minimum period of nine (9) months, unless earlier terminated, and with a right to release in favor of
MOF; that the leased machinery and equipment will be used by MOF for its project in the Philippines; that
as an incident to the lease transaction, WWM-S intends to send its manpower to the Philippines to install
the machinery and equipment leased, whose stay in the Philippines will not exceed a period aggregating
more than 183 days; that WWM-S' manpower will stay in the Philippines only for a period of three (3) to
four (4) months; that under the Equipment Rental Agreement, the rental charges consist of the Basic
Rental Rate and the Overtime Rate; and that MOF shall pay monthly rentals in arrears for the entire rental
period for the equipment at the rate/s stipulated in the Agreement.
In reply to the first issue, please be informed that Article 12 of the RP-Singapore Tax Treaty
provides, viz:
"ARTICLE 12
"Royalties
and according to the law of that State, but, if the recipient is the beneficial owner of the royalties, the
tax so charged shall not exceed:
"(a) in the case of the Philippines, 15 per cent of the gross amount of the
royalties, where the royalties are paid by an enterprise registered with the Philippine
Board of Investments and engaged in preferred areas of activities and also royalties
in respect of cinematographic films or tapes for television or broadcasting;
"(b) in the case of Singapore, where the royalties are approved under the
Economic Expansion Incentives (Relief from Income Tax) Act of Singapore, the
royalties shall be exempt;
"(c) in all other cases, 25 per cent of the gross amount of the royalties.
including cinematographic films or tapes for television or broadcasting, any patent, trade mark, design
or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific
experience.(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 1997 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 be 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, the rental income derived by Walter Wright Mammoet (S) Pte Ltd. from its lease
transaction with MOF Company Subic, Inc. 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 and consequently to the 7.5% withholding tax imposed under Section 28(B)(4) of the Tax
Code of 1997. (UN 296-94, BIR Ruling No. 078-97) TcHEaI
Furthermore, the said rental payments to be made by MOF to WWM-S for the lease of equipment
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, MOF, being the lessee shall be
responsible for the payment of VAT on such rentals on behalf of WWM-S by filing a separate VAT
declaration/return using BIR Form No. 1600. The said VAT declaration/return can be used by MOF as
evidence in claiming input tax credit. (Sec. 4.102-1(b), Revenue Regulations No. 7-95)
As regards the second issue, Article 5 of the RP-Singapore Tax Treaty provides, viz:
"ARTICLE 5
"2. The term "permanent establishment" includes specially but is not limited to:
xxx xxx xxx
"j) The furnishing of services, including consultancy services, by a resident

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days."
On the basis of the aforequoted provisions, since the length of stay of the manpower of WWM-S to
be sent to the Philippines for the installation of the machineries and equipment leased will not exceed a
period aggregating 183 days, the same will not constitute a permanent establishment of WWM-S to which
its profits could be attributed to. However, Article 14 of the same Treaty provides that:
"ARTICLE 14
"Personal Services
"1. Subject to the provisions of Articles 15, 17, 18, and 19, salaries, wages and other similar
remuneration or income for personal (including professional) services derived by a resident of a
Contracting State, shall be taxable only in that Contracting State, unless the services are performed in
the other Contracting State. If the services are so performed, such remuneration or income as is
derived therefrom may be taxed in that other Contracting State.
"2. Notwithstanding the provisions of paragraph 1, remuneration or income derived by a

resident of a Contracting State for personal (including professional) services performed in the other
Contracting State shall be taxable only in the first-mentioned Contracting State if:
"(a) the recipient is present in the other Contracting State for a period or
periods not exceeding in the aggregate 90 days in the case of professional services
and 183 days in other cases, in the calendar year concerned; and
"(b) the remuneration or income is paid by, or on behalf of, a person who is
a resident of the first-mentioned Contracting State; and
(c) the remuneration or income is not borne directly by a permanent

establishment which that person has in the other Contracting State."
"3. The term "professional services" includes independent, scientific, literary, artistic,
educational or teaching activities as well as the independent activities of physicians, lawyers,
engineers, architects, dentists and accountants.
xxx xxx xxx
Hence, the salaries, wages or similar remuneration which will be derived by the manpower of
WWM-S to be sent to the Philippines for the installation of the machineries and equipment leased may not
be subject to Philippine income tax if the length of their stay in the Philippines will not exceed a period
aggregating 183 days, and provided that their services shall not constitute professional services as defined
in the RP-Singapore Tax Treaty. Otherwise, the said income shall be subject to the rate of tax provided for
under Section 25(A) of the Tax Code of 1997 on non-resident alien engaged in trade or business within the
Philippines. (BIR Ruling Nos. 044-97 & ITAD 39-99)
This ruling is issued on the basis of the facts as represented. However, if upon investigation it will
Very truly yours,
By:

Deputy Commissioner
March 13, 2001
RP-Singapore Art. 7 (1) Art 5 (2) (j)

62-00

20th Floor, Tower I
6766 Ayala Avenue
1200 Makati City

Tax Partner
Gentlemen :
This refers to your letter dated May 8, 2000, on behalf of Boston Scientific Philippines, Inc. (BSPI),
requesting confirmation of your opinion that the service fees paid by BSPI to Boston Scientific Asia
Pacific, Pte. Ltd. (BSAP) are ordinary business profits and are not royalties, and therefore, not subject to
Philippine income tax pursuant to the provisions of the RP-Singapore Tax Treaty.
It is represented that BSAP is a corporation organized and existing under the laws of Singapore
with business address at No. 1 Boon Leat Terrace, Harbourside Industrial Building 1, Singapore; 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 May 24, 2000; that BSPI is a corporation organized and
existing under the laws of the Philippines with address at Unit 401, Jafer Place, No. 19 Eisenhower Street,
Greenhills, San Juan, Metro Manila and primarily engaged in selling and marketing of Boston Scientific
medical products and devices in the Philippines; that BSPI entered into a Management Services
Agreement with BSAP effective January 1, 1999; that the services rendered by BSAP are performed
entirely in Singapore which include (1) establishing and advice on maintaining and administering proper
accounting procedures, ledgers, payroll processing and other bookkeeping records; (2) advice on
establishing, maintaining and updating computer systems and data capture and control procedures; (3)
advice on human resource management and training issues and assistance in setting up evaluation and
other procedures and policies; (4) recruitment of key personnel and conduct of training for physicians
and/or employees, strictly upon request; (5) general administrative and information services, including
advice on company secretarial matters, insurance and liaison with suppliers; (6) monitoring compliance
with general group treasury and management and administrative policies; (7) advice on sales and
marketing policies and strategies, market research, market development, business planning, customer
service policies and procedures and public relations matters; (8) advice on and administration of
regulatory and clinical reports and management of clinical data; (9) group treasury functions and advice on
financial reporting and other matters; and (10) warehousing and logistics functions in respect of goods
warehoused in or imported through Singapore by BSP; and that in consideration, BSPI will pay BSAP
annually the amount of US$94,000.00 as service fee.
In reply, please be informed that Article 7(1), in relation to Article 5(2)(j) of the RP-Singapore 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
State unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as aforesaid the
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to
that permanent establishment.
xxx xxx xxx
"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" includes specially but is not limited to:
j) The furnishing of services, including consultancy services, by a resident
of one 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."
Moreover, under Article 12(3) of the same treaty provides:
"Article 12
"Royalties
including cinematographic films or tapes for television or broadcasting, any patent, trade mark, design
or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial
or scientific equipment, or for information concerning industrial, commercial or scientific
experience."
Based on the foregoing provisions, the profits of a corporation which is a resident of Singapore is
taxable only in Singapore, unless the Singaporean corporation carries on business in the Philippines
through a permanent establishment situated therein. A Singaporean corporation may be deemed to have a
permanent establishment in the Philippines if, among others, the furnishing of services of that corporation
in the Philippines through its employees or other personnel in relation to a particular project or any project
connected therewith is for a period or periods aggregating more than 183 days. Considering that the
services rendered by BSAP were performed entirely in Singapore, then it cannot be considered to have had
a permanent establishment in the Philippines. Also, the services rendered by BSAP as provided under the
Management Services Agreement do not fall under the above quoted definition of royalties as they do not
involve the transfer of technology and know-how and are, therefore, considered ordinary business
activities.
Such being the case, your opinion is hereby confirmed. The service fees paid by BSPI to BSAP are
not subject to Philippine income tax and value added tax. TaCEHA
void.
Very truly yours,
By:

Deputy Commissioner
March 13, 2001
RP-Japan Tax Treaty Art. 11 & Art. 23

16-00
P & I Resorts
San Isidro, San Fernando
Cebu City
Attention: Koji Inoue

President
Gentlemen :
This refers to your letter dated March 11, 1999 and May 25, 1999 requesting confirmation of your
opinion listed hereunder regarding the interest payments on your loan from Kabushikigaisha P&I
Enterprise Ltd. (P&I Enterprise), to wit:
1. that interest paid to P&I Enterprise is subject to a preferential rate pursuant to the
RP-Japan Tax Treaty;
2. that, although there was over withholding and over remittance of the difference
between the appropriate withholding tax rate of 10% and the erroneous rate of 15%, the
actual amount withheld and remitted using the 15% rate may be used as tax credit for P
& I Enterprise when the related interest income will be reported as part of its taxable
revenue in Japan; and
3. that BIR Form 1743-750 (now BIR Form 2307) and Revenue Official Receipts
evidencing remittance of tax withheld on interest payment of loan together with our
opinion or ruling to be issued are sufficient documents which the tax authority in Japan
will recognize for tax credit purposes of P&I Enterprise.
It is represented that P&I Enterprise is a corporation duly organized and existing under the laws of
Japan with business address at Parshas 21 105-B, 2-10-19 Goichuohigashi, Ichihara City Chiba, 290
Japan; 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 February 16, 1999; that P&I
Resorts Inc. (P&I Resorts) is a domestic corporation with address at San Isidro, San Fernando, Cebu; that
P&I Resorts is registered at the Board of Investment (BOI) on a "preferred pioneer" status as certified by
the Acting Board Secretary dated May 24, 1995; that on June 22, 1998, P&I Resorts entered into a Loan
Agreement with P&I Enterprise amounting to Y546,827,192.96 for capital expenditure purposes of the
former; that P&I Resorts withheld and remitted 15% withholding tax on the interest income derived by
P&I Enterprise to the said loan; and that upon verification, P&I Resorts came to know that interest
payment of a loan by a "preferred pioneer" enterprise to a Japan entity is subject only to 10% withholding
tax.
In reply thereto, please be informed as follows;
Article 11 of the RP-Japan Tax Treaty provides as follows:
"Article 11
"1. ...;
"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 the interest if the interest is paid in
respect of Government securities, or bonds or debentures;
b) 15 per cent of the gross amount of the interest in all other cases.
"3. Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the interest paid by a company, being a resident of the Philippines, registered with the
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. ...;
"5. The term "interest" as used in this Article means income from debt-claims of every kind,
xxx xxx xxx
Based on the foregoing, since P&I Resorts, Inc. is registered with the BOI on a preferred pioneer
status, the amount of tax to be imposed on the interest payment of P&I Resorts, Inc. to P&I Enterprise
being a resident of Japan, shall not exceed 10 per cent of the gross amount of the interest pursuant to
paragraph 3 Article 11 of the RP-Japan Tax Treaty.
As regards the second issue on tax credit, please be informed that Article 23 of the said RP-Japan
Tax Treaty provides as follows:
"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.
xxx xxx xxx
"3. For the purposes of the credit referred to in the first sentence of paragraph (1), Philippine
tax shall always be considered as having been paid at the rate of 20 per cent in the case of dividends to
which the provision as of paragraph (3) of Article 10 apply, and at the rate of 15 per cent in the case
of 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."
Accordingly, the actual amount withheld and remitted by P&I Resorts using the 15% rate may be
used as tax credit for P&I Enterprise when the related interest income will be reported as part of its taxable
revenue in Japan.
Finally, BIR Form 1743-750 (now BIR Form 2306) and Revenue Official Receipts are proofs that
taxes were withheld and subsequently remitted to the BIR on your interest payments of the loan. They are
sufficient documents that the tax authority in Japan may recognize for tax credit purposes of P&I
Enterprise, without prejudice to the additional documents which may be required in their jurisdiction.
However, the Loan Agreement executed by and between P&I Resorts and P&I Enterprise shall be
subjected to the documentary stamp tax imposed under Section 180 of the Tax Code of 1997. TAcDHS
void.
Very truly yours,
By:

Deputy Commissioner
March 13, 2001
Sections 5 & 7, RP-Australia Tax Treaty

BIR Ruling No. ITAD 2 - 00
Peter Wallace
President
The Economist Intelligence Unit Philippines, Inc.
14th Floor, Sagittarius Building
H.V. De la Costa Street, Salcedo Village
Makati City
Sir:
This refers to the application for relief from double taxation dated June 15, 1999 of Mr. Paul
Anderson, Manager for Finance and Legal, Geothermal Engineering International Pty. Ltd. (GEI) and your
follow-up letter dated June 5, 2000, requesting on behalf of the GEI for a tax refund, representing the tax
withheld by ABS-CBN Broadcasting Corporation (ABS-CBN), pursuant to the RP-Australia Tax Treaty.
It is represented that GEI is a corporation organized and existing under the laws of Australia and is
not registered as a corporation or partnership licensed to do business in the Philippines as per Certification
of Non-Registration of Corporation / Partnership dated July 26, 2000 issued by the Securities and
Exchange Commission; that GEI is an engineering consultancy firm providing services internationally and
domestically; that ABS-CBN is a corporation organized and existing under the laws of the Philippines;
that GEI entered into multiple contracts (for energy audit, schematic design, design documentation, etc.)
with ABS-CBN relative to the ABS-CBN Project 9501 Building; that pursuant to said contracts, GEI
rendered said services, beginning March 1996 until October 1999; that GEI sent, during the said period, its
staff to Manila; that the duration of each visit did not last for more than four (4) days per visit; that
collectively, within any particular year, the visits did not exceed one (1) month; that all the design work
was done by GEI in Australia; that the purpose of the visits were to discuss either client's requirements or
completed designs; that no office was provided for said GEI staff as all meetings were held either at the
office conference rooms or at the Robinson's Galleria Suites conference center; that in consideration of
said services, ABS-CBN periodically paid service fees upon being billed by GEI; and that ABS-CBN
withheld taxes thereon at five-percent (5%).
In reply, please be informed that paragraph (1) of Article 7 of the RP-Australia Tax Treaty provides
as follows:
"ARTICLE 7
"Business Profits
"(1) The profits of an enterprise of one of the Contracting States shall be taxable only in that
State unless the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on business as aforesaid the profits of the
enterprise may be taxed in the other State but only so much of them as is attributable to —
(a) that permanent establishment; or
(b) sales within that other Contracting State of goods or merchandise of the
same or a similar kind as those sold or other business activities of the same or a
similar kind as those carried on through that permanent establishment if the sale or
the business activities had been made or carried on in that way with a view to
avoiding taxation in that other State."
Moreover, Article 5 of the same Tax Treaty provides, viz:
"ARTICLE 5
"(1) For the purposes of this Agreement, the term 'permanent establishment' means a fixed
place of business through which the business of an enterprise is wholly or partly carried on.
"(2) The term permanent establishment 'shall include especially —
(a) a place of business;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine oil or gas well, quarry or other place of extraction of natural
resources;
(g) an agricultural, pastoral or forestry property;
(h) a building site or construction installation or assembly project or

supervisory activities in connection therewith where such site project of activity
continues for more than six months;
(i) premises used as a sales outlet;
(j) a warehouse, in relation to a person providing storage facilities for

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

the other Contracting State furnishes services, including consultancy services, for a
period or periods aggregating more than six months in any taxable year or year of
income, as the case may be, in relation to a particular project, or to any project
connected therewith.
xxx xxx xxx
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, among others, it furnishes services in the latter 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. Considering that the services rendered by GEI in
ABS-CBN Project 9501 Building did not exceed a period of six months, GEI cannot be considered to have
had a permanent establishment in the Philippines. (BIR Ruling ITAD No. 2 - 00)
Such being the case, the service fees paid by ABS-CBN to GEI are not subject to Philippine income
tax, pursuant to the RP-Australia tax Treaty.
investigation, it will be disclosed that the facts are different, then this ruling shall be null and void.
Very truly yours,
By:

Deputy Commissioner
March 12, 2001
RP-Netherlands; Article 10
ING Forex Corporation

12/F Tower One
Ayala Triangle 1200
Makati City
Attention: Ms. Christine Dinah Lim

President
Gentlemen :
This has reference to your letter dated September 6, 2000 requesting confirmation of your opinion
that the dividends to be paid and remitted on behalf of ING Forex Corporation (ING Forex) to its
non-resident shareholder, ING Bank N.V. (ING Bank), are subject to final withholding tax at the
preferential tax rate of 10 per cent pursuant to Article 10 (2)(a) of the RP-Netherlands Tax Treaty.
It is represented that ING Bank is a non-resident foreign corporation duly organized and existing
under the laws of Netherlands with principal office at De Amsterdamse Poort 1102 MG Amsterdam
Zuidoost P.O. Box 1800, 1000 B.V. Amsterdam; that it is not registered as a corporation/partnership
licensed to do business in the Philippines as per Securities and Exchange Commission certification dated
December 26, 2000; that ING Forex is a corporation duly organized and existing under and by virtue of
the laws of the Philippines and engaged in managing, financing and providing personal or real security for
the obligations or the provisions of services to other business enterprises and also conduct banking
business including acting as a broker/dealer in insurance, acquire, establish and manage real estate; that on
February 11, 2000, the Board of Directors of ING Forex Corporation declared cash dividends out of its
retained earnings in the amount of P38,673,794.00 to its stockholders of record as of January 31, 2000;
that the said dividends are payable on or before September 30, 2000; and that at the time of the declaration
of said dividends, ING Forex owns 135,000 shares, of which 134,995 are held by ING Bank N.V. which is
equivalent to 99.99% of ING Forex's outstanding capital stock.
In reply, please be informed that Article 10 of the 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;
b) 15 per cent of the gross amount of the dividends in all other cases.
xxx xxx xxx
In view of the foregoing, and since ING Bank owns 99.99% of the total capital stock of ING Forex
as of record date, your opinion is hereby confirmed. The cash dividends to be paid and remitted by ING
Forex Corporation (ING Forex) to ING Bank N.V. (ING Bank) 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.
(BIR Ruling No. ITAD-82-00)
void.
Very truly yours,
By:

Deputy Commissioner
March 12, 2001
Art. 10, RP-Japan

ITAD- 49-99
Philippine Koyo Bearing Corporation

Suite 504 Comfoods Building
Cor. Gil Puyat Ave. and Pasong Tamo Sts.
Makati City
Attention: Mr. Domingo D. De Vera

President/General Manager
Gentlemen :
This refers to your application for 10% preferential tax rate on dividends to be remitted by your
company to Koyo Seiko Co., Ltd. (Koyo-Japan) pursuant to the RP-Japan Tax Treaty.
It is represented that Philippine Koyo Bearing Corporation (Koyo-Phil) is a domestic corporation

organized and existing under Philippine laws with office address at Rm. 504 Comfoods Building cor. Gil
Puyat and Pasong Tamo Sts., Makati City; that Koyo-Japan is a nonresident foreign corporation organized
and existing under the laws of Japan with office address at No. 5-8 Minamisemba 3-Chome, Chuo-ku,
Osaka 542 Japan; that on May 20, 2000, Koyo-Phil declared cash dividends amounting One Million Fifty
Seven Thousand Three Hundred Seventy Five Pesos (PHP1,057,375.00) to all holders of common stock
payable on June 30, 2000; that as of even date, Koyo-Japan is the holder of record of 126,825 shares out of
a total 422,950 issued and outstanding shares of Koyo-Phil or 29.98% thereof; that the total cash dividends
received by Koyo-Japan is PHP317,212.50.
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
company paying the dividends is a resident and according to the laws of that Contracting State but if
(a) 10 per cent of the gross amount of the dividends if the beneficial owner
the company paying the dividends or of the total shares issued by that company
during the period of six months immediately preceding the date of payment of the
dividends;
(b) 25 per cent of the gross amount of the dividends in all other cases.
"3 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
xxx xxx xxx
The above-quoted provision of the RP-Japan Tax Treaty allows the Philippines to tax the dividends
received by a resident of Japan from a company which is a resident of the Philippines at the rate of 10% of
the gross amount of the dividends if the beneficial owner of such dividends holds at least 25% of the
voting shares of the paying company or of the total shares issued by that company within six (6) months
immediately preceding the date of payment of the dividends and at the rate of 25% of the gross amount of
the dividends in all other cases.
In view of the foregoing, and since Koyo-Japan is a holder of more than 25% of the capital stock of
Koyo-Phil, i.e., 29.98% from the date of its incorporation (July 10, 1975) up to the date of declaration of
dividends (May 20, 2000) as evidenced by the Secretary's Certificate dated August 23, 2000, the cash
dividends payable by Koyo-Phil to Koyo-Japan are subject to 10% withholding tax. (BIR Ruling No.
ITAD-49-99)
This ruling is 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
March 12, 2001
RP Singapore, Article 11 Section 39, NIRC 1997 BIR

Ruling ITAD 164-00.

Sycip All Asia Capital Center
105 Paseo de Roxas, City of Makati
Attention: Atty. Ernesto S. Taino, Jr.
Gentlemen :
This refers to your letter dated October 25, 1999, requesting for a ruling that interest payments
made by Lapanday Holdings Corporation to ST Merchant Capital Pte Limited are subject to preferential
tax rate of 15% and capital gains are tax exempt pursuant to the RP-Singapore Tax Treaty.
It is represented that ST Merchant Capital Pte Limited (ST Merchant) is a corporation organized
and existing under the laws of Singapore; that it has no permanent establishment in the Philippines as
evidenced by Certificate of Non-Registration issued by the Securities and Exchange Commission dated
October 5, 1999; that ST Merchant holds Secured Floating Notes Due 2000 (the Note) issued by La
Panday Holdings Corporation (Lapanday), a corporation organized and existing under the laws of the
Philippines; that the Notes are issued in registered form in the amounts of US $100,000 or an integral
multiple of US $100,000 in principal amount of Notes; that title to the Notes will pass by registration in
the register of the Note holders; that the rate of interest applicable to the Notes is the aggregate of one
percent plus the Singapore Inter-Bank Offered Rate; that the interest is payable every six months from the
date of issue (Issue Date) on the interest .payment date; that the corporation may retire and redeem the
notes on an interest payment date falling due in December 2000, that if the Notes are in fact retired, ST
Merchant will receive, in addition to the principal, an amount which is referred to as "upside share"
calculated on the basis of notional and hypothetical transaction as if ST Merchant had exercised an option
to purchase from Lapanday a certain number of shares of Macondray & Co., Inc. (MCI) a subsidiary of
Lapanday, at a specified price; that the said notional transaction never actually happened; that no shares in
MCI are ever transferred to ST Merchant.
In reply, pleased 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
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 State shall by mutual agreement settle the mode of application of this limitation.
3. The term "interest" as used in this Article means income from debt-claims of every kind,
whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's
profits, and in particular, income from government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds or debentures, as well as income
assimilated to income from money lent by the taxation law of the State in which the income arises,
including interest on deferred payment sales. Penalty charges for the late payment shall not be
regarded as interest for purposes of this Article. (emphasis supplied)
"xxx xxx xxx"
Based on the foregoing provisions the preferential tax rate to be withheld by Lapanday on its
interest payment to ST Merchant shall be fifteen percent (15%) of the gross amount of the interest.
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 the redemption or at the issue, that is over and above the amount
paid by the subscriber. This interpretation is founded on the Commentaries of the ORGANIZATION FOR
ECONOMIC COOPERATION AND DEVELOPMENT (OECD) Committee on Fiscal Affairs on the
Articles of the Model Convention thus: SEIcAD
"As regards, more particularly, government securities, and bonds and debentures, the text
specifies that premiums or prizes attaching thereto constitute interest. Generally speaking, what
constitute 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 the redemption or at issue . . . (emphasis
supplied)
Accordingly the Upside share remitted to ST Merchant is included in the definition of interest and
therefore subject to the preferential tax rate of 15% pursuant to RP-Singapore Tax Treaty.
It is true that Section 39 of the Tax Code of 1997 it is provided that:
"SEC. 39. Capital Gains and Losses.
xxx xxx xxx
(E) Retirement of Bonds, Etc — For the purpose of this Title, amounts received by the
holder upon retirement of bonds, debentures, notes or certificates or other evidences of the
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 ST Merchant as capital asset transaction
and any gain derived therefrom is considered a capital gain from the exchange of the note. However, the
aforequoted provisions of the Tax Code will only apply if no tax treaty exist between the government 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 Tax Code is 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.
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 presumption that the special law is to be considered as remaining an exception to 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 the 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 the 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.
xxx xxx xxx"
In view of all the foregoing, this Office hereby confirms your opinion that the preferential tax rate
of 15% of the gross amount of interest should be applied on the interest payments of Lapanday to ST
Merchant. Moreover, for reasons abovestated, the Upside Share remitted by Lapanday to ST Merchant is
likewise subject to the treaty rate of 15% on interest. (BIR Ruling ITAD 164-00)
This Secured Floating Notes Due 2000 shall also be subject to documentary stamp tax imposed
under Section 180 of the Tax Code of 1997.
disclosed that the said facts are different, then this ruling shall be considered null and void. AcHSEa
Very truly yours,
By:

Deputy Commissioner
March 12, 2001
NIRC, Sections 23 and 25 126 97
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 our letters dated October 3, 2000 and November 21, 2000, requesting confirmation of
your opinion that the director's fees to be paid to Mr. Glen A. Smith (Mr. Smith) are not subject to
Philippine income tax pursuant to the RP-US Tax Treaty.
It is represented that Mr. Smith is the President of the Board of Directors of Hunt-Universal Robina
Corporation (Hunt Phil), representing the Hunt-Wesson Foods International (Hunt USA); that Hunt Phil is
a Board Of Investments (BOI) registered corporation duly organized and existing under Philippine laws;
that Hunt USA is a non-resident foreign corporation duly organized and existing under the laws of the
United States of America 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 USA,
together with its nominees, owns 1,400,000 shares with a par value of PHP10.00 per share representing
fifty percent (50%) of the outstanding capital stock of Hunt Phil; and that Mr. Smith only comes and stays
in the Philippines to attend the regular annual meeting in a period of not more than seven days.
In reply, please be informed that the RP-US Tax Treaty does not contain an Article on Director's
Fees. Nonetheless, since the income of Mr. Smith in the form of director's fees is derived from sources
within the Philippines, the Philippines has taxing jurisdiction over the same. (Section 23 of the Tax Code
of 1997)
Moreover, Section 25(B) of the Tax Code of 1997 provides, viz:
(B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines.
— There shall be levied, collected and paid for each taxable year upon the entire income received
from all sources within the Philippines by every non-resident alien individual not engaged in trade or
business within the Philippines as interest, cash and/or property dividends, rents, salaries, wages,
premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual
or periodic or casual gains, profits, and income, and capital gains, a tax equal to twenty-five percent
(25%) of such income. Capital gains realized by a nonresident alien individual not engaged in trade or
business in the Philippines from the sale of shares of stock in any domestic corporation and real
property shall be subject to the income tax prescribed under Subsections (C) and (D) of Section 24."
Based on the foregoing, the income derived by a nonresident alien individual not engaged in trade
or business in the Philippines from sources within the Philippines shall be subject to Philippine income tax
equal to twenty-five percent (25%) of such income.
Such being the case, and since Mr. Smith will stay in the Philippines for less than 180 days in the
given calendar year, he is considered a nonresident alien not engaged in trade or business in the
Philippines and his income shall be subject to 25% final withholding tax pursuant to Section 25(B) of the
Tax Code of 1997 as implemented by Revenue Regulations No. 2-98, Section 2.57.1(C)(1). ITSacC
void.
Very truly yours,

By:

Deputy Commissioner
March 12, 2001
RP-US Article 13
207-82
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 letters dated June 6, 2000 and October 16, 2000, requesting confirmation of your
opinion that the royalty fees paid by your company to Hunt-Wesson Foods International (Hunt USA) is
subject to the preferential tax rate of 15 percent pursuant to the RP-US Tax Treaty.
It is represented that Hunt USA is a non-resident foreign corporation duly organized and existing
under the laws of the United States of America (USA) with principal address at 1645 West Valencia
Drive, Fullerton California, USA; that it is not registered as a corporation/partnership 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 Board Of Investments (BOI) registered corporation duly
organized and existing under Philippine laws; that Hunt USA and Hunt Phil entered into an Amendment
and Restated Technical Assistance Agreement and Its Amendatory Agreement whereby Hunt USA granted
Hunt Phil the sole and exclusive license to manufacture and sell in the Philippines the products listed in
the said Agreement in accordance with the formulas and specifications furnished by the former and to
affix to these products the trademark "HUNT'S;" that in consideration for such grant, Hunt Phil shall pay
Hunt USA a royalty of three percent (3%) of the net wholesale sales in Pesos of all the licensed products
sold; and that the said Agreement has been duly registered with the Bureau of Patents, Trademarks and
Technology Transfer on April 28, 1997 under Certificate of Registration No. 1954 which is valid for ten
years from June 1, 1995 to May 31, 2005.
In reply. please be informed that Article 13 of the RP-US Tax Treaty which reads, viz:
"ARTICLE 13
Royalties
"(2) However, the tax imposed by that other Contracting State shall not exceed
royalties, and

Investment and engaged in preferred areas of activities, and (emphasis
supplied)

third State.
"(4) The provisions of paragraphs 1 and 2 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 8 (Business Profits) or Article 15 (Independent Personal
Services), as the case may be, shall apply.
xxx xxx xxx
Based on the foregoing, royalty payments to a company which is a resident of the United States of
America (USA) and which does not have a permanent establishment in the Philippines may be taxed either
at 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, at a preferential tax rate not exceeding fifteen per cent (15%)
of the gross amount of royalties if the payor Philippine company is a Board of Investments (BOI)
registered enterprise, or at a tax rate not exceeding twenty-five per cent (25%) of the gross amount of the
royalties in all other cases. DaHSIT
Such being the case, since Hunts Phil is a BOI-registered enterprise, the royalty fees paid by
Hunt-Universal Robina Corp. (Hunt Phil) to Hunt-Wesson Foods International (Hunt USA) are subject to
the preferential tax rate of 15 per cent based on the gross amount of royalties pursuant to the RP-US Tax
Treaty. (BIR Ruling No. 207-82 dated June 28, 2000)
void.
Very truly yours,
By:

Deputy Commissioner
March 12, 2001
Sec. 106 & Sec. 108 of the 1997 Tax Code

P.O. BOX 1274 MCC
Makati, Metro Manila
Gentlemen :
This refers to your Note No. 213/2000 dated June 5, 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 the purchases of goods and services based on the principle of reciprocity.
Relations pertinent portion of which reads:
"ARTICLE 34
regional, or municipal except:
services
"xxx xxx xxx"
value-added tax (VAT) and ad valorem tax 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 and 108, and ad valorem tax under Section 149, all of the National Internal Revenue Code of 1997.
However, based on reciprocity, this Office may grant exemption to the Embassy of Australia and/or
its personnel on their local purchases of goods and/or services, provided that you 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 Government of Australia allows similar tax exemption to the
Philippine Embassy and its personnel on their purchases of goods and services in that foreign territory,
(BIR Ruling No. 206-93 dated May 11, 1993)
Per your Note PRB 00/345 dated July 13, 2000 of Australian Department of Foreign Affairs and
Trade (DFAT), your Government has granted to the Philippine Embassy and its personnel in Canberra a
tax exemption under the Indirect Tax Concession Scheme (ITCS) covering the Goods and Services Tax
(GST), Luxury Car Tax (LCT) and Wine Equalisation Tax (WET) which are akin, if not equivalent, to
VAT and ad valorem taxes on local purchases of goods and/or services. EHSIcT
Hence, the Embassy of Australia and its personnel are entitled to VAT and ad valorem tax
exemption on their purchase of local goods and/or services.
Very truly yours,
By:
Deputy Commissioner
March 12, 2001
Article 10 RP-Japan Treaty BIR Ruling No. ITAD-156-00
Prince Eagle Garments, Inc.

Lot 1-B Blk. 2, Ampere St.,
LISP, PEZA Bo. Diezmo, Cabuyao, Laguna
Attention: Mr. Nobuyuki Sakamoto

General Manager
Gentlemen :
This refers to your letter dated October 16, 2000, for confirmation of your opinion that your
dividend payments to Mitsui & Co., Ltd. (Tokyo/Osaka) (Mitsui) are subject to a preferential withholding
tax rate of ten (10%) percent pursuant to Article 10 of the RP-Japan Treaty.
It is represented that Mitsui is a non-resident foreign corporation organized and existing under the
laws of Japan, with head office at 2-1, Ohtemachi 1-chome, Chiyoda-Ku, Tokyo, Japan; that it is not
registered as a corporation or partnership licensed to do business in the Philippines as per certification
dated October 20, 2000 issued by the Securities and Exchange Commission; that Prince Eagle Garments,
Inc. (PEGI) is a domestic corporation organized and existing under the laws of the Philippines, with
principal office address at Lot 1-B, Blk. 2, Ampere St., LISP, PEZA, Bo. Diezmo, Cabuyao, Laguna; that
Mitsui directly holds 31.8% of the total shares of Prince Eagle Garments, Inc. amounting to Four Million
Nine Hundred Ninety-Two Thousand Seven Hundred Ninety-Three Pesos and Thirty Centavos
(PhP4,992,793.30); that Mitsui acquired its shares in Prince Eagle Garments, Inc. on September 22, 1995
and has been holding them up to October 14, 2000 as per Certification of Atty. Rodolfo Bausa PEGI's
Corporate Secretary, in compliance with required six (6) months holding period of the shares of stock
prior to declaration of dividends; that on September 27, 2000, Prince Eagle Garments' Board of Directors
declared cash dividends in the amount of Fifteen Million Seven Hundred Thousand Six Hundred Seven
Pesos and Ninety-One Centavos (PhP15,700,607.91); and that on September 29, 2000, said cash dividends
were paid to their various stockholders including Mitsui as evidenced by the Secretary's Certificate dated
October 13, 2000 and Board Resolution dated January 3, 2000.
"ARTICLE 10

"2. However such dividends may also be taxed in the Contracting State of which the
"a) 10 per cent of the gross amount of the dividends if the beneficial owner
the company paying the dividends or of the shares issued by that company during the
period of six months immediately preceding the date of payment 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 other corporate rights assimilated
to income from shares by the taxation laws of the Contracting State of which the company making the
distribution is a resident.
"xxx xxx xxx"
Based on the above the Philippines may tax the dividends paid by a Philippine company to a
Japanese company at a rate not exceeding 10% if the latter holds directly at least 25% either of the voting
shares or of the total shares of the former for a period of six (6) months immediately preceding the date of
payment of the dividends. ASTDCH
Considering that Mitsui & Co. Ltd. (Tokyo/Osaka) owns directly 31.8% of the total shares of
Prince Eagle Garments, Inc. for a period of six (6) months immediately preceding the date of payment of
the dividends which was on September 29, 2000 the dividend remittances of the Prince Eagle Garments,
Inc. to Mitsui & Co. Ltd. are subject to 10% withholding tax. (BIR Ruling No. ITAD 156-00)
void.
Very truly yours,
By:

Deputy Commissioner
March 12, 2001
Sec. 32 (B) (7) (a), NIRC

Royal Embassy of Cambodia

7A/7th Floor, Country Space 1 Bldg.
Sen. Gil Puyat Ave.
Makati City
Gentlemen :
This refers to your letter dated January 26, 2001 requesting for exemption from payment of the
seven and one-half percent (7½%) final income tax on the interest income which the Royal Embassy of
Cambodia receives from its foreign currency time deposit with a local bank.
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 its 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. [BIR Ruling No. ITAD-109-00]
As regards your request for exemption of your diplomatic personnel from withholding tax on their
accounts (savings/current) maintained with local banks, please be informed that the exemption of
diplomatic agents from all dues and taxes, personal or real, national, regional or municipal, under Article
34 of the 1961 Vienna Convention on Diplomatic Relations does not include exemption from tax on
private income having its source in the receiving State.
Accordingly, your diplomatic personnel are subject to the withholding tax on their accounts
(savings/current) maintained with the local banks.
void.
Very truly yours,
By:

Deputy Commissioner
March 12, 2001
RP-Japan Article 11 ITAD 48-99
Unit 306, Keppel Center
Samar Loop corner
Cardinal Rosales Avenue
Cebu Business Park, Cebu City
Attention: Victor O. Machacon

Partner
Assurance & Business Advisory Services
Gentlemen :
This refers to your letter dated July 17, 2000, on behalf of your client Sun Pleats Company, Ltd.
(SPCL) for the availment of the preferential tax rate of fifteen percent (15%) on interest income pursuant
to the provisions of the RP-Japan Tax Treaty.
It is represented that SPCL is a non-resident foreign corporation duly organized and existing under
the laws of Japan with principal address at 383-2 Shimo, Yutsugi Akinuno-Shi, Tokyo, Japan: that it is not
October 13, 2000 issued by the Securities and Exchange Commission; that Sun Pleats Cebu Corp. (SPCC)
is a domestic company organized and existing under Philippine laws with principal address at Mactan
Economic Zone, Lapu-lapu City, Cebu, Philippines; that on January 25, 2000, SPCL has granted
non-interest bearing cash advances to SPCC to finance its working capital requirements for its operations;
that SPCL, in line with the thrust of its affiliate SPCC to help each other, desires to convert from its
advances to SPCC the amount of One Million Forty Nine Thousand Two Hundred Sixty-Five and 10/100
dollars US$ 1,049,265.10 into a loan; that the term of payment of this loan shall be for a period of five
years (5) and shall bear an interest of 3.5% per annum.
"Article 11
interest the tax so charged shall not exceed;
"(a) 10 per cent of the gross amount of the interest if the interest is paid in
respect of Government securities or bonds or debentures;
"(b) 15 per cent of the gross amount of the interest in all other cases
xxx xxx xxx
whether or not secured by mortgage and whether or nor carrying a right to participate in the debtor's
xxx xxx xxx
Based on the foregoing provisions, considering that the recipient, Sun Pleats Company, Ltd., is the
beneficial owner of interest arising in the Philippines, the interest payments made by Sun Pleats Cebu
Corp. are subject to the preferential tax rate of 15% Philippine income tax based on the gross amount of
the interest. Moreover, the Loan Agreement executed by and between them is subject to the documentary
stamp tax imposed under Section 180 of the Tax Code of 1997 (as per BIR Ruling No. 48-99, dated
December 09, 1999)
void.
Very truly yours,
By:

Deputy Commissioner
March 6, 2001
RP-US; RP-Russia
Section 28 (B) (1)
Nu Skin Philippines, Inc.

15TH Floor Octagon Center
41 San Miguel Ave., Ortigas Center
Pasig City 1605
Attention: Alice L. Celis
Asst. Finance Manager
Gentlemen :
This refers to your letter dated February 28, 2000 requesting for a ruling to the effect that the
interest, royalties & license fees to be received by Nu Skin International, Inc. (NSI) from Nu Skin
Philippines, Inc. (NSPI) be entitled to relief from double taxation provided under the RP-US Tax Treaty.
It is represented that NSI is a corporation organized and existing under the laws of the State of
Utah, U.S.A., engaged in the design, production and marketing of products and Sales Aids for distribution
in the international markets through a network of independent distributors; that NSI authorized and
appointed Nu Skin Hongkong, (NSHK), a branch of NSI in Hongkong, as its exclusive regional distributor
of Products and Sales Aids in certain countries in the Asia Pacific region; that NSPI is the Philippine
Branch (per SEC Registration No A1997-6813 issued by the Securities and Exchange Commission dated
April 1997) of a corporation bearing the same name organized and existing under the laws of Delaware
U.S.A.; that the line of business involves multi-level marketing of personal care products, which they
import from NSI; that NSI grants NSPI the exclusive right and license to manufacture, distribute, make,
have made, use and sell the products in the Philippines under the Licensing Sales Agreement and Trade
Mark/Tradename Licensing Agreement per Certificate of Compliance No. 5-1998-0040 and 5-1998-0041
which were issued last March 26, 1999 by the Intellectual Property Office of the Department of Trade and
Industry; that the Trademark/Tradename Licensing Agreement is valid only for a period of ten years from
January 30, 1998 to January 29, 2008; that NSHK, on the other hand, appoints NSPI as its exclusive
distributor for the sale and distribution of the Product and Sales Aids in the Philippines, under the
Products' names, logos, and trademarks subject to all terms and conditions of the Wholesale Distributor
Agreement; and that shipment of imported products come from NSI which invoices are billed and sent by
NSHK and any outstanding payables at the end of each month has an interest-add on.
In reply, please be informed that Article 13 of the RP-US Tax Treaty provides viz:
"ARTICLE 13
2. However the tax imposed by that other Contracting State shall not exceed:
a.) In the case of the United States, 15 percent of the gross amount of the
royalties, and
b.) In the case of the Philippines, the least of:
(i) 25 percent of the gross amount of the royalties, and

royalties are paid by a corporation registered with the Philippine
Board of Investments and engaged in preferred areas of
activities, and
royalties of the same kind paid under similar circumstances to a
resident of a third State.
xxx xxx xxx
application of a Philippine Tax Treaty which provides for 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, one
of which is the RP-Russia Tax Treaty which Article 12 (Royalties) 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 percent of the gross
amount of royalties."
Such being the case, the royalties to be paid by NSPI to NSI under their Licensing Sales Agreement
and Trademark/Tradename Licensing Agreement are subject to Philippine tax of fifteen percent (15%) of
the gross amount of royalties in accordance with the provisions of RP-Russia Tax Treaty in relation to
Article 13 paragraph 2(b)(iii) of the RP-US Tax Treaty. Moreover, under Section 108 of the 1997 Tax
Code, the payment to be remitted by NSPI to NSI are subject to the 10% Value Added Tax. Accordingly,
NSPI shall be responsible for the payment of VAT on such fees on behalf of NSI by filing a separate VAT
declaration/return using BIR Form No. 1600. The said VAT declaration/return can be used by NSPI as
evidence in claiming input tax credit. (SEC. 4.102-1(b), Revenue Regulations No. 7-95)
Considering that NSHK is the exclusive regional distributor of NSI for the sale and distribution of
Products and Sales Aids in the Asia Pacific Region inclusive of the Philippines, NSHK entered into a
Wholesale Distribution Agreement with NSPI which terms and conditions include, among others, that
prices to be paid by NSPI to NSHK for Products and Sales Aids purchased hereunder shall be negotiated
and determined on an arm's length basis and be adjusted from time to time as agreed by the Parties in
writing; that NSPI shall pay the commercial invoices for Products and Sales Aids shipped under this
Agreement in immediately available funds by wire transfer to a bank or banks designated by NSHK, or by
such other means of payment agreed to by NSHK from time to time; that all purchases of Products and
Sales Aids will be payable in Philippine Pesos with any exchange rate risk to be borne by NSHK; and that
without limiting any of NSHK's other rights and remedies pursuant to this Agreement, amounts not paid
within the time period set forth in the payment provisions herein shall bear interest at the prime interest
rate as reported in The Wall Street Journal plus two percent (2%) for the full period outstanding. As such
NSHK shall be deemed an income recipient and, therefore, NSHK shall be liable to tax on interest in this
instance since the business transaction was made independently by NSHK and not directly by NSI.
Moreover, NSHK shall also be liable to tax on other income that it may derive from the Philippines as
NSI's exclusive regional distributor of Products and Sales Aids in the Asia Pacific Region.
Tax treaties are applicable only to residents of the Contracting States and define a "resident of a
Contracting State" as any person who is a resident of that State for tax purposes. Inasmuch as NSHK, a
branch in Hongkong of NSI, U.S.A., is for tax purposes of Hongkong a resident thereof, NSHK cannot
therefore invoke the provision of RP-US Tax Treaty. Furthermore, that the business transactions
conducted by a branch is separate and distinct from the activities of the head office for tax purposes is
recognized by the Supreme Court in the case of Marubeni vs. CIR, (G.R No. 76573 dated September 14,
1989) where it was enunciated as follows:
It is understood that the branch becomes its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal agent relationship is set aside.
The transaction becomes one of the foreign corporation, not of the branch. Consequently, the taxpayer
is the foreign corporation, not the branch or the resident foreign corporation. Corollary, if the business
transaction is conducted through the branch office, the latter becomes the taxpayer, and not the
foreign corporation."
In view thereof, since there is no existing tax treaty between the Philippines and Hongkong, the
interest to be paid by NSPI to NSHK as well as such other income which NSHK may derive from the
Philippines as distributor shall be subject to the applicable withholding tax as provided under Sec. 28
(B)(1) of the 1997 Tax Code, to wit:
"1. In General-Except as otherwise provided in this Code, a foreign corporation not engaged
in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross
income received during each taxable year from all sources within the Philippines, such as interests,
dividends, rents, royalties salaries premiums (except reinsurance premiums, annuities, emoluments or
other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains,
except capital gains under subparagraph 5(c). Provided, that effective January 1, 1998, the rate of
income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three
percent (33%); and, effective January 1, 2000 and thereafter, the rate shall be thirty-two percent
(32%)."
void.
Very truly yours,

Commissioner
March 1, 2001
RP-Canada Tax Treaty - Article 11

Multi-Media Telephony, Incorporated

43/F, Philamlife Tower, 8767 Paseo de Roxas
Makati City
Attention: Mr. Jose Perez De Venecia III

Chairman/Career Executive Officer
Gentlemen :
This refers to your application for relief from double taxation dated December 27, 2000, pursuant to
the RP-Canada Tax Treaty on the interests that Multi-Media Telephony, Incorporated will be paying to
Export Development Corporation
It is represented that Export Development Corporation ("EDC") with address at 151 O'Connor,
Ottawa, Canada K1A 1K3, is a crown corporation that provides financial services to Canadian exporters
and foreign buyers in order to facilitate and develop export trade; that it does a wide range of insurance,
guarantee and loan services not normally provided by the private sector; that it is not registered as a
Securities and Exchange Commission (SEC) dated December 18, 2000; that MULTI-MEDIA
TELEPHONY, INCORPORATED ("MTI'") is a corporation duly organized and existing in accordance
with the laws of the Philippines; that MTI obtained a Twenty Million in US Dollars (US$20,000,000) loan
facility from EDC; that MTI will be paying the principal and interest on the availed loan; that this will be
used for the purpose of financing the procurement of Goods and Services under the Supply Contract and
for other working capital and general corporate purposes for the project; that on December, 2000, MTI and
EDC entered into a loan agreement whereby the former promised to pay for value received,
US$20,000,000 (Twenty Million in US Dollars) to the latter payable on a total of Eleven (11) financial
quarterly installments starting March 31, 2004, the first eight (8) financial quarterly installments will be
repaid in the amount of $1,500,000 and the last three (3) financial quarterly installments will be paid in the
amount of $2,666,667, respectively; that MTI shall pay interest on each Advances, or as the case may be,
the Loan in respect of each Interest Period in arrears on the relevant Interest Payment Date at the rate per
annum determined by the EDC to be aggregate of a Margin and Libor.
In reply, please be informed that Article XI (1),(2),(3),(7)(b) of the RP-Canada Tax Treaty
provides:
"Article XI
INTEREST
"(1) Interest arising in a Contracting State and paid to a resident of the other Contracting
(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, provided that the
interest is taxable in the other Contracting State, not exceed 15 per cent of the gross
amount of the interest.
(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. However, the
term "interest" does not include income dealt with in Article X.
xxx xxx xxx
(7) Notwithstanding the provisions of paragraph 2:
xxx xxx xxx
(b) interest arising in the Philippines and paid to a resident of Canada

shall be taxable only in Canada if it is paid in respect of a loan made,
guaranteed or insured, or a credit extended, guaranteed or insured by
the Export Development Corporation;
(emphasis supplied)
xxx xxx xxx
In view of the foregoing, this Office is of the opinion and so holds that since the interest will be
paid in respect of a credit extended by the Export Development Corporation, then the said interest arising
in the Philippines and paid to EDC of Canada shall be taxable only in Canada. [BIR Ruling No. 113-89
dated May 29, 1989]
However, the Loan Agreement entered into by and between EDC and MTI dated December, 2000 is
subject to the documentary stamp tax imposed under Section 180 of the National Internal Revenue Code
of 1997.
Very truly yours,
By:

Deputy Commissioner
February 23, 2001
RP-US - Art. 13
RP-Germany - Arts. 12 & 24

14/F Multinational Bancorporation Centre
Attention: Atty. George J. Lavadia

Principal, Tax and Corporate Services
Gentlemen :
This refers to your letter dated September 22, 1998 on behalf of your client, B&C Philippines, Inc.
(Philippine Branch) (B&C), requesting confirmation of your opinion that its royalty payments to Bain &
Company, Inc. (BAIN) are subject to the preferential tax rate of ten percent (10%) as provided under the
RP-US Tax Treaty.
It is represented that BAIN is a non-resident foreign corporation organized and existing under the
laws of the State of Massachusetts; that it is not registered as a corporation/partnership in the Philippines
as per certification dated September 15, 1998 issued by the Securities and Exchange Commission; that
B&C, Inc. Philippines (B&CIP) is likewise a non-resident foreign corporation organized and existing
under the laws of the State of Massachusetts; that B&CIP has a branch in the Philippines, B&C; that on
January 01, 1998, BAIN entered into a Royalty Agreement with B&C, whereby BAIN will allow B&C to
use in the Philippines the professional techniques and know-how, both computerized and not, which have
been developed by BAIN relative to consulting systems, strategies, and techniques, as well as the
Experience Center, client video workshops, worldwide databases and professional manuals; that in
consideration for the grant of such technology and privilege, BAIN shall be entitled to receive royalty
payments; and that the Royalty Agreement complies with the provisions of Section 87 and 88 of the
Intellectual Property Code (IPC) as certified by the Intellectual Property Office (IPO) under Certificate of
Compliance No. 5-1998-00028.
Based on the foregoing representations, it is now your opinion that pursuant to Article 13(2)[b](iii)
of the RP-US Tax Treaty, which provides, viz:
"Article 13
ROYALTIES
"(l) Royalties derived by a resident of one of the Contracting States from sources within the
(a) ... ... ...
(i) 25 percent of the gross amount of royalties,


third State." (Emphasis supplied)
patent, trademark, design or model, plan, secret formula or process, or other like right or property, or
includes gains derived from sale, exchange, or other disposition of any such right or property which
are contingent on the productivity, use or disposition thereof.
xxx xxx xxx
and, in relation thereto, considering that the lowest rate given to a third State is 10% as provided in Article
12(2)[b] of the RP-Germany Tax Treaty, viz:
"Article 12
ROYALTIES
(a) ... ... ...
(b) 10 per cent of the gross amount of royalties arising from the use of, or the right to use,
any patent, trade mark, design or model, plan, secret formula or process, or from the
use of, or the right to use, industrial, commercial or scientific equipment, or for
information concerning industrial, commercial or scientific experience.
"xxx xxx xxx"
the royalties arising as a consequence of the Royalty Agreement between B&C and BAIN is subject to 10
% final withholding tax since said Agreement is duly registered and approved by the Intellectual Property
Office of the Department of Trade and Industry.
otherwise known as the "most favored nation clause", must be interpreted not only in
relation to Article 12 of the RP-Germany Tax Treaty but also in connection with Article 24 of the
same treaty, to wit:
"Article 24
as follows:
xxx xxx xxx
"b) Subject to the provisions of German tax law regarding credit for foreign
tax, there shall be allowed as a credit against German income and corporation tax
payable in respect of the following items of income arising in the Republic of the
Philippines, the tax paid under the laws of the Philippines in accordance with this
Agreement on:
xxx xxx xxx
"dd) royalties, as defined in paragraph 3 of Article 12;
xxx xxx xxx
"c) For the purpose of the credit referred in subparagraph b) the Philippine
tax shall be deemed to be
xxx xxx xxx
"cc) in the case of royalties for which the tax is reduced to 10 or 15

percent according to paragraph 2 of Article 12, 20 percent of the gross
amount of such royalties. (Emphasis supplied)
xxx xxx xxx
allows a matching credit of twenty percent (20%) of the gross amount of such royalties arising in the
Philippines against German income and corporation tax, where the tax rate is reduced to a range of ten to
fifteen percent under such treaty. Therefore, the taxes on royalties under the RP-US Tax Treaty are not
paid under circumstances similar to those in the RP-Germany Tax Treaty because of the absence of the
said matching credit provision in the former convention. In so ruling, the Highest Tribunal further
declares:
treatment." AICTcE
The foregoing Supreme Court decision has become final and executory on September 10, 1999.
Such being the case, your application to avail of the 10% preferential tax rate on royalty payments
to be received by BAIN from your client B&C is hereby granted, but only so much of the payments made
from January 01, 1998 to September 10, 1999. With respect to royalty payments made after September 10,
1999 and onwards, the 10% tax rate shall no longer be applicable for being contrary to the
above-mentioned doctrine. In view of this, a new tax treaty relief application may be filed for transactions
covering the said period applying the "most favored nation clause" of the RP-US Tax Treaty in relation
with other RP Tax Treaties.
Moreover the said royalty payments shall be subject to 10% value-added tax (VAT) pursuant to
Section 108(A)(1) and (3) of the Tax Code and that B&C shall, before making payment of royalties to
BAIN, withhold and remit to this Bureau the said 10% VAT due thereon, by filing a separate VAT return
using BIR Form No. 1600 for and on behalf of BAIN. The duly validated VAT declaration/return is
sufficient evidence for B&C in claiming input tax credit. (Section 4.110-3(b) of Revenue Regulations No.
7-95)
investigation it will be disclosed that the facts are different, then, this ruling shall be considered null and
void.
Very truly yours,

Commissioner
February 19, 2001
RP-France Article 10

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

Atty. Carlos Paulo M. Villaruz
Gentlemen :
This refers to your application for relief from double taxation dated June 26, 2000 on behalf of
Essilor Manufacturing Philippines, Inc. (Essilor) and Essidev S. A. (Essidev), requesting confirmation that
the dividends payable to Essidev by Essilor shall be subject to withholding tax at the rate of 15% of the
gross amount of dividends pursuant to Article 10 of the RP-France Tax Treaty. TCADEc
It is represented that Essidev is a non-resident foreign corporation organized and existing under the
laws of France, with office address at 147, rue de Paris — 94227 Charenton-le-Pont, Cedex, France; that it
is not licensed to do business in the Philippines as per certification dated August 17, 2000 issued by the
Securities and Exchange Commission; that Essilor is a PEZA-registered enterprise with principal address
at SFB#10, BEPZ, Mariveles, Bataan, that Essilor is a wholly owned subsidiary of Essidev; that as of May
4, 2000 Essidev owns 99.99% of the shares of Essilor; that on May 4, 2000 Essilor's Board of Directors
declared cash dividends in the amount of P18,636,200.00 payable to its stockholder's of record as of that
date, and payable on or before July 31, 2000 as evidenced by the Secretary's Certificate dated June 29,
2000.
In reply, please be informed that Article 10 of the RP-France Tax Treaty provides:
"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
a) 15 per cent of the gross amount of the dividends if the beneficial owner is a
company (excluding partnership) which holds directly at least 10 per cent of the
voting shares of the company paying the dividends;
b) in all other cases, 25 per cent of the gross amount of the dividends..
"xxx xxx xxx"
The 15 % preferential tax rate on dividend applies whenever the beneficial owner/recipient of the
dividends owns at least 10% of the voting shares of the paying company. Please be informed, however,
that a Protocol amending the foregoing provisions took effect on January 1, 2000 which reads as follows:
"In Article 10 of the Convention:
in paragraph 2, the rates of "15 percent" and "25 percent" are replaced respectively by
"10 percent" and "15 percent"
Based on the above provisions of the Protocol, the dividends payable to Essidev by Essilor shall be
subject to withholding tax at the rate of 10% of the gross amount of dividends considering that the
transaction transpired after the effectivity of the Protocol and Essidev owns 99.99% of the total
outstanding stocks of Essilor as of record date being the holder and beneficial owner thereof.
Very truly yours,

Commissioner
February 19, 2001
RP-Indonesia-Arts. 5 & 7
NIRC-Sec. 108
Chato Eleazar Liboro & Santos Law Office

6th Floor Strata 2000, Emerald Avenue,
Ortigas Center, Pasig City 1605
Attention: Atty. Wilfredo M. Chato

and
Atty. Gladdys L. Gerial-Atienza
Gentlemen :
This refers to your letter dated August 23, 2000, on behalf of your client BANCO DE ORO
("BDO"), requesting relief from double taxation under the RP-Indonesia Tax Treaty.
It is represented that BANKING PARTNER'S CONSULTING, A DIVISION OF PT ABDULGANI

IMMACON, ("BPC") is a corporation duly organized and existing under and by virtue of the laws of
Indonesia; that it is not licensed to engage in business in the Philippines as per certification issued by the
Securities and Exchange Commission dated April 11, 2000; that BANCO DE ORO ("BDO") on the other
hand, is a corporation duly organized and existing under Philippine laws; that on March 30, 2000, BPC
entered into a contract with BDO for the automation of BDO's loan origination process whereby BPC
would render services through its employees for a period aggregating not more than 183 days within any
twelve-month period.
Based on the representations, and pursuant to Article 7(1) in relation to Article 5 of the
RP-Indonesia Tax Treaty which respectively provides, viz:
"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
profits of the enterprise may be taxed in the other State but only so much of them as is attributable to:
"(a) that permanent establishment; or
"(b) sales within that other Contracting State of goods or merchandise of the same or
similar kind as those sold through that permanent establishment; or
"(c) other business activities carried on in that other State of the same or similar kind
as those effected through that permanent establishment." aETDIc
"Article 5
"PERMANENT ESTABLISHMENT
"1. For the purposes of this Agreement, the term "permanent establishment" means a fixed
place of business through which the business of the enterprise is wholly or partly carried on.
"2. The term "permanent establishment" includes especially:
"(a) a place of management;
"(b) a branch;
"(c) an office;
"(d) a factory;
"(e) a workshop;
"(f) a farm or plantation;
"(g) a mine, an oil or gas well, a quarry or any other place of extraction of natural
resources;
"(h) a place of exploration of natural resources;
"(i) a building site or construction project or supervisory activities in connection

therewith, where such site, project or activity continues for a period of more than six months;
"j) an assembly or installation project which exists for more than three months;
"(k) premises used as a sales outlet;
"(l) a warehouse, in relation to a person providing storage facilities for others;
"(m) the furnishing of services, including consultancy services, by an enterprise

through an employee or other personnel where activities of that nature continue (for the same
or connected project) for a period or periods aggregating more than 183 days within any
twelve-month period.
xxx xxx xxx"
it is your opinion that the furnishing of services by BPC through its employees to BDO for a period not
exceeding 183 days within any twelve-month period does not constitute as a permanent establishment to
which BPC's profits could be attributed to. As a consequence, BDO's payment for the services under the
contract shall not be subject to Philippine income tax although such payment is subject to the value-added
tax (VAT) under Section 108 of the Tax Code of 1997. AEIHaS
Under the aforequoted provisions, considering that the BPC employees would render services in the
Philippines for a period not exceeding 183 days within any twelve-month period, such would not
constitute a permanent establishment to which the profits of BPC could be attributed to. Hence, your
opinion that the payment by BDO to BPC for services rendered under the contract shall not be subject to
Philippine income tax is hereby confirmed. (BIR Ruling No. ITAD-102-00 dated August 07, 2000)
However, the payments to be made by BDO for the furnishing of services in the Philippines 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, BDO shall be responsible for the payment
of VAT on said services on behalf of BPC by filing a separate VAT declaration/return using BIR Form
No. 1600. The said VAT declaration/return can be used by BDO 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 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
February 16, 2001
Arts. 1, 3, 12 & 27 RP-Netherlands
Law Offices
Platon Martinez Flores San Pedro & Leaño
6th and 7th Floors, Tuscan Building, 114 Herrera street
Attention: Atty. Carlos G. Platon and

Atty. Anthony Brett M. Abenir
Gentlemen :
This refers to your letter dated November 11, 1998, requesting confirmation of your opinion that
remittances made to Subway Partners C. V. (SPCV) by the Franchisee, Mr. Edison Liang and Ms. Tiffany
G. del Rosario, are subject to the preferential tax rate of 15 percent pursuant to Article 12 (Royalties) of
the Philippines-Netherlands Tax Treaty. DACTSH
It is represented that SPCV is a limited partnership organized and existing under the laws of the
Netherlands Antilles with principal office located in Curacao, the Netherlands Antilles; that on October
28, 1996, a Franchise Agreement was entered into by and between SPCV (the "Company") and Mr. Edison
Liang and Ms. Tiffany G. del Rosario (the "Franchisee"), both individual residents of the Philippines; that
under the Agreement, the Company grants to the Franchisee: (a) access to the Company's licensed recipes,
formulas, food preparation procedures, business methods, business forms, business policies and body of
knowledge pertaining to the operation of a sandwich shop, including the loan of a copy of the Company's
Operations Manual; (b) access to information pertaining to new developments and techniques in the
Company's sandwich business; and (c) a limited non-exclusive license to use of the Company's licensed
rights in and to its services marks and trademarks in connection with the operation of one sandwich shop
to be located at a site approved by the Company and the Franchisee; that the Franchise Fee, Weekly
Royalty (equal to 8 percent (8 %) of the gross sales from each sandwich shop which it operates throughout
the term of the Agreement), and the other promises by the Franchisee contained in the Agreement
constitute the sole consideration to the Company for the use by the Franchisee of its licensed body of
knowledge, systems and trademark rights.
Based on the foregoing, it is your opinion that royalties to be paid by the Franchisee to SPCV are
subject to a tax rate of 15 percent pursuant to paragraph 2(b), Article 12 of the Philippines-Netherlands
Tax Treaty:
"Article 12
ROYALTIES
1. Royalties arising in one of the States and paid to a resident of the other State may be
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
3. ...
4. The term 'royalties' as used in this Article means payments of any kind received as a
experience." EHASaD
xxx xxx xxx"
In reply thereto, please be informed of paragraph 1, Article 3 of the same Treaty.
"Article 3
GENERAL DEFINITIONS
1. In this Convention, unless the context otherwise requires:
a) the term "State" means the Netherlands or the Philippines, as the context requires;
the term "States" means the Netherlands and the Philippines;
b) the term "the Netherlands" comprises the part of the Kingdom of the Netherlands
that is situated in Europe and the part of the sea bed and its sub-soil under the North Sea, over
which the Kingdom of the Netherlands has sovereign rights in accordance with international
law;
c) the term "Philippines" used in a geographical sense means the national territory
comprising the Republic of the Philippines;
xxx xxx xxx"
A perusal of paragraphs 1(a), 1(b) and 1(c), Article 3 of the Convention between the Republic of the
Philippines and the Kingdom of the Netherlands for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the "Convention" or the
"Treaty") reveals that the Contracting States to the Treaty are the Republic of the Philippines and "the
Kingdom of the Netherlands that is situated in Europe." DTAHSI
It is general knowledge that the Charter of the Kingdom of the Netherlands, drawn up in 1954, sets
out the ties that bind the Kingdom's three partner countries, namely: the Netherlands in Europe, the
Netherlands Antilles (comprising Bonaire, Curacao, Saba, St. Eustatius and St. Maarten), and Aruba; the
last two island countries are situated north of Venezuela within the vicinity of the Caribbean Sea and the
Gulf of Mexico. Since 1986, these three countries have had equal representation in the Kingdom, similar
to that of a federation. Generally, the Kingdom concludes international agreements on behalf of the partner
governments affected, but in close collaboration with them.
In relation to the foregoing, it must be noted, however, that paragraph 1 of Article 27 in relation to
Article 3(1)(b) of the said Convention provides;
"Article 27
TERRITORIAL EXTENSION
1. This Convention may be extended either in its entirety or with any necessary
modifications to the Netherlands Antilles and/or to Aruba.
2. . . ."
Article 27 is not self-executory. As evident in the language used, "[t]his Convention may be
extended either in its entirety or with any necessary modifications to the Netherlands Antilles . . .
(emphasis supplied)," it is incumbent upon the Contracting States (the Philippines and the Netherlands in
Europe) to perform the operative act of bringing the Netherlands Antilles within the scope of the said
Convention. This may be accomplished either by way of exchange of diplomatic notes or by way of
formally negotiating a Protocol.
This explanation is concordant with Article 31 of the Vienna Convention on the Law of Treaties
which 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 the light of its object and purpose." At this
juncture, it may be well to add that definitions in a treaty are carefully drafted precisely to avoid the need
for interpretation. If the Contracting States did in fact intended to automatically extend the coverage of the
Convention to the Netherlands Antilles and Aruba, in that case those States could have readily included
the territories in question in the definition of the territory of the "Kingdom of the Netherlands" under
Article 3(b) without the necessity of adding Article 27. Moreover, a treaty for the avoidance of double
taxation is in the nature of a tax exemption which should be construed in strictissimi juris. ACcISa
As of the moment, the Republic of the Philippines and the Kingdom of the Netherlands have not
exchanged diplomatic notes yet on the matter or negotiated a Tax Protocol to bring the Netherlands
Antilles and Aruba within the purview of the Convention.
Such being the case, royalties to be paid by the Franchisee, Mr. Edison Liang and Ms. Tiffany G.
del Rosario, to SPCV, a resident of Netherlands Antilles, are subject to thirty-two percent (32%) tax on
royalties under Section 28(B)(1) of the National Internal Revenue Code of 1997 (Tax Code of 1997),
contrary to your opinion that such royalties are subject to the preferential tax treaty rate of fifteen percent
(15%).
Finally, the royalty payments of the Franchisee to SPCV are subject to 10 percent (10%) VAT
imposed under Section 108(A)(3) of the Tax Code of 1997 based on the contract price. The Franchisee
shall be responsible for the payment of VAT on the royalties on behalf of SPCV 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)
Very truly yours,

Commissioner
February 16, 2001
Art. 5 & 7, RP-Singapore

BIR Rulings Nos. 279-88, 219-85 &
DA-062-2-5-99
Puyat Jacinto & Santos

12/F Manilabank Building
672 Ayala Avenue
Makati 1226
Attention: Regina P. Jacinto

Job M. Ambrosio
Rafael C. Garcia
Gentlemen :
This refers to your application on behalf of your client, Edsamail Asia Private Ltd. (EAPL),
requesting confirmation of your opinion that the income derived by EAPL is income from sources outside
the Philippines and therefore not subject to income tax, withholding tax and value-added tax in accordance
with the Tax Code of 1997 and pursuant to the RP-Singapore Tax Treaty.
It is represented that EAPL is a nonresident foreign corporation organized and existing under the
laws of Singapore with office address at No. 50 Kallang Avenue, Noel Corporate Building, Singapore
339505; that EAPL does not have a branch, representative office or subsidiary in the Philippines; that
EAPL intends to disseminate advertisements of its potential clients through the Internet using its facilities
in Singapore; that the said advertisements, which are in the form of "banner-ads," will be prepared entirely
in Singapore and the editing, programming, designing and dissemination of such advertisements will also
be done using the EAPL facilities in Singapore; that EAPL also intends to enter into non-exclusive
contracts with Philippine agents such as advertising agencies (local agents, i.e. Indio Communication
Design and RS Concepts, Inc.); that these agents will act as independent contractors and will be
responsible for soliciting potential advertising customers in the Philippines for EAPL; that these local
agents do not have authority to enter into contracts for and on behalf of EAPL; that all advertising
contracts will be accepted and executed by EAPL in Singapore; that the role of the local agents will be
limited to soliciting advertisements from advertisers and collecting the advertising fees and remitting the
same to EAPL net of their commission; and that all cost for solicitation and collection will be for the
account of the local agents.
In reply, please be informed that Article 7 of the RP-Singapore Tax Treaty states:
"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
profits of the enterprise may be taxed in the other State but only so much of them 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 be attributed to that permanent establishment 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 it is a permanent
establishment. aTEScI
However, insofar as it has been customary in a Contracting State to determine the profits to be
attributed to a permanent establishment on the basis of an apportionment of the total profits of the
enterprise to its various parts, nothing in this paragraph shall preclude that Contracting State from
determining the profits to be taxed by such an apportionment as may be customary; the method of
apportionment adopted shall, however, be such that the result shall be in accordance with the
principles embodied in this Article."
The above-quoted provision of the RP-Singapore Tax Treaty must be read in relation with its
Article 5, to wit:
"Article 5
PERMANENT ESTABLISHMENT
1. For the purposes of this Convention, the term "permanent establishment" means a fixed
2. The term "permanent establishment" includes specially but is not limited to:
b) A branch;
c) An office;
e) A factory; ISCTcH
f) A workshop;
g) A warehouse, in relation to a person providing storage facilities for others;
i) A building site or construction or assembly project or installation project or supervisory

activities in connection therewith, provided such site, project or activity continues for a period more
than 183 days; and
j) The furnishing of services, including consultancy services, by a resident of one of the

Contracting States through employees or other personnel, provided activities of that nature continue
(for the same or a connected project) within the other Contracting State for a period or periods
aggregating more than 183 days.
3. ...
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."
Based on the foregoing provisions of the treaty, the Philippines is allowed to tax the business
profits of an enterprise which is a resident of Singapore if it has a permanent establishment situated in the
Philippines and only so much of such profit that is attributable to that permanent establishment.
Considering that EAPL does not have permanent establishment located in the Philippines and its
local agents did not qualify as to constitute permanent establishment situated in the Philippines, your
opinion that the income of EAPL from advertising fees paid by local agents is not subject to Philippine
income tax and consequently to the withholding tax pursuant to the RP-Singapore Tax Treaty is hereby
confirmed. (BIR Rulings 279-88 & 219-85)
Moreover, as the editing, programming, designing and dissemination of such advertisements will be
done using the facilities in Singapore, the situs of income arising from such labor or personal services is
Singapore. On this score, whatever fees derived therefrom are considered income outside the Philippines
and therefore not taxable since a nonresident foreign corporation is taxable only on its income from
sources within the Philippines. (BIR Rulings supra.)
However, the commissions received and to be received by Indio Communication Design and RS
Concepts, Inc. from EAPL pursuant to their agreement are subject to the corporate income tax imposed
under Section 27(A) of the Tax Code of 1997 and to the 10% VAT under Section 108(A) of the same
Code. (BIR Ruling DA-062-2-5-99)
investigation it will be disclosed that the facts are different, then this ruling shall be null and void.
Very truly yours,
Commissioner
February 16, 2001
RP-US-Art. 13
Germany-Arts. 12 & 24

Attention: Atty. Dina D. Lucenario

and
Atty. Virginia B. Viray
Gentlemen :
This refers to your application for tax treaty relief on behalf of your client, Manila Bay Hosiery
Mills, Inc. (MBHMI), to avail of the preferential rate of ten percent (10%) final withholding tax on
royalties to be paid by MBHMI to Great American Knitting Mills, Inc. (GAKMI) pursuant to Article 13 of
the RP-US Tax Treaty in relation to Article 12 of the RP-Germany Tax Treaty.
It is represented that GAKMI is a corporation organized and existing under the laws of the State of
Delaware with business address at 661 Plaid St., Burlington, North Carolina, 27216, U.S.A., while
MBHMI is a Board of Investments (BOI)-registered domestic corporation with office address at 201
Dalisay St., Bacood, Sta. Mesa, Manila; that MBHMI entered into a License Agreement with GAKMI
dated January 01, 1998, which is duly registered with the Intellectual Property Office of the Department of
Trade and Industry under a Certificate of Compliance No. 5-1999-00007 and valid for five (5) years from
January 01, 1998 to December 31, 2002; that under the said Agreement, GAKMI grants to MBHMI (a) an
exclusive license in the Philippines to use the trademark "Gold Toe" in connection with the distribution
and sale solely of men's, women's and children's socks and women's and girl's tights and panty hose (the
Products) and (b) a license and right to manufacture the Products; and that for and in consideration of the
license granted, MBHMI undertakes to pay GAKMI sales royalty equal to five percent (5%) of net sales or
an annual minimum guaranteed royalty as follows:
Period Guaranteed Minimum Royalty

1998 US$15,000
1999 US$22,500
2000 US$26,500
2001 US$29,500
2002 US$31,500
payable on a quarterly basis and subject to the conditions stated in the said Agreement. ITDHcA
"Article 13
ROYALTIES
(a) ...
(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"
Considering that the lowest rate given to a third State is 10% as provided in Article 12 of the
RP-Germany Tax Treaty which provides, viz:
"Article 12
ROYALTIES
(a) ...
(b) 10 per cent of the gross amount of royalties arising from the use of, or the right to
use, any patent, trade mark, design or model, plan, secret formula or process, or from the use
of, or the right to use, industrial, commercial or scientific equipment, or for information
concerning industrial, commercial or scientific experience.
"xxx xxx xxx"
you now claim that the royalties arising as a consequence of the License Agreement between MBHMI and
GAKMI is subject to 10% final withholding tax since said Agreement is duly registered and approved by
the Intellectual Property Office of the Department of Trade and Industry. ECTHIA
otherwise known as the "most favored nation clause", must be interpreted not only in relation to Article 12
of the RP-Germany Tax Treaty but also in connection with Article 24 of the same treaty, to wit:
"Article 24
1. Tax shall be determined in the case of the resident of the Federal Republic of Germany
as follows:
xxx xxx xxx
b) Subject to the provisions of German tax law regarding credit for foreign tax, there shall
be allowed as a credit against German income and corporation tax payable in respect of the following
items of income arising in the Republic of the Philippines, the tax paid under the laws of the
Philippines in accordance with this Agreement on:
xxx xxx xxx
xxx xxx xxx
c) For the purpose of the credit referred in subparagraph b) the Philippine tax shall be
deemed to be CIHTac
xxx xxx xxx
cc) in the case of royalties for which the tax is reduced to 10 or 15 percent according
to paragraph 2 of Article 12, 20 percent of the gross amount of such royalties. (Emphasis
supplied)
xxx xxx xxx"
allows a tax credit of twenty percent (20%) of the gross amount of such royalties arising in the Philippines
against German income and corporation tax, where the tax rate is reduced to a range of ten to fifteen
percent under such treaty. Therefore, the taxes on royalties under the RP-US Tax Treaty are not paid under
circumstances similar to those in the RP-Germany Tax Treaty because of the absence of the said matching
credit provision in the former convention. In so ruling, the Highest Tribunal further declares:
''The purpose of a most favored nation clause is to grant to the contracting party treatment not
treatment."
The foregoing Supreme Court decision has become final and executory on September 10, 1999.
Such being the case, your application to avail of the 10% preferential tax rate on royalty payments
to be received by GAKMI from your client MBHMI is hereby granted, but only so much of the payments
made from January 01, 1998 to September 10, 1999. With respect to royalty payments made after
September 10, 1999 and onwards, the 10% tax rate shall no longer be applicable for being contrary to the
above-mentioned doctrine. In view of this, a new tax treaty relief application may be filed for transactions
covering the said period applying the "most favored nation clause" of the RP-US Tax Treaty in relation
with other RP Tax Treaties.
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. THCSEA

Commissioner
February 16, 2001
Art 12, RP-Russia

Art. 12, RP-Netherlands
Art. 13, RP-US
ITAD 54-00
121-00
A.M. Sison, Jr. & Associates

Suite 2002-A Security Bank Centre
P.O. Box 3280 MCPO
Attention: Atty. Antonio L. Cardiño
Gentlemen :
This refers to your letter dated October 3, 2000, requesting for confirmation of your opinion that
the royalties paid by Johnson & Johnson Philippines, Inc. (JJP) to Johnson & Johnson International (JJI)
are 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 the RP-Netherlands and RP-Russia Tax Treaties.
It is represented that JJI is a non-resident foreign corporation duly organized and existing under the
laws of the United States of America with principal address at One Johnson & Johnson Plaza, New
Brunswick New Jersey, U.S.A.; that it is not registered as a corporation/partnership licensed to do
business in the Philippines as per Securities and Exchange Commission certification issued on June 22,
2000; that JJP is a corporation duly organized and existing under Philippine laws with principal address at
Edison Road, Barrio Ibayo, Parañaque City, Metro Manila; that as per Renewal of Licensing Agreement
dated October 5, 1995 between JJI and JJP, the latter was granted the right to continue utilizing licensed
know-how including information, advise and assistance in connection with the manufacturing operations,
products and process know-how, sales, including market research, and administrative matters and finance,
as well as certain rights to use the patents and trademarks in connection with the manufacture and sale of
pharmaceutical products, hospital and medicinal products and health-care and consumer products; that in
consideration of the aforementioned rights/license granted to JJP, JJP shall pay JJI a royalty of five
percent of the former's net sales on such products; that the said Agreement is covered by Certificate of
Registration No. 1762 issued by the Intellectual Property Office (IPO).
In reply, please be informed that under the "most favored nation" clause provision of the RP-US
Tax Treaty [Art. 13(2)(b)(iii)], the tax imposed on royalties derived by a resident of the United States from
of the same kind paid under similar circumstances to a resident of a third State. 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. Similarly, Article 12(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. STHAaD
Such being the case, and since JJP is not registered and engaged in preferred areas of activities in
the Philippines, royalties arising in the Philippines and payable to JJI 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 and Article 12(2) of the RP-Russia Tax Treaty. (ITAD 54-00 and 121-00
dated March 07 and August 29, 2000)
Moreover, the said royalties based on the net sales shall be subject to 10 per cent Value Added Tax
(VAT) pursuant to Section 108(A)(1) and (3) of the Tax Code. JJP shall, before making payment of
royalties to JJI, withhold and remit to this Bureau the 10 per cent VAT due thereon by filing a separate
VAT return for and on behalf of JJI using BIR Form 1600 (Monthly Remittance Return of VAT and Other
Percentage Taxes Withheld). The duly validated VAT declaration/return is sufficient evidence for JJP in
claiming input tax credit. (Section 4.110-3(b) of Revenue Regulations No. 7-95)
This ruling is 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 considered null or void.
Very truly yours,
By:

Deputy Commissioner
February 14, 2001
Art. 13 RP-Netherlands 111-00; 166-00
Romulo, Mabanta, Buenaventura

Sayoc & De Los Angeles
Attorneys at Law
30th Floor, Citibank Tower, Citibank Plaza
Attention: Atty. Priscilla B. Valer and

Atty. Jayson L. Fernandez
Gentlemen :
This refers to your letter dated May 29, 2000 requesting confirmation that: (1) the transfer by
Sandworth Plaza Holding B. V. (Sandworth) of its shares of stock in Cemex Strategic Philippines, Inc.
(Cemex Philippines) to Cemex Pacific Investments B. V. (Cemex Pacific) and, subsequently, (2) the
transfer by Cemex Pacific of the same shares of stock in Cemex Philippines to Cemex Manila Investments
B.V. (Cemex Manila), are both not subject to capital gains tax imposed under Section 28(B)(5)(c) of the
National Internal Revenue Code of 1997 (Tax Code of 1997) pursuant to Article 13 (Gains From the
Alienation of Property) of the RP-Netherlands Tax Treaty.
It is represented that Sandworth, Cemex Pacific, and Cemex Manila are corporations organized and
existing under the laws of the Netherlands with one principal office at Amsteldjik 166, 1079 LH
Amsterdam, Netherlands; that Sandworth, Cemex Pacific, and Cemex Manila are not registered as
corporations or partnerships licensed to do business in the Philippines as per certifications issued by the
Securities and Exchange Commission dated May 3, 2000 (for Sandworth) and May 4, 2000 (for Cemex
Pacific and Cemex Manila); that Cemex Philippines is a company organized and existing under the laws of
the Philippines with principal office at 24th Floor, Petron Mega Plaza, 358 Sen. Gil J. Puyat Avenue,
Makati City, Philippines; and that as of September 10, 1999, Sandworth (including its nominees) owns
65,000 shares of stock in Cemex Philippines, each stock with a par value of PHP100.00.
First Transfer (Partial Demerger of Sandworth into Cemex Pacific and three other companies):
It is further represented that on September 10, 1999, in accordance with Article 334(a), paragraph
3, Book 2 of the Civil Code of the Netherlands, a Deed of Partial Demerger of Sandworth took effect
whereby Sandworth (the demerging company which did not cease to exist on the partial demerger)
transferred a part of its property, rights, interests and liabilities to: (1) Cemex Pacific Investments B. V.
(Cemex Pacific), (2) Cemex Caribe Investments B. V., (3) Cemex Caracas Investments B. V., and (4)
Cemex Global Investments B. V., (the acquiring companies that were incorporated on the demerger), under
a universal succession of title; that on June 30, 1999, in pursuance of the demerger, Sandworth assigned
and transferred 65,000 of its shares of stock in Cemex Philippines to Cemex Pacific as the former's
contribution to the latter's capital stock, and issued 200 shares of stock in Cemex Pacific to its sole
shareholder Compagnia Valenciano de Cementos, S.A. (a company organized and existing under the laws
of Spain with official seat at Hernandez de Tejada 1, 28027 Madrid, Spain), each stock with a par value of
EUR100;
Second Transfer (Merger of Cemex Pacific into Cemex Manila):
that on December 31, 1999, in accordance with Title 7, Book 2 of the Civil Code of the
Netherlands, a Deed of Merger between Cemex Pacific and Cemex Manila took effect whereby Cemex
Pacific (the company ceasing to exist on the merger) transferred all its assets and liabilities to Cemex
Manila (the acquiring company on the merger) under a universal succession of title; that as a result of the
merger, Cemex Pacific constructively assigned and transferred, among others, 65,000 of its shares of stock
in Cemex Philippines to Cemex Manila. cdrep
Based on the foregoing, it is your opinion that: (1) the transfer by Sandworth of its shares of stock
in Cemex Philippines to Cemex Pacific pursuant to a partial demerger of Sandworth into Cemex Pacific
and three other companies, and, subsequently, (2) the transfer by Cemex Pacific of the same shares of
stock in Cemex Philippines to Cemex Manila pursuant to a merger of Cemex Pacific into Cemex Manila,
are both not subject to capital gains tax imposed under Section 28(B)(5)(c) of the Tax Code of 1997
pursuant to Article 13 of the RP-Netherlands Tax Treaty.
On the first transfer, please be informed that paragraph 4, Article 13 (Gains from the Alienation of
Property) of the RP-Netherlands Tax Treaty provides:
"Article 13

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

xxx xxx xxx"
According to paragraph 4 of the aforequoted Article, gains from the alienation of property other
than: (a) immovable (real) property; (b) movable (personal) property forming part of the business property
of a permanent establishment of an enterprise or of a fixed base used for performing professional services
of an individual; and (c) ships and aircraft (and movable property related thereto), arising in the
Philippines shall be taxable only in the Netherlands.
Applying this, gains, if any, derived by Sandworth (including its nominees) from the assignment
and transfer of 65,000 of its shares of stock in Cemex Philippines to Cemex Pacific, pursuant to a partial
demerger of Sandworth into Cemex Pacific and three other companies, are exempt from capital gains tax
imposed under Section 28(B)(5)(c) of the Tax Code of 1997. (BIR Ruling No. ITAD 111-00 dated August
28, 2000) cSIACD
On the second transfer, please be informed that gains arising, if any, derived by Cemex Pacific on
the transfer of the same shares of stock in Cemex Philippines to Cemex Manila pursuant to a merger of
Cemex Pacific into Cemex Manila are in fact likewise exempt from capital gains tax pursuant to the
above-cited paragraph 4, Article 13 of the RP-Netherlands Tax Treaty. (BIR Ruling No. ITAD 166-00
dated October 30, 2000)
Although exempt from capital gains tax, both transfers, however, are subject to documentary stamp
tax (DST) imposed under Section 176 of the Tax Code of 1997 which shall be computed at P1.50 on each
P200.00 (or fractional part thereof) of the par value of Cemex Philippines' shares of stock.
Finally, Section 201 of the Tax Code of 1997 provides that "[a]n instrument, document or paper
which is required by law to be stamped and which has been signed, issued, accepted or transferred without
being duly stamped, shall not be recorded . . ." Where the appropriate documentary stamp taxes thereon
are paid to the Bureau of Internal Revenue, the Corporate Secretary of Cemex Philippines, upon
presentation to him of the respective Certificates Authorizing Registration, is authorized to record in
Cemex Philippines' Stock and Transfer Book: (1) the transfer of Cemex Philippines' shares of stock from
Sandworth to Cemex Pacific, cancel old stock certificates issued to Sandworth, and issue new stock
certificates in the name of Cemex Pacific; and (2) the transfer of Cemex Philippines' shares of stock from
Cemex Pacific to Cemex Manila, cancel old stock certificates issued to Cemex Pacific, and issue new
stock certificates in the name of Cemex Manila.
void.
Very truly yours,
By:

Deputy Commissioner
February 12, 2001
Art. 13, RP-US

RP-Russia
ITAD # 121-00

22/F Antel 1000 Corporate Center
Makati City 1227
Attention: Atty. Remigio A. Noval

Partner, Tax & Corporate Services
Atty. Carolina A. Racelis
Manager, Tax & Corporate Service
Gentlemen :
This refers to your request dated October 25, 2000 for tax treaty relief on behalf of PHILIPPINE
COMPUTER ASSOCIATES INTERNATIONAL INC. (PCAII) that its royalty payments to CA
MANAGEMENT INC. (CA-MGT) be subjected to the preferential tax rate of 15% pursuant to the
most-favored-nation-clause (MFNC) under the RP-US Tax Treaty in relation to the RP-Russia Tax Treaty.
It is represented that CA-MGT is a non-resident foreign corporation duly organized and existing
under and by virtue of the laws of the State of Delaware, USA; that it is not registered as
corporation/partnership in the Philippines as per Certification dated October 18, 2000; that PCAII is a
corporation duly organized and existing under and by virtue of the laws of the Philippines, having its
principal office at 30/F Philamlife Tower, 8767 Paseo de Roxas, Makati City; that PCAII and CA-MGT
entered into a Distributor Agreement on April 1, 1994 with Certificate of Registration No. 1606 from the
Technology Transfer Registry, Bureau of Patents, Trademarks and Technology Transfer of the Department
of Trade & Industry (DTI); that PCAII is presently withholding 25% on royalty payments to CA-MGT as
provided under the RP-US Tax Treaty.
"ARTICLE 13
ROYALTIES
other Contracting State may be taxed by both Contracting States. CTacSE
a) In the case of the United States, 15 percent of the gross amount of the royalties,
and
paid by a corporation registered with the Philippine Board of Investments and engaged
in preferred areas of activities, and
xxx xxx xxx"
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
State may be taxed in that other State;
2. However, the royalties may also be taxed in the Contracting State in which they arise and
according to the laws of the State, but the tax so charged shall not exceed 15 percent of the gross
amount of royalties.
xxx xxx xxx"
Based on the foregoing, the tax imposed on royalties derived by a resident of the United States from
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 Russia may also be taxed in the Philippines but the tax so charged
shall not exceed 15 percent 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, industrial,
commercial or scientific experience.
In the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son 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 matter 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-Russia Tax Treaty
but also in connection with the provisions on the elimination of double taxation of both the RP-US Tax
Treaty and RP-Russia Tax Treaty.
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, allowable
In view thereof and as it appears that the lowest rate of the Philippine tax imposed on royalties of
the same kind paid under similar circumstances is provided under the RP-Russia Tax Treaty, the payment
of royalties by PCAII to CA-MGT is subject to fifteen percent (15%) preferential tax rate. The said tax
rate shall be withheld and paid under similar circumstances as provided under RP-US Tax Treaty. (BIR
Ruling ITAD No. 121-00)
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. PCAII shall, before making
payment of royalties to CA-MGT, withhold and remit to this Bureau the said 10 percent VAT due thereon
by filing a separate VAT return for and on behalf of CA-MGT. 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)
DcTaEH
In fine, the royalties paid by PCAII to CA-MGT is subject to tax at the rate of 15 percent.
Furthermore, PCAII shall, on behalf of CA-MGT, withhold the 10 percent VAT due by filing a separate
VAT return for CA-MGT using BIR Form No. 1600.
disclosed or discovered that the said facts are different, then this ruling shall be considered null and void.
Very truly yours,
By:

Deputy Commissioner
February 12, 2001
RP-Japan Article 13 Sec. 176 24-99
Abello Concepcion Regala & Cruz
ACCRA Building, 122 Gamboa Street,
Legaspi Village, 0770 Makati City
Attention: Atty. Maria Teresa Sianghio-Baac
Gentlemen :
This refers to your letter dated July 17, 2000 requesting confirmation of your opinion that the gains
derived by your clients, JAIC P1B Investment Fund, JAIC P2A Investment Fund and JAIC P2B
Investment Fund (the SELLERS), from the sale of their respective shares in Macondray & Company, Inc.
(Macondray) to MCI, Inc. (MCI), are exempt from capital gains tax pursuant to the RP-Japan Tax Treaty.
It is represented that the SELLERS are partnerships duly recognized and existing under the laws of
Japan with principal address at 2-4 Kojimachi Tsuruyahachiman Building, 4 Kojimachi, 2-Chome,
Chiyoda-ku, Tokyo, Japan; that all are not registered as a corporation/partnership licensed to do business
in the Philippines as per certifications dated August 2, 2000 issued by the Securities and Exchange
Commission; that Macondray is a corporation duly organized and existing under the laws of the
Philippines; that MCI is a corporation duly organized under the laws of British Virgin Islands; that the
SELLERS are stockholders of record of Macondray; that on March 28, 2000, by virtue of the Deed of
Absolute Sale of Shares of Stock executed by the SELLERS and MCI, the SELLERS sold, ceded,
transferred and conveyed to MCI the aforementioned shares in Macondray for an aggregate amount of
Twenty Three Million Eight Hundred Thirty Five Thousand Four Hundred Seventy Two and 28/100 Pesos
(P23,835,472.28), broken down as follows:
No. of Shares Amount Shareholdings Percentage

JAIC P1B Investment Fund 735,322 P10,717,612.28 0.14%
JAIC P2A Investment Fund 450,000 P6,558,930.00 0.09%
JAIC P2B Investment Fund 450,000 P6,558,930.00 0.09%
In reply, please be informed that Article 13 of the RP-Japan Tax Treaty, provides as follows:
"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
"(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 other 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 such a fixed base, may be
taxed in that other Contracting State. SIaHDA
"(3) Gains derived by a resident of a Contracting State from the alienation of ships and
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. (emphasis supplied)
"(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."
(emphasis supplied)
Based on the above-quoted provisions, gains which will be realized by the SELLERS from the sale
of their shares of stock in Macondray to MCI shall be taxable only in Japan. However, under paragraph 4
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 Macondray disclosed that its real property
interest located in the Philippines is only 0.06% of its total assets, thereby making the assets of the same
not principally consisted of real property interest located in the Philippines.
Accordingly, your opinion that the gains derived by JAIC P1B Investment Fund, JAIC P2A
Investment Fund and JAIC P2B Investment Fund (the SELLERS) from the sale of their respective shares
in Macondray & Company, Inc. (Macondray) to MCI, Inc. (MCI) are not subject to capital gains tax is
hereby confirmed. (BIR Ruling No. ITAD 24-99 dated September 10, 2000)
However, the Deed of Absolute Sale of Shares of Stock shall be subject to the documentary stamp
tax imposed under Section 176 of the Tax Code of 1997.
Very truly yours,
By:

Deputy Commissioner
February 12, 2001
Art. 14 RP-US Tax Treaty

Art. 13 RP-Netherlands Tax Treaty
ITAD 111-00
ITAD 18-00
Romulo, Mabanta, Buenaventura

Sayoc & De Los Angeles
Attorneys at Law
30th Floor Citibank Tower, Citibank Plaza
Attention: Atty. Priscilla B. Valer and

Atty. Jeanne M. Macasaet
Gentlemen :
This refers to your letter dated September 19, 2000 requesting confirmation that the sale,
assignment and transfer by Brightpoint International, Ltd. (Brightpoint USA) of its shares of stock in
Brightpoint Philippines, Inc. (Brightpoint Philippines) to Brightpoint International Holdings B. V.
(Brightpoint IH Netherlands), and the subsequent sale, assignment and transfer by Brightpoint IH
Netherlands of the same shares of stock in Brightpoint Philippines to Brightpoint Holdings B. V.
(Brightpoint H Netherlands), are both exempt from capital gains tax imposed under Section 28(B)(5)(c) of
the National Internal Revenue Code of 1997 (NIRC 1997) pursuant, respectively, to the Reservation
Clause of Article 14 (Capital Gains) of the RP-United States Tax Treaty and to Article 13 (Gains from the
Alienation of Property) of the RP-Netherlands Tax Treaty.
It is represented that Brightpoint USA is a corporation organized and existing under the laws of the
United States of America with principal office at 1013, Centre Road, City of Wilmington 19805, County
of New Castle, State of Delaware, United States of America; that Brightpoint IH Netherlands and
Brightpoint H Netherlands are corporations organized and existing under the laws of The Netherlands
with same principal office at Aert Van Nesstraat 45, 3012 CA Rotterdam, The Netherlands; that
Brightpoint Philippines is a corporation organized and existing under the laws of the Philippines with
principal office at 1765 N. Garcia Street, San Miguel Village, Makati City, Philippines; that Brightpoint
USA and Brightpoint IH Netherlands are not registered as a corporation or partnership licensed to do
business in the Philippines as per certifications issued by the Securities and Exchange Commission
respectively dated July 17, 2000 and July 10, 2000; that as of April 18, 1998, Brightpoint USA owns
52,742 shares of stock in Brightpoint Philippines with a par value of P100.00 per share; that on April 18,
1998, for value received, Brightpoint USA, sold, assigned and transferred its 52,742 shares of stock in
Brightpoint Philippines to Brightpoint IH Netherlands; that, also, on the same date, for value received,
Brightpoint IH Netherlands subsequently sold, assigned and transferred its 52,742 shares of stock in
Brightpoint Philippines to Brightpoint H Netherlands; that on April 30, 1998, Brightpoint Philippines paid
to the Bureau of Internal Revenue the corresponding documentary stamp taxes due on the two transfers
amounting to P39,560.25 each transfer. CSIcTa
Based on the foregoing, it is your opinion that the sale, assignment and transfer by Brightpoint USA
of its shares of stock in Brightpoint Philippines to Brightpoint IH Netherlands, and the subsequent sale,
assignment and transfer by Brightpoint IH Netherlands of the same shares of stock in Brightpoint
Philippines to Brightpoint H Netherlands, are both exempt from capital gains tax imposed under Section
28(B)(5)(c) of the NIRC 1997 pursuant, respectively, to the Reservation clause of Article 14 (Capital
Gains) of the RP-United States Tax Treaty and to Article 13 (Gains from the Alienation of Property) of the
RP-Netherlands Tax Treaty.
On the first transfer, please be informed that the Reservation Clause of paragraph 2, Article 14
(Capital Gains) of the RP-United States Tax Treaty provides:
"Article 14
CAPITAL GAINS
consist principally of a real property interest located in that country. Likewise, both countries may tax
According to the aforequoted Clause, gains from the disposition of an interest in a domestic
corporation may be taxed in the Philippines if the assets of that corporation consist principally of real
property interests located in the Philippines. Section 2, Revenue Regulations No. 4-86 provides guidance
on the meaning of "consisting principally of real property interest":
it shall be understood to include real properties as understood under Philippine Laws; SEHDIC
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 its audited financial statement as of August 18, 1998, only 13.33 percent of Brightpoint
Philippines' total assets constitutes real property interests located in the Philippines. Hence, your opinion
that the sale, assignment and transfer by Brightpoint USA of its shares of stock in Brightpoint Philippines
to Brightpoint IH Netherlands are exempt from capital gains tax pursuant to the Reservation Clause of
paragraph 2, Article 14 of the RP-United States Tax Treaty is hereby confirmed. (BIR Ruling No. ITAD
111-00 dated August 28, 2000)
On the second transfer, please be informed that paragraph 4, Article 14 (Gains from the Alienation
of Property) of the RP-Netherlands Tax Treaty provides:
"Article 13

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

xxx xxx xxx"
According to paragraph 4 of the aforequoted Article, gains from the alienation of property. not in
the categories of: (a) immovable (real) property; (b) movable (personal) property forming part of the
business property of a permanent establishment of an enterprise, or of a fixed base used for performing
professional services of an individual; and (c) ships and aircraft (and movable properties related thereto),
arising in the Philippines shall be taxable only in the Netherlands. DCcHIS
Hence, your opinion that the sale, assignment and transfer by Brightpoint IH Netherlands of its
shares of stock in Brightpoint Philippines to Brightpoint H Netherlands are exempt from capital gains tax
pursuant to paragraph 4, Article 13 of the RP-Netherlands Tax Treaty is hereby confirmed. (BIR Ruling
No. ITAD 18-00 dated January 28, 2000)
Although the two transfers are exempt from capital gains tax, they are, however, subject to
documentary stamp tax (DST) imposed under Section 176, NIRC 1997 which shall be computed at P1.50
on each P200.00 (or fractional part thereof) of the par value of Brightpoint Philippines' shares of stock.
Finally, Section 201, NIRC 1997 provides that "[a]n instrument, document or paper which is
required by law to be stamped and which has been signed, issued, accepted or transferred without being
duly stamped, shall not be recorded . . ." Because the corresponding DSTs on the two transfers are paid,
the Corporate Secretary of Brightpoint Philippines, upon a presentation to him of the Certificate
Authorizing Registration, is authorized to record in Brightpoint Philippines' Stock and Transfer Book: (1)
the transfer of Brightpoint Philippines' shares of stock from Brightpoint USA to Brightpoint IH
Netherlands, cancel old stock certificates issued to Brightpoint USA, and issue new stock certificates in
the name of Brightpoint IH Netherlands; and (2) the subsequent transfer of Brightpoint Philippines' shares
of stock from Brightpoint IH Netherlands to Brightpoint H Netherlands, cancel old stock certificates
issued to Brightpoint IH Netherlands, and issue new stock certificates in the name of Brightpoint H
Netherlands.
investigation, it will be disclosed that the facts are materially different, then this ruling shall be considered
null and void. aEcADH
Very truly yours,
By:

Deputy Commissioner
February 12, 2001
Art. 10 RP-Japan ITAD 49-00
Mitsuba Philippines Realty Corporation

Lot 1, Block 14, Phase II, First Cavite Industrial Estate
Brgy. Langkaan, Dasmariñas, Cavite 4114
Attention: Mr. Takashi Nara

Director
Gentlemen :
This refers to your letter dated February 24, 2000 requesting confirmation of your opinion that
dividends to be paid by Mitsuba Philippines Realty Corporation (Mitsuba Philippines) to Mitsuba
Corporation (Mitsuba Japan) are subject to the 10 percent tax rate pursuant to Article 10 of the
Philippines-Japan Tax Treaty.
It is represented that Mitsuba Japan is a non-resident foreign corporation duly organized and
existing under the laws of Japan with principal address at 1-2681 Hirosawa, Cho Kiryu City, Gunma,
Japan; that it is not registered as a corporation or partnership in the Philippines as per Securities and
Exchange Commission certificate dated March 22, 2000; that Mitsuba Philippines is a corporation duly
organized and existing under the laws of the Philippines with principal address at Lot 1, Block 14, Phase
II, First Cavite Industrial Estate, Brgy. Langkaan, Dasmariñas, Cavite; that as of December 31, 1997 and
as of December 31, 1999, Mitsuba Japan holds 39.86 percent of the capital stock of Mitsuba Philippines;
that on July 24, 1998, the Board of Directors of Mitsuba Philippines passed and approved the declaration
of cash dividends amounting to Two Hundred Sixty-three Thousand and Seventy-eight Pesos
(P263,078.00) to be sourced from Mitsuba Philippines' retained earnings and to be paid on or before
August 31, 1998 to stockholders of record as of August 1, 1998; that, also, on March 3, 1999, Mitsuba
Philippines declared dividends amounting to Two Hundred Twelve Thousand Four hundred and Fifteen
Pesos (P212,415.00) to be paid on or before May 31, 1999 to stockholders as of May 1, 1999.
In reply, please be informed that Article 10 of the Philippines-Japan Tax Treaty provides as
follows:
"Article 10

the other Contracting State may be taxed in that other Contracting State. DEHcTI
company paying the dividends is a resident, and according to the laws of that Contracting State, but if
a) 10 per cent of the gross amount of the dividends if the beneficial owner is a
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.
"3. ...
"4. The term "dividends" as used in this Article means income from shares or other rights,
"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 Mitsuba Japan holds directly 39.86 percent of the capital stock of
Mitsuba Philippines for a period of six months before the latter declared dividends, your opinion that
dividends to be paid by Mitsuba Philippines to Mitsuba Japan are subject to the 10 percent preferential tax
rate under the Philippines-Japan Tax Treaty is hereby confirmed. The preferential tax rate shall likewise
apply to future payments of dividends by Mitsuba Philippines to Mitsuba Japan provided the latter
maintains the required 25 percent minimum shareholdings in the former for a period of six months before
the declaration of the dividends.
void. TDcHCa
Very truly yours,
By:

Deputy Commissioner
February 12, 2001
Section 106 Section 108 Section 149

DA-177-99 206-93
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 September 20, 2000 requesting reconsideration of BIR Ruling No.
ITAD-131-00 dated September 15, 2000, to the effect that the purchase of one (1) unit Honda CRV 2.0
A/T 2000 Model with Engine No. PEWD7-Y306271 and Chassis No. PADRD 1830YV206285 for the
British Embassy Defence Section is exempt from both value-added tax (VAT) and ad valorem tax, as the
said ruling is limited to exemption from VAT.
It is represented that VAT and ad valorem tax are not levied on the Philippine Embassy in the
United Kingdom on their purchase of motor vehicles; that there are only two types of taxes applicable to
suppliers of motor cars in the UK, namely: customs duty levied at 10 percent and value-added tax levied
17.5 percent; and that for the past two years, the Embassy purchased locally 3 tax free cars wherein this
Office granted VAT and ad valorem tax exemptions.
In reply, please be informed that pursuant to Article 34 of the Vienna Convention On Diplomatic
Relations, pertinent portions of which read:
"ARTICLE 34
regional, or municipal, except:
services
"xxx xxx xxx"
the tax exemption privilege of an Embassy and its diplomatic agents do not include exemption from
value-added tax (VAT) and ad valorem tax on their 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. CcAESI
However, under the principle of reciprocity, this Office may grant VAT and ad valorem tax
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. (BIR Ruling DA-177-99 dated March 23, 1999 and BIR Ruling No. 206-93 dated May 11, 1993)
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 and ad valorem taxes.
Very truly yours,
By:

Deputy Commissioner
February 12, 2001
RP-Japan Article 10 ITAD 44-99

3rd Floor, Insular Life Building
Cor. Gorordo & Gen. Maxilom Avenues
Cebu City
Attention: Lauris L. dela Peña

Tax Division
Gentlemen :
This refers to your letter dated June 05,2000, requesting confirmation of your opinion that the
dividend to be remitted by FAS Cebu Corporation (FAS) to Nissan Altia Co., Ltd. (NISSAN) is subject to
10% withholding tax and the remittance of dividends to Sanki Kogyo Co., Ltd. (SANKI) and Fujii Sangyo
Co., Ltd. (FUJII) shall be subject to 25% withholding tax pursuant to the RP-Japan Tax Treaty.
It is represented that FAS is a corporation organized and existing under the laws of the Philippines
with business address at Mactan Economic Zone, Lapu-lapu City, Cebu; that during the regular meeting of
FAS' Board of Directors held on April 03,2000, it was resolved that the portion of the 1999 unrestricted
retained earnings amounting to three million pesos (P3,000,000.00) be declared as cash dividends to all
stockholders of record as of March 31, 2000; that NISSAN, SANKI and FUJII are stockholders of FAS
from September 20, 1995, the date of incorporation, up to March 31, 2000, and their respective percentage
of ownership are as follows: 60%, 20%, 20%; that NISSAN, SANKI and FUJII are non-resident foreign
corporations, organized and existing under the laws of Japan with principal offices at Minato-ku Tokyo
Japan, Ota-ku Tokyo Japan and Fukuoka Japan, respectively; and that NISSAN, SANKI and FUJII have
no permanent establishment in the Philippines as per certification issued by the Securities and Exchange
Commission.
"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
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; CITcSH
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
xxx xxx xxx
4. The term "dividends" as used in this Article means income from shares or other rights,
5. To be entitled to the application of the 10% preferential tax rate on dividends, 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 six months immediately preceding the date of payment of the dividends.
Since NISSAN, SANKI and FUJII, respectively owns 60%, 20% and 20% of the total outstanding
stocks of FAS as of record date and having been the holder of which from September 20, 1995 to March
31, 2000, the cash dividends to be remitted by FAS to NISSAN are entitled to the 10% preferential tax rate
under Article 10(2)(a) of the RP-Japan Tax Treaty and the remittances of dividends to SANKI and FUJII
are subject to 25% preferential tax rate under Article 10(2)(b) of the same tax treaty.(ITAD 44-99)
void. AETcSa
Very truly yours,
By:

Deputy Commissioner
January 18, 2001
27 (E) RAMO 1-95

RR 09-98
The Japanese: Chamber of Commerce

and Industry in the Philippines, Inc.
6TH Floor, Jaycem Building, 104 Rada Street
Attention: Mr. Tadaomi Shimaoka

President
Gentlemen :
This refers to your request for confirmation of your opinion that the determination of the taxable
income of Philippine branches and liaison offices of the Sogo Shoshas will continue to be governed by the
provisions of the Revenue Audit Memorandum Order (RAMO) No. 1-95 and shall not be affected by the
passage of Republic Act No. 8424, otherwise known as the Tax Code of 1997.
In your letter, you underscored the rationale for the issuance and implementation of RAMO 1-95,
that is, to provide, pursuant to the RP-Japan Tax Treaty and the Commissioner's power under Section 43
(now Section 50) of the Tax Code, special guidelines and audit procedures that will render the income
taxation of the Sogo Shoshas as well as the similarly situated foreign trading companies more practical,
easy and equitable in view of the peculiar nature of their business; and that considering that no significant
changes were introduced by the Tax Code of 1997 with respect to the income taxation of resident foreign
corporations, except for the reduction in the rates, it is your opinion that the enactment and effectivity of
the Tax Code of 1997 should not affect the continued implementation of RAMO 1-95.
In reply, please be informed that the formula provided by RAMO 1-95 in computing the Philippine
income tax of Sogo Shoshas and other similarly situated foreign trading companies, which is based on
their worldwide trading activities, will continue to apply in the computation of their normal income tax
liability imposed under Section 28(A)(1) of the Tax Code of 1997 on resident foreign corporations. This is
so since RAMO 1-95 is still in conformity with the Tax Code of 1997 and is the result of negotiations long
before the said Code was passed and took effect. CaDATc
However, the Minimum Corporate Income Tax (MCIT) is introduced under Section 28(A)(2) in
relation to Section 27(E) of the Tax Code of 1997 which explicitly states that a minimum corporate
income tax of two percent (2%) of the gross income as of the end of the taxable year is imposed on
resident foreign corporations beginning on the fourth taxable year immediately following the year in
which such corporations commenced its business operations, if the MCIT is greater than the normal
income tax imposed under Section 28(A)(1) of the Tax Code, as implemented by RAMO 1-95 for
purposes of the Sogo Shoshas and other similarly situated foreign companies.
Therefore, with the introduction of the MCIT provision of the Tax Code as implemented by
Revenue Regulations (RR) No. 09-98, the Sogo Shoshas and other similarly situated multinational
enterprises shall be required to comply with the requirements of RR 09-98 for the computation of their
MCIT, on one hand, while RAMO 1-95 will continue to govern in the determination of their normal
income tax, on the other hand.
Very truly yours,
(SGD.) DAKILA B. FONACIER

Commissioner
January 17, 2001
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. Virgilio D. C. Herce
Gentlemen :
This refers to your letter dated September 25, 2000 requesting, on behalf of your client, MAXTEK
COMPONENTS CORPORATION ("Maxtek"), for tax treaty relief pursuant to the RP-US Tax Treaty.
It is represented that Maxtek is a non-resident foreign corporation duly organized and existing
under the laws of the State of Delaware; that it is not licensed to engage in business in the Philippines as
per certification dated August 30, 2000 issued by the Securities and Exchange Commission; that it has no
permanent establishment in the Philippines; that it owns Three Million Three Hundred Ninety-nine
Thousand Five Hundred (3,399,500) shares of stock (the "Shares") with a par value of P1.00 per share in
MAXTEK PHILS. CORPORATION ("Maxtek Phils."), a domestic corporation duly organized and
existing under the laws of the Philippines; that on August 02, 2000, Maxtek assigned the 3,399,500 shares
of stock to INNOVACOMM TECHNOLOGIES, INC. ("InnovaComm"), a corporation duly organized and
existing under the laws of the State of Oregon, for an aggregate consideration of Three Million Three
Hundred Ninety-nine Thousand Five Hundred Pesos (P3,399,500.00); that the assets of Maxtek Phils.
located in the Philippines do not consist principally of immovable property as shown in its latest Audited
Financial Statements (for the year ended June 30, 1999 and the five months ended June 30, 1998).
Based on the foregoing, you request confirmation of your opinion that the sale of shares by Maxtek
to InnovaComm is not taxable in the Philippines and that any gain which may have been realized by
Maxtek from its assignment 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
"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 Maxtek from the sale of its
shares of stock in Maxtek Phils. to InnovaComm, 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"
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 Statements of Maxtek Phils. disclosed that its real property
interest located in the Philippines is only 28% of its total assets, thereby making the assets of Maxtek
Phils. not principally consisted of real property interest located in the Philippines.
Accordingly, your opinion that the sale by MAXTEK COMPONENTS CORPORATION of its
shares of stock in MAXTEK PHILS. CORPORATION is not subject to Philippine income tax since the
assets of MAXTEK PHILS. CORPORATION does not consist principally of real property located in the
Philippines is hereby confirmed.
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. (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
January 17, 2001
Sec. 106 Sec. 108, Sec. 149

Canadian International Development Agency

Embassy of Canada
11th Floor, Allied Bank Center
6754 Ayala Avenue
Makati City
Gentlemen :
This refers to your letter dated September 27, 2000 requesting for a tax-free local purchase of one
(1) unit Honda CR-V and one (1) unit Toyota Tamaraw FX Revo for the official use of Business Advisory
Project in the Philippines (BAP) of the Canadian International Development Agency (CIDA) of the
Embassy of Canada.
"ARTICLE 34
services
"xxx xxx xxx"
prescribed under Sections 106 and 108, and ad valorem tax under Section 149, both of the National
However, under the principle of reciprocity, this Office may grant exemptions to the Canadian
Embassy or its personnel on their local purchases of goods and/or services it appearing from the list
Philippine Embassy personnel on their purchase of goods and services in your country. AcDaEH
Hence, the local purchase of one (1) unit Honda CR-V and one (1) unit Toyota Tamaraw FX Revo
for the official use of Business Advisory Project in the Philippines (BAP) of the Canadian International
Development Agency (CIDA) of the Embassy of Canada is exempt from VAT and ad valorem taxes based
on reciprocity. (BIR Ruling ITAD No. 35-00 dated February 4, 2000)
Very truly yours,

Deputy Commissioner
January 17, 2001
RP-Netherlands, Art. 13
NIRC Sec. 28 (B) (5) (C)
ITAD 145-00

6760 Ayala Avenue
1226 Makati City
Attention: M.F . A. BALILI

Tax Division
Gentlemen :
This refers to your letter dated April 28, 2000 requesting on behalf of your client, Pacific Bakun
Energy B.V. (PacBV), for confirmation of your opinion that the gain from sale by PacBV of its shares in
Luzon Hydro Corporation (LHC) to Pacific Hydro Broker, Inc. (PHBI) and Benguet Hydro Power
Corporation (BHC) is exempt from capital gains tax pursuant to the RP-Netherlands Tax Treaty. ICESTA
It is represented that PacBV (formerly Dorecon International B.V.) is a non resident foreign
corporation duly organized and existing under the laws of the Netherlands; that on January 1997, PacBV
under the name of Dorecon International B.V. purchased the shares held by Ever Electrical (Ever), a
Philippine company, in LHC, a corporation organized and existing under and by virtue of the laws of the
Philippines with principal office at Cebu City; that PacBV joined PHBI, a corporation duly organized and
existing under the laws of the Philippines with office address c/o Quisumbing Torres, 11th Floor Pacific
Star Building, Makati Avenue corner Sen. Gil J. Puyat Avenue, Makati City, and BHC, a corporation
organized and existing under the laws of the Republic of the Philippines with office address at the Aboitiz
Corporate Center, Archbishop Reyes Avenue, Banilad Cebu City, as stockholders of LHC with each of
them owning one third (1/3) interest in LHC; that in May 1997, PacBV established a Philippine branch
(PacBV-Branch) for purpose among others of investing in a Philippine limited partnership called Luzon
Hydro Corporation Ltd. (the partnership) and of holding shares in LHC; that PacBV-Branch, PHBI and
BHC were likewise equal partners in the Partnership; that PacBV-Branch, BHC and PHBI collectively
have a 99% limited partnership interest in the Partnership while LHC has the remaining 1% general
partnership interest; that as alleged in the Sworn Statement executed by the Corporate Secretary of LHC,
its Stock and Transfer Book reflects that on May 5, 1997, the 416,665 LHC shares were transferred from
Ever to PacBV notwithstanding the fact that PacBV-Branch was already existing at that time; that on
October 5, 2000, PacBV transferred said LHC shares in favor of its two partners, PHBI and BHC
independent of its branch per Deed of Assignment dated October 5, 2000.
In reply, pleased be informed that Article 13 of the RP-Netherlands Tax Treaty provides as follows:
"Article 13
permanent establishment (alone or together with the whole enterprise) or of such 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
"4. Gains from the alienation of any property other than those mentioned in paragraph 1, 2
and 3 shall be taxable only in the State of which the alienator is a resident. " TSacID
The situation of a parent company entering into a business transaction without the participation of
its branch is separate and distinct from the activities of the parent company for tax purposes is recognized
by the Supreme Court in the case of Marubeni vs. CIR, (G.R. No. 76573 dated September 14, 1989)
wherein it was enunciated as follows:
It is understood that the branch becomes its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal-agent relationship is set aside.
The transaction becomes one of the foreign corporation, not of the branch. Consequently, the
taxpayer is the foreign corporation, not the branch or the resident foreign corporation. Corollary, if
the business transaction is conducted through the branch office, the latter becomes the taxpayer, and
not the foreign corporation." (emphasis ours)
As represented, the LHC shares were purchased by PacBV prior to the establishment of the
PacBV-Branch, hence, the latter has no participation thereto. Accordingly, when PacBV sells its LHC
shares independently of its Philippine branch, PacBV-Branch, such transaction is that of PacBV alone and
should not be attributed to its branch.
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 paragraphs 1, 2 and 3, the gains that may be derived by PacBV from the sale of its shares of
stock in LHC in favor of its two partners, PHC and BHC, shall not be subject to Philippine income tax
under Section 28(B)(5)(c) of the Tax Code of 1997, but are subject to tax only in the Netherlands. (BIR
Ruling No. ITAD-145-00 dated October 17, 2000)
However, the said sale by PacBV to PHC and BHC is subject to documentary stamp tax in
accordance with Section 176 of the Tax Code, as amended.
void.
Very truly yours,
By:

Deputy Commissioner
Endnotes
1 (Popup - Popup)
1. Implementing the Provisions of the National Internal Revenue Code, As Amended by Republic Act No.
8424, Relative to the Imposition of Income Taxes on Income Derived under the Foreign Currency Deposit
and Offshore Banking Systems

2001 ITAD Rulings

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2001 ITAD Rulings

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December 26, 2001

ITAD RULING NO. 130-01

RP-US — Article 14 & Reservation Clause

Castillo Laman Tan Pantaleon

Attention: Atty. Eva Policar-Bautista

Very truly yours,

Commissioner of Internal Revenue

(SGD.) MILAGROS V. REGALADO

December 21, 2001

ITAD RULING NO. 129-01

RP-Japan, Art. 10 BIR Ruling No. ITAD-156-00

Sycip Gorres Velayo & Co.

Name of Stockholders Withholding

1. Kenko Company Limited ("Kenko") 10%

No. of Shares Amount of Shares percentage Amount of Cash

1. Kenko 80,220,280 80,220,280 56.89% P8,022,028.00

TOTAL P141,000,000 P141,000,000 100% P141,000,000

xxx xxx xxx

Very truly yours,

Commissioner of Internal Revenue

(SGD.) EDMUNDO P. GUEVARA

December 21, 2001

ITAD RULING NO. 128-01

Poblador Bautista & Reyes

Attention: Mr. Gilbert Raymund T. Reyes

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

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

"xxx xxx xxx"

"xxx xxx xxx"

Very truly yours,

Commissioner of Internal Revenue

(SGD.) EDMUNDO P. GUEVARA

December 19, 2001

Article 13, RP-Singapore tax treaty

Laya Mananghaya & Co.

Attention: Remigio A. Noval

Name of Stockholders Nationality No. of shares

Technitrol Singapore Holdings Singapore 324,978

Machinery and equipment P366,188,570

Very truly yours,

Commissioner of Internal Revenue

(SGD.) MILAGROS V. REGALADO

December 19, 2001

Article 13-RP-US tax treaty

Quisumbing & Torres Law Offices

Attention: Atty. Jose R. Sandejas

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

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

xxx xxx xxx

Relative thereto, Article 12(2)(b) of the RP-Netherlands tax treaty provides:

xxx xxx xxx"

Very truly yours,

Commissioner of Internal Revenue

(SGD.) EDMUNDO P. GUEVARA

ITAD RULING NO. 125-01

Sec 32 (B) (7) (a), NIRC

Embassy of the Russian Federation

Attention: Mr. Leonty D. Mikhaylov

"SEC. 32. Gross Income. —

"(7) Miscellaneous Items. —

Very truly yours,

Commissioner of Internal Revenue

(SGD.) EDMUNDO P. GUEVARA

December 13, 2001