2007 ITAD Rulings - Delegated Authority

December 28, 2007
DA ITAD BIR RULING NO. 128-07
Articles 5 & 7 of the Philippines-Singapore Tax Treaty;

BIR Ruling No. DA-ITAD 070-01
Sycip Gorres Velayo & Co.

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

Partner, Tax Services
Gentlemen :
This refers to your letter dated June 5, 2007 requesting confirmation of your opinion that the
payments made by Cummins Sales and Service Philippines Inc. (Cummins-Philippines) to Cummins
Power Generation Pte Ltd. (Cummins-Singapore) for its purchase of Gen Rental Fleet are not subject to
Philippine income tax pursuant to Article 7 in relation to Article 5 of the Philippines-Singapore tax treaty.
It is represented that Cummins-Singapore is a corporation organized and existing under the laws of
Singapore as confirmed by the Certificate of Incorporation on Change of Name of Company issued by
Mrs. Ng-Lou Geok Choo, Assistant Registrar of Companies and Businesses, Singapore; that its principal
office address is at No. 44 Pioneer Sector 2 Singapore 628395; that Cummins-Singapore is not registered
either as a corporation or as a partnership in the Philippines per Certification of Non-Registration dated
May 8, 2007 issued by the Securities and Exchange Commission; that Cummins-Philippines is a domestic
corporation with principal office address at Lots 1 & 2, Blk. 15, LIIP Ave., LIIP Mamplasan, Biñan,
Laguna.
It is further represented that on April 10, 2007, Cummins-Philippines formally accepted and
purchased the 25 units of Cummins Power Gen Rental Fleet in the total amount of US$541,l42.00; and
that the issue or transaction subject of the above application is not under investigation, on-going audit,
administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a
judicial appeal. HECaTD
In reply, please be informed that Article 7 and in relation thereto, Article 5 of the
Philippines-Singapore tax treaty provide:
"Article 7
BUSINESS PROFITS
1. The profits of art enterprise of a Contracting State shall be taxable only in that State unless
the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia (2017.1) 1
aforesaid, the profits of the enterprise may be taxed in the other State but only so much of
them as is attributable to that permanent establishment.
xxx xxx xxx."
"Article 5
PERMANENT ESTABLISHMENT
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. CSAcTa
xxx xxx xxx."
In view of the foregoing, the profits of a Singapore enterprise shall be taxable only in Singapore
unless such enterprise carries on business in the Philippines through a permanent establishment situated
therein. If the Singapore enterprise carries on business as aforesaid, the profits of such enterprise may be
taxed in the Philippines 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 its the Philippines.
Considering that Cummins-Singapore does not carry on business in the Philippines as aforesaid, as
evidenced by the Certificate of Non-Registration, 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
Cummins-Singapore from the sale of the 25 units of Cummins Power Gen Rental Fleet to
Cummins-Philippines is not subject to Philippine income tax pursuant to Article 7 in relation to Article 5
of the Philippines-Singapore tax treaty. (BIR Ruling No. DA-ITAD 070-01 dated August 16, 2001)
Moreover, such importation of goods is subject to 12% value-added tax (VAT) pursuant to Section
107 of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337. Accordingly,
Cummins-Philippines, being the resident withholding agent and payor in control of payment shall be
responsible for the withholding of the 12% final VAT on such fees before making any payment to
Cummins-Singapore. In remitting the VAT withheld, Cummins-Philippines shall use BIR Form No. 1600
(Monthly Remittance Return of Value-Added Tax & Other Percentage Taxes Withheld). The duly filed
BIR Form No. 1600 and proof of payment thereof shall serve as documentary substantiation for the claim
of input tax to be applied against the output tax that may be due from Cummins-Singapore if it is a
VAT-registered taxpayer. In addition, Cummins-Philippines is required to issue in quadruplicate the
relevant Certificate of Final Creditable Tax Withheld at Source (BIR Form No. 2306), the first three
copies for Cummins-Singapore and the fourth copy for Cummins-Philippines as its file copy. [Section
4.110-3 (b), Revenue Regulations (RR) No. 7-95, as amended by RR Nos. 4-02, 8-02, and 14-02 (now
Section 4, 114-2 (b), RR No. 16-05); Section 4.1.14 (D), RR No. 2-98, as last amended by RR No. 28-03)
This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall
be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as
the herein parties are concerned. cIECaS
Very truly yours,
Commissioner of Internal Revenue
By:
(SGD.) GREGORIO V. CABANTAC

Deputy Commissioner
Bureau of Internal Revenue
December 28, 2007
Section 23 (F) in relation to Section 42 (A) (3) and

Section 108 (A) of the National Internal Revenue Code of
1997;
Mikuni Electronics Corp.

Lot 10, Block 6, Phase II
Cavite Export Processing Zone
Rosario, Cavite
Attention: Mr. Shogo Kiga

President
Gentlemen :
This refers to your tax treaty relief application received by this Office on June 26, 2007, for the
service fees that will be paid by Mikuni Electronics Corp. (Mikuni-Phils.) to Mikuni Asia Corporation
(Mikuni-Japan).
It is represented that Mikuni-Japan is a nonresident foreign corporation organized and existing

under the laws of Japan with principal office address at 4-5-30 Chome Sakawa, Odawara City, Kanagawa,
Japan; that Mikuni-Japan is not registered either as a corporation or as a partnership in the Philippines as
shown in the Certification of Non-Registration issued by the Securities and Exchange Commission on
June 20, 2007; that Mikuni-Phils. is a corporation duly organized and existing under the laws of the
Philippines with principal address located at Lot 10, Block 6, Phase IV, Cavite Export Processing Zone,
Rosario, Cavite; that Mikuni-Phils. is a PEZA-registered enterprise under Certificate of Registration No.
01-068 issued on November 14, 2001 as an Ecozone Export Enterprise at the Cavite Economic Zone; that
Mikuni-Phils. is engaged in the manufacture of assembly of large automated deposit system units and
other electronics automated equipment; and that in a sworn certification issued by its Corporate Secretary
dated June 15, 2007, Mikuni-Phils. is not under investigation, on-going audit, administrative protest, claim
for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal.
It is further represented that on January 31, 2004, Mikuni-Japan and Mikuni-Phils. entered into a
Technical Service Contract (Contract) whereby Mikuni-Japan shall provide to Mikuni-Phils. repairs and
adjustments of the products sent by Mikuni-Phils. for marketing in Japan which are later found out to be
defective: that said products consist of automated deposit systems which are similar to ATM machines in
the Philippines; that Mikuni-Japan shall not be under any obligation to send its employees or
representatives to the Philippines; that as a consideration for the said services, Mikuni-Phils. will pay
Mikuni-Japan a fee in the amount of Two Million Five Hundred Thousand Japanese Yen
(JPY2,500,000.00) per month; that the Contract shall be valid and binding for a period of one (1) year
from the effective date, and, unless terminated in writing by either party at least thirty (30) days prior to
the date of expiration, shall be automatically renewed for successive periods of one (1) year.
In reply, please be informed that Section 23 (F) of the National Internal Revenue Code of 1997, as
amended, (Tax Code of 1997) provides: ECTAHc
"Section 23. General Principles of Income Taxation in the Philippines. — Except when otherwise
provided in this Code:
xxx xxx xxx
(F) A foreign corporation, whether engaged or not in trade or business in

the Philippines, is taxable only on income derived from sources within
the Philippines.
xxx xxx xxx"
According to Section 23 (F), a foreign corporation like Mikuni-Japan is taxable only on income
derived from sources within the Philippines. With respect to income from the provision of services, such
income is considered as derived from sources within the Philippines if the services are performed in the
Philippines, as stated in Section 42 (A) (3) of the Tax Code of 1997, quoted below:
"Section 42. Income from Sources Within the Philippines. —
A. Gross Income from Sources Within the Philippines. — The following items of gross
income shall be treated as gross income from sources within the Philippines:
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in

the Philippines;
xxx xxx xxx"
Such being the case and since the subject services will be rendered outside the Philippines, the
service fees to be paid therefore by Mikuni-Phils. to Mikuni-Japan, being income not derived from sources
within the Philippines by a foreign corporation, is exempt from Philippine income tax. (BIR Ruling
DA-ITAD-163-06 dated December 18, 2006)
Similarly, the service fees are not subject to the twelve percent (12%) VAT imposed under Section
108 (A) of the Tax Code of 1997. as amended:
"SEC 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) 1(1) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties: Provided, That the President, upon
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate
of value-added tax to twelve percent (12%),
xxx xxx xxx"
The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration. . . . .
xxx xxx xxx"
Section 108 (A) above clearly states that the sale or exchange of services subject to VAT include
only those services that are performed in the Philippines. Accordingly, since the said services will not be
performed in the Philippines, the service fees to be paid by Mikuni-Phils. to Mikuni-Japan are therefore
exempt from VAT.
the herein parties are concerned. TcHCIS
Very truly yours,
By:

Deputy Commissioner
Footnotes
1. Revenue Memorandum Circular No. 7-2006 (Publishing the Full Text of the Memorandum from Executive
Secretary Eduardo R. Ermita dated January 31, 2006 Approving the Recommendation of the Secretary of
Finance to increase the Value-Added Tax Rate From Ten Percent to Twelve Percent)
December 21, 2007
Section 23 (F) in relation to Section 42 (A) (3) of the Tax

Code of 1997, as amended; BIR Ruling No. DA-ITAD
097-05

6760 Ayala Avenue
1226 Makati City
Attention: W. U. Villanueva
Principal, Tax Services
Gentlemen :
This refers to your letter dated October 2, 2006, requesting confirmation of your opinion that:
(1) the fees paid by Taisei Corporation-Tokyo Head Office (TC-Japan) to Mitsubishi
Corporation-Tokyo Head Office (MC-Japan) for the use of or access to the ASP Service
under the ASP Hosting Services Agreement are not subject to Philippine income tax
pursuant to Philippine tax situs as well as Article 7 in relation to Article 5 of the
Philippines-Japan tax treaty; and
(2) the said fees are also not subject to value-added tax since the ASP Services are deemed
rendered outside the Philippines.
It is represented that MC-Japan is a foreign corporation organized and existing under the laws of
Japan with principal address at 6-3, Marunouchi 2-Chome, Chiyoda-ku, Tokyo, Japan; that MC-Japan is
licensed to do business in the Philippines through its branch office, Mitsubishi Corporation-Manila Branch
(MC-Philippines); that MC-Japan is engaged in the business of, among others, providing a web-based
application service, so-called the ASP, to the leading general construction companies; that TC-Japan is a
foreign corporation organized and existing under the laws of Japan with principal address at 3-25-1,
Hyakunin-cho, Shinjuku-ku, Tokyo, Japan; that TC-Japan is licensed to do business in the Philippines
through its branch, Taisei Corporation-Philippine Branch (TC-Philippines); that TC-Japan is primarily
engaged in the business of construction and civil engineering works.
It is further represented that on August 10, 2005, MC-Japan and TC-Japan executed an ASP
Hosting Services Agreement (Agreement) whereby MC-Japan allows TC-Japan the use of or access to the
ASP Services; that the Agreement was entered into directly by MC-Japan and TC-Japan in Japan without
the participation of MC-Philippines and TC-Philippines; that the payments for the use of or access to the
ASP Services will be made directly by TC-Japan to MC-Japan; that pursuant to the Agreement and the
User Terms and Conditions, the use of or access to the ASP Construction Software is granted not only to
TC-Japan but also to its authorized joint-venture partners, subcontractors, suppliers and vendors (herein
referred to as TC-Vendors) in connection with its various construction projects located mainly in Japan.
HSCAIT
Moreover, it is represented that the ASP is a business software application rental service that
provides customers (or users) access, via internet, to "project collaboration software service" and "project
information managing software service'' (collectively referred to herein as the "ASP Service"), which
allow them to have a clear view of the status of their ongoing construction work and serves as a tool for
sharing and management of construction-related information at the construction project site; that the ASP
Service covers the construction project located only in Japan, however, as a web-based application service,
the access to and use of the ASP Service can be done anytime and anywhere in the world by simply
connecting to MC-Japan's ASP Server (located in MC-Japan's premises in Japan) through the internet or
via World Wide Web, and requires an authorized and pre-determined user (herein referred to as "Users")
to log-in into said server; that TC-Japan will be able to access or use the ASP Service in the Philippines
through the following:
1) Access to or use of MC-Japan's ASP Service by TC-Japan employees sent to the Philippines
on business to work on various TC-Japan projects;
2) Access to or use of MC-Japan's ASP Service by TC-Japan employees transferred to an entity

in the Philippines.
That such employees will access MC-Japan's server located in Japan via the internet using
ID/password given to permitted users.
In reply, please be informed that the existing tax treaty between the Philippines and Japan is for the
avoidance of double taxation. inasmuch as it has been represented that all the services performed by
MC-Japan in favor of TC-Japan were done outside the Philippines, then the Philippines-Japan tax treaty
finds no application at this instance, as the transaction does not result in a case of double taxation. Section
23 (F) of the National Internal Revenue Code of 1997, as amended, (Tax Code of 1997) provides:
xxx xxx xxx
"(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines."
xxx xxx xxx"
According to Section 23 (F), a foreign corporation like TC-Japan is taxable only on income derived
from sources within the Philippines. With respect to income from the provision of services, such income is
considered as derived from sources within the Philippines if the services are performed in the Philippines,
as stated in Section 42 (A) (3) of the Tax Code of 1997, quoted below:
A. Gross Income from Sources Within the Philippines. — The following items of gross income
shall be treated as gross income from sources within the Philippines:
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in the

Philippines:
xxx xxx xxx"
Such being the case and since the subject services will be rendered outside the Philippines, the fees
to be paid therefore by TC-Japan to MC-Japan, being income not derived from sources within the
Philippines by a foreign corporation, are exempt from Philippine income tax. (BIR Ruling No. DA-ITAD
097-05 dated September 2, 2005) EAISDH
Similarly, fees are not subject to the twelve percent (12%) VAT imposed under Section 108 (A) of
the Tax Code of 1997, as amended:
"Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. —
xxx xxx xxx
The phrase 'sale or exchange of services' means the performance of all kinds of services in
the Philippines for others for a fee, remuneration or consideration. . . .
xxx xxx xxx"
Section 108 (A) above clearly states that the sale or exchange of services subject to VAT includes
performed in the Philippines, the fees to be paid by TC-Japan to MC-Japan are therefore exempt from
VAT.
the herein parties are concerned.
Very truly yours,
By:

Deputy Commissioner
Footnotes
Finance to increase the Value-Added Tax Rate from Ten Percent to Twelve Percent).
December 17, 2007
Sec. 106 & 108, Sec. 149 of the Tax Code 1997;
Article 34, Vienna Convention on Diplomatic Relations;
BIR Ruling No. DA-ITAD-097-00
Embassy of Finland
21F, BPI Buendia Center
Sen. Gil Puyat Ave.
Makati City
Gentlemen :
This has reference to your Note No. MNI5005-52 dated November 29, 2007 referred to this Office
by the Department of Finance and the Department of Foreign Affairs, requesting for the exemption from
payment of value-added tax (VAT) and ad valorem taxes on the local purchase of one (1) motor vehicle,
for the official use of the Embassy of Finland, specifically described as follows: ISTCHE
Make: Mitsubishi Pajero SUV 4X2

Model Year: 2007
Color: White
Engine Number: 4M41-MAB0682
VIN Number: PAEV45RX27B003504
C/S Number: BG-2756
In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations
reads:
"ARTICLE 34
A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
regional or municipal, except:
(a) indirect taxes of a kind which are normally incorporated in the price of goods or
services;
xxx xxx xxx"
Thus, the tax exemption privilege of an Embassy and/or its diplomatic agents does not include exemption
from value-added tax (VAT) and ad valorem tax on its local purchases of goods and services. In other
words, purchases by that Embassy and its diplomatic agents of goods and/or services shall, in general, be
subject to the value-added tax prescribed under Sections 106 and 108, and ad valorem taxes under Section
149, all of the National Internal Revenue Code of 1997. caIACE
However, applying the principle of reciprocity, this Office may confirm exemption of the Embassy
of Finland and/or its personnel on their purchases of locally-assembled motor vehicles it appearing from
the list submitted by the Department of Foreign Affairs as of November 8, 2007, that your Government
allows similar exemption to Philippine Embassy and/or its personnel on their purchase of
locally-assembled motor vehicles in your country.
Hence, the local purchase of one (1) unit of 2007 Mitsubishi Pajero SUV 4X2, for the official use
of the Embassy of Finland is exempt from value-added tax and ad valorem taxes. (BIR Ruling No. ITAD
097-00 dated August 2, 2000)
the herein parties are concerned. SCHATc
Very truly yours,
(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service
December 13, 2007
Secs. 106 & 108; Article 34, Vienna Convention on

Diplomatic Relations; BIR Ruling No. DA-ITAD-076-00
Embassy of the Czech Republic

Rufino Pacific Tower, 30F
6784 Ayala Avenue
Makati City
Attention: Ms. Radka Calabkova

First Secretary
Gentlemen :
This has reference to your Note No. 1673/2007 dated November 7, 2007 referred to this Office by
the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for the
exemption from payment of value-added tax (VAT) on the local purchase of one (1) motor vehicle, for the
personal use of Ms. Radka Calabkova, First Secretary of the Embassy of the Czech Republic, specifically
described as follows:
Make: Ford Focus 2.0L A/T

Model Year: 2007
Color: Magnetic Silver
Engine Number: CC000096
Chassis Number: PE163LAV71AV00015
reads: EHTSCD
"ARTICLE 34
services;
xxx xxx xxx"
words, purchases by that Embassy of goods and/or services shall, in general, be subject to the value-added
tax prescribed under Sections 106 and 108, all of the National Internal Revenue Code of 1997. aAcDSC
of the Czech Republic and/or its personnel on their purchases of locally-assembled motor vehicles it
appearing from the list submitted by the Department of Foreign Affairs as of August 24, 2007, that your
Government allows similar exemption to Philippine Embassy and its Personnel on their purchase of
Hence, the local purchase of one (1) unit of 2007 Ford Focus 2.0 L A/T for the personal use of Ms.
Radka Calabkova, First Secretary of the Embassy of the Czech Republic is exempt from VAT. (BIR
Ruling No. DA-ITAD-076-00 dated June 23, 2000)
the herein parties are concerned. DHcTaE
Very truly yours,

Legal Service
December 13, 2007
Secs. 106 & 108;
Embassy of the Bolivarian Republic of Venezuela

Unit 17 A, Multinational
Bancorporation Centre
6805, Ayala Avenue
Makati City
Gentlemen :
This has reference to your Note No. 219 dated November 8, 2007 referred to this Office by the
Department of Foreign Affairs (DFA), requesting for the exemption from payment of value-added tax
(VAT) on the local purchase of one (1) motor vehicle, for the official use of the Embassy of the Bolivarian
Republic of Venezuela, specifically described as follows: HaECDI
Make: Isuzu Alterra 5.1 4X4 A/T

Model Year: 2007
Color: Sterling Silver
Engine Number: 4JJ1-5EZ5768
Chassis Number: MPAUCS85H7T100152
reads:
"ARTICLE 34
services;
xxx xxx xxx"
tax prescribed under Sections 106 and 108, all of the National Internal Revenue Code of 1997. EHITaS
of the Bolivarian Republic of Venezuela and/or its personnel on their purchases of locally-assembled
motor vehicles it appearing from the list submitted by the Department of Foreign Affairs as of November
8, 2007, that your Government allows similar exemption to Philippine Embassy and its personnel on their
purchase of locally-assembled motor vehicles in your country.
Hence, the local purchase of one (1) unit of 2007 Isuzu Alterra 5.1 4X4 A/T for the official use of
the Embassy of the Bolivarian Republic of Venezuela is exempt from VAT. (BIR Ruling No.
DA-ITAD-133-03 dated August 26, 2003)
the herein parties are concerned. cSDHEC
Very truly yours,

Legal Service
December 13, 2007
Sec. 106 & 108 of the Tax Code 1997;

The Royal Thai Embassy

107 Rada Street
Legaspi Village
Makati City
Gentlemen :
This has reference to your Note No. 40001/1046 dated November 12, 2007 referred to this Office
payment of value-added tax (VAT) on the local purchase of one (1) unit motor vehicle for the official use
of the Royal Thai Embassy specifically described as follows: TcAECH
Type of Use: Official

Make: Toyota Super Grandia D-4D 2.5L A/T
Model Year: 2007
Color: White Pearl
Frame Number: JTFRS13PX00007464
Engine Number: 2KD1689458
reads:
"ARTICLE 34
"A diplomatic agent shall be exempt from all dues and taxes, personal or real, national,
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and services;
"xxx xxx xxx"
Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemption
from value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by
that Embassy of goods and/or services shall, in general, be subject to the value-added tax prescribed under
Sections 106 and 108 of the National Internal Revenue Code of 1997. AECDHS
However, applying the principle of reciprocity, this Office may confirm the exemptions to the
Royal Thai Embassy and/or its personnel on their local purchases of goods and/or services it appearing
from the list submitted by the Department of Foreign Affairs as of August 24, 2007, that your Government
allows similar exemptions to Philippine Embassy and/or its personnel on their purchase of
locally-assembled motor vehicles thereat.
Hence, the local purchase of one (1) unit of 2007 Toyota Super Grandia D-4-D 2.5L A/T for the
official use of the Royal Thai Embassy is exempt from VAT. (BIR Ruling No. ITAD-126-05 dated
October 28, 2005)
the herein parties are concerned. ASCTac
Very truly yours,

Legal Service
December 12, 2007
Embassy of Australia
23rd Floor, Yuchengco Tower, RCBC Plaza,
6819 Ayala Ave. cor. Sen. Gil Puyat Ave.,
Makati City
Gentlemen :
This has reference to your Note No. 441/07 and File No. MN94/00110 dated October 24, 2007,
referred to this Office by the Department of Finance and the Department of Foreign Affairs, requesting for
the exemption from payment of value-added tax (VAT) on the local purchase of one (1) unit motor vehicle
for the official use of the Embassy of Australia specifically described as follows: cHAaCE

Make: Ford Everest 4X2 A/T 2.5L Dura TORQ TDCi
Model Year: 2007
Color: Andaman Blue
Frame Number: MNCLS4D107W206208
Engine Number: WLAT 853710
reads: TCaAHI
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and services;
"xxx xxx xxx"
Sections 106 and 108 of the National Internal Revenue Code of 1997.
However, applying the principle of reciprocity, this Office may confirm the exemption of the
Embassy of Australia and/or its personnel on their purchases of locally-assembled motor vehicles it
appearing from the list submitted by the Department of Foreign Affairs as of August 23, 2007, that your
Government allows similar exemption to Philippine Embassy and its personnel on their purchase of
Hence, the local purchase of one (1) unit of New 2007 Ford Everest 4X2 A/T 2.5L Dura TORQ
TDCi for the official use of the Embassy of Australia is exempt from VAT. (BIR Ruling No. ITAD-19-04
dated February 23, 2004)
the herein parties are concerned. CSTHca
Very truly yours,

Legal Service
December 10, 2007
Sec. 106, 108 & 149 of the National Internal Revenue Code
of 1997; Article 34, Vienna Convention; BIR Ruling No.
DA-ITAD-109-06
Embassy of Switzerland
24/F Equitable Bank Tower
8751 Paseo de Roxas, Makati City
Gentlemen :
This has reference to your Note Verbale No. 76/2007 dated November 8, 2007, referred to this
Office by the Department of Finance (DOF) and the Office of Protocol, Department of Foreign Affairs
(DFA), requesting for a tax-free purchase on a local motor vehicle for the personal use of Ms. Stephanie
Perillard, Attache of the Embassy of Switzerland, specifically described as follows: DHSCTI
Make: Mitsubishi Strada GLS 3.2li 4x4 Pickup

Model Year: 2007
Color: Blue
Engine Number: UCAF4413
VIN Number: MMBJNKB808D004103
C/S Number: BF-6570
reads:
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of goods or
services;
"xxx xxx xxx"
Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include exemptions
from the value-added tax (VAT) and ad valorem taxes on its local purchases of goods and services. In
other words, purchases by that Embassy of goods and/or services shall, in general, be subject to the VAT
prescribed under Sections 106 and 108, and ad valorem taxes under Section 149, all of the National
Internal Revenue Code of 1997. STcaDI
However, applying the principle of reciprocity, this Office may confirm VAT exemption of the
Embassy of Switzerland or its personnel on their local purchase of motor vehicles it appearing from the
list submitted by the Department of Foreign Affairs as of August 24, 2007 that your Government allows
similar exemption to Philippine Embassy and/or its personnel on their purchases of locally-assembled
motor vehicles thereat.
Hence, the herein request for tax-free local purchase of one (1) Mitsubishi Strada GLS 3.2li 4x4
Pickup, for the personal use of Ms. Stephanie Perillard, Attache the Embassy of Switzerland, is hereby
granted. (BIR Ruling No. DA-ITAD-109-06 dated September 19, 2006)
the herein parties are concerned. HSaIDc
Very truly yours,

Legal Service
December 6, 2007
Article 10, Philippines-Sweden tax treaty;
BIR Ruling No. 070-81; DA ITAD-118-04
AstraZeneca Pharmaceuticals (Phils.), Inc.

AstraZeneca Building
Km 14 South Superhighway
Parañaque City 1700 Philippines
Attention: Josephine L. Carpio

Finance Director
Gentlemen :
This refers to your application for relief from double taxation dated August 1, 2005, requesting
confirmation of your opinion that the dividends paid by AstraZeneca Pharmaceuticals (Phils.), Inc. (AZP)
to AstraZeneca AB (AAB) are subject to the preferential tax rate of 10% pursuant to Article 10 of the
Philippines-Sweden tax treaty. caDTSE
It is represented that AAB, formerly Astra AB is a nonresident foreign corporation organized and
existing under the laws of Sweden with address at S-151 85 Sodertalje, Sweden; that it is not registered
either as a corporation or a partnership licensed to do business in the Philippines per certification dated
July 22, 2005 issued by the Securities and Exchange Commission; that AZP is a corporation organized and
existing under laws of the Philippines, with office address at AstraZeneca Building, Km. 14, Edison
Avenue, South Superhighway, Parañaque, Metro Manila; that as of December 31, 2004, AAB owns and
holds Two Million Ninety Four Thousand Nine Hundred Seventy (2,094,970) shares in AZP equivalent to
a total value of Two Hundred Nine Million Four Hundred Ninety Seven Thousand Pesos
(PhP209,497,000), representing approximately 99.98% of the total outstanding and issued shares of AZP;
and that on July 8, 2005, the Board of Directors of AZP declared cash dividends in the aggregate amount
of Two Hundred Million Pesos (PhP200,000,000.00) to all stockholders of record as of December 31,
2004 to be distributed in proportion to their respective stockholdings, payable on September 6, 2005. IaEHSD
In reply, please be informed that Article 10 of the Philippines-Sweden tax treaty provides as
follows, viz:
"Article 10
DIVIDENDS
1. Dividends paid by a company which is a resident of a Contracting State to a resident of the

other Contracting State may be taxed in that other State.
2. However, such dividends may also be taxed in the Contracting State of which the company
paying the dividends is a resident and according to the laws of that State, but if the beneficial
owner of the dividends is a resident of the other Contracting State, the tax to be charged shall
not exceed:
a) 10 per cent of the gross amount of the dividends if the beneficial owner is a
company (excluding partnerships) which holds directly at least 25 percent of
the capital of the paying company;
b) 15 per cent of the gross amount of the dividends in all other cases. HDICSa
This paragraph shall not affect the taxation of the company in respect of the profits
out of which the dividends are paid.
3. The term 'dividends' as used in this Article means income from shares or other rights, not
being debt-claims, participating in profits, as well as income from other corporate rights
which is subjected to the same taxation treatment as income from shares by the taxation law
of the State of which the company making the distribution is a resident.
xxx xxx xxx"
Based on the above-cited provisions, the 10% preferential tax rate on dividends shall apply
whenever the recipient, who is the beneficial owner of the dividends, owns at least 25% of the capital of
the paying company. In all other cases, the 15% preferential tax rate shall apply. Such being the case and
considering that AAB holds approximately 99.98% of the total outstanding and issued shares equivalent to
a total value of Two Hundred Nine Million Four Hundred Ninety-Seven Thousand Pesos
(PhP209,497,000) which is more than 25% of the capital of AZP, this Office is of the opinion and so holds
that the dividend payments by AZP to AAB shall be subject to the preferential tax rate of 10% of the gross
amount of dividends, pursuant to Article 10 (2) (a) of the Philippines-Sweden tax treaty. (BIR Ruling No.
070-81 dated April 8, 1981; DA-ITAD-118-04 dated October 27, 2004)
This ruling is issued on the basis of the facts as represented. However, if upon investigation, it shall
the herein parties are concerned. HDCAaS
Very truly yours,
By:

Deputy Commissioner
December 6, 2007
Section 23 (F) in relation to Section 42 (A) (3) and Section
108 (A) of the National Internal Revenue Code of 1997;
OM Electrolyzing Inc.
Phase III, Block 15-A, Lot 1
Cavite Economic Zone, Rosario
4106 Cavite
Attention: Mr. Yoshinobu Osugi

Managing Director
Gentlemen :
This refers to your tax treaty relief application received by this Office on June 26, 2007, for the
service fees that will be paid by OM Electrolyzing, Inc. (OM-Electrolyzing Phils.) to O.M. Co., Ltd
(OM-Japan). DSCIEa
It is represented that OM-Japan is a nonresident foreign corporation organized and existing under
the laws of Japan with principal office address at 11-1 4 Chome Wakaehigashimachi, Higashi Osaka-shi,
Osaka-fu, Japan; that OM-Japan is not registered either as a corporation or as a partnership in the
Philippines as shown in the Certification of Non-Registration issued by the Securities and Exchange
Commission on June 20, 2007; that OM-Electrolyzing Phils. is a domestic corporation with principal
address located at Phase III, Block 15-A, Lot 1 Cavite, Cavite Export Processing Zone, Rosario, 4106
Cavite; that OM-Electrolyzing Phils. is a PEZA-registered enterprise under Certificate of Registration No.
03-050 issued on July 24, 2003 as an Ecozone Export Enterprise at the Cavite Economic Zone; that
OM-Electrolyzing Phils. is engaged in the manufacture of goods such as electrolyzed refining metal; and
that in a sworn certification issued by its Corporate Secretary dated June 22, 2007, OM-Electrolyzing
Phils. is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a
tax credit certificate, collection proceedings, or a judicial appeal.
It is further represented that on March 24, 2006, OM-Electrolyzing Phils. and OM-Japan entered
into a Contract whereby OM-Japan shall provide the following Services OM-Electrolyzing Phils.:
1. Promotion or marketing of goods in Japan and other foreign clients of, which includes
making regular visits and representation with relevant corporate officers of such clients;
2. Advice and assistance in attracting new customers;
3. Advice on business plan for the succeeding years and marketing strategy;
4. Advice and assistance in maintaining and assuring product quality in accordance with the
specifications of Japanese customers;
5. Advice on the selection of suppliers from Japan for quality assurance and cost efficiency;
and
6. Assistance in the procurement of material needed for production.
That OM-Japan shall not be under any obligation to send its employees or representative to the
Philippines; that as a consideration for the said services, OM-Electrolyzing Phils. will pay OM-Japan a fee
in the amount of Two Million Five hundred Thousand Japanese Yen (JPY2,500,000.00) per month; that the
Contract shall be valid and binding for a period of one (1) year born the effectivity date, April 1, 2006 and
unless terminated in writing by either party at least thirty (30) days prior to the date of expiration, shall be
automatically renewed for successive periods of one (1) year. IDCHTE
amended, (Tax Code of 1997) provides:
"Section 23. General Principles of Income Taxation in the Philippines. —
Except when otherwise provided in this Code:
xxx xxx xxx
(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines.
xxx xxx xxx"
According to Section 23 (F), a foreign corporation like OM-Japan is taxable only on income
derived from sources within the Philippines. With respect to income from the provision of services, such
Philippines, as stated in Section 42 (A) (3) of the Tax Code of 1997, quoted below:
A. Gross Income from Sources Within the Philippines. — The following items of gross
xxx xxx xxx

Philippines;
xxx xxx xxx"
Such being the case and since the subject services will be rendered outside the Philippines, the
service fees to be paid therefor by OM-Electrolyzing Phils. to OM-Japan, being income not derived from
sources within the Philippines by a foreign corporation, is exempt from Philippine income tax. (BIR
Ruling DA-ITAD-163-06 dated December 18, 2006) EaHcDS
Similarly, the service fees are not subject to the twelve percent (12%) VAT imposed under Section
108 (A) of the Tax Code of 1997, as amended:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
xxx xxx xxx"
Philippines for others for a fee, remuneration or consideration. . . . .
xxx xxx xxx"
Section 108 (A) above clearly states that the sale or exchange of services subject to VAT include
performed in the Philippines, the service fees to be paid by OM-Electrolyzing Phils. to OM-Japan are
therefore exempt from VAT.
the herein parties are concerned. cCTaSH
Very truly yours,
By:

Deputy Commissioner
Footnotes
Finance to increase the Value-Added Tax Rate from Ten Percent to Twelve Percent) AICEDc
December 6, 2007
Article 10, Philippines-Singapore tax treaty;

SyCip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City
Attention: M. F. A. Balili
Tax Services
Gentlemen :
This refers to your application for tax treaty relief dated 22 November 2006, on behalf of your
client, ICCP Holdings, Inc. (IHI), formerly Investment & Capital Corporation of the Philippines,
requesting confirmation of your opinion that the dividends declared and paid by IHI to DBS Bank Ltd.
(DBS) are subject to the preferential tax rate of 15% pursuant to the Philippines-Singapore tax treaty. cCaSHA
It is represented that DBS, formerly known as The Development Bank of Singapore, Limited, is a
nonresident foreign corporation organized and existing under the laws of Singapore, as evidenced by its
Memorandum and Articles of Incorporation, with registered office at 6 Shenton Way, DBS Building,
Tower One, Singapore 068809; that according to the Certificate of Corporate Filing/Information dated 15
November 2006, DBS's license to transact business in the Philippines was cancelled per Certificate of
Cancellation of License of a Foreign Corporation approved on 19 February 2001; that IHI is a corporation
duly organized and existing under and by virtue of Philippine laws, with principal office address at 15/F
PSBank Centre, 777 Paseo de Roxas, Makati City, Philippines.
It is further represented that as of 30 September 2006 and 5 October 2006 DBS directly held 20%
of the voting shares of IHI based on the list of stockholders of IHI and their respective shareholdings
during the part of the Corporation's taxable year which precedes the date of payment of property dividend
on 5 October 2006, and during the whole of IHI's prior taxable year as certified to by the Corporate
Secretary on 20 July 2007; that during the meeting held on 5 October 2006, the Board of Directors of IHI
declared property dividends consisting of 700,000 common shares in Investment & Capital Corporation of
the Philippines (ICCP) in favor of all stockholders of record as of 30 September 2006; that IHI allocated
the declaration of property dividends, consisting of Seven Hundred Thousand (700,000) common shares in
ICCP as follows:
Stockholder Number of Shares as of 5 Allocation of

October 2006 (date of Property Dividends
declaration of property (700,000) common
dividends) and as of 30 shares in ICCP
September 2006
(record date)
The Philippine American 600,000 140,000

Life Insurance Co.
DBS Bank Ltd. 600,000 140,000
(formerly known as "The
Development Bank of
Singapore Limited")
BPI Capital Corporation 450,000 105,000
Abeto A. Uy 300,000 70,000
Frabelle Fishing 180,000 42,000
Corporation
Dante G. Santos 150,000 35,000
Leonardo T. Siguion-Reyna 150,000 35,000
Manila Memorial Park 150,000 35,000
Cemetery, Inc.
ICCP Managers, Inc. 300,000 70,000
Romarico G. Vitug 30,000 7,000
Antonio H. Sison 60,000 14,000
Manuel Bernabe 30,000 7,000
and that the issue/s or transaction subject of the above request for ruling is not under investigation,
on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection
proceedings, or a judicial appeal of the taxpayer/s involved.
In reply, please be informed that Article 10 of the Philippines-Singapore tax treaty provides as
follows:
"Article 10
Dividends
1. Dividends paid by a company which is a resident of a Contracting State to a resident of

the other Contracting State may be taxed in that other State.
2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the
recipient is the beneficial owner of the dividends the tax so charged shall not exceed:
a) 15 per cent of the gross amount of the dividends if the recipient is a company
(including partnership) and during the part of the paying company's taxable year
which precedes the date of payment of the dividend and during the whole of its
prior taxable year (if any), at least 15 per cent of the outstanding shares of the
voting stock of the paying company was owned by the recipient company; and
b) in all cases, 25 per cent of the gross amount of the dividends.
xxx xxx xxx
4. The term 'dividends' as used in this Article means income front shares, 'jouissance'
shares or 'jouissance' rights, mining shares, founder's shares or other rights, not being
debt-claims, participating in profits, as well as income assimilated to income from
shares by the taxation law of the State of which the company making the distribution is
a resident. IDTSaC
xxx xxx xxx"
Based on the aforequoted provisions, the 15% preferential tax rate on dividends applies whenever
the beneficial owner/recipient of the dividends owns at least 15% percent of the outstanding shares of the
voting stock of the paying company, which fifteen percent (15%) shareholdings should have existed
during the part of the paying company's taxable year immediately preceding the date of payment of the
dividends and during the whole of its prior taxable year, if any.
Since DBS held 20% percent of the total voting shares of IHI as of 30 September 2006 as evidenced
by the Certification issued by IHI's Corporate Secretary, dividends received by DBS shall be subject to the
preferential tax rate of 15%, pursuant to Article 10 (2) (a) of the Philippines-Singapore tax treaty. (BIR
Ruling No. DA-ITAD-113-06 dated 27 September, 2006)
the herein parties are concerned. caCEDA
Very truly yours,
By:

Deputy Commissioner
November 22, 2007

Makati City
Attention: Mr. Brian Holloway

Second Secretary
Gentlemen :
This has reference to your Note No. 394/07 and File No. MN94/00110 dated September 28, 2007
the exemption from payment of ad valorem and value-added taxes (VAT) on the local purchase of one (1)
unit motor vehicle for the official use of the Embassy of Australia specifically described as follows:

Make: Toyota Previa (STD) 2.4L A/T
Model Year: 2007
Color: Silver Metallic
Frame Number: JTEGD54MX0A003250
Engine Number: 2AZ2775921
reads: cCHITA
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the
goods and services;
"xxx xxx xxx"
Sections 106 and 108 of the National Internal Revenue Code of 1997. aSCHcA
Embassy of Australia and/or its personnel on their local purchases of goods and/or services it appearing
Hence, the local purchase of one (1) unit of 2007 Toyota Previa (STD) 2.4L A/T for the official use
of the Embassy of Australia is exempt from VAT and ad valorem taxes. (BIB Ruling No. ITAD-19-04
dated February 23, 2004)
the herein parties are concerned. THESAD
Very truly yours,

Deputy Commissioner
November 22, 2007
BIR Ruling No. ITAD-19-04
Makati City
Attention: Mr. Matthew William John Harrison

Third Secretary
Gentlemen :
This has reference to your Note No. 410/07 and File No. MN94/00109 dated October 5, 2007
unit motor vehicle for the personal use of Mr. Matthew William John Harrison, Third Secretary of the
Embassy of Australia specifically described as follows:
Make: Honda Civic 1.8S A/T

Model Year: 2007
Color: Alabaster Silver
Frame Number: PADFD16407V105345
Engine Number: RNGD64-7105326
reads: DHcEAa
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;
"xxx xxx xxx"
from VAT and ad valorem tax on its local purchases of goods and services. In other words, purchases by
that Embassy of goods and/or services shall in general, be subject to the value-added tax prescribed under
Sections 106 and 108, and ad valorem taxes under Section 149, all of the National Internal Revenue Code
of 1997. cSaATC
Embassy of Australia or its personnel on their local purchases of goods and/or services it appearing from
the list submitted by the Department of Foreign Affairs as of August 24, 2007, that your Government
Hence, the local purchase of one (1) unit of 2007 Honda Civic 1.8S A/T for the personal use of Mr.
Matthew William John Harrison, Third Secretary of the Embassy of Australia is exempt from VAT and ad
valorem tax. (BIR Ruling No. ITAD-19-04 dated February 23, 2004)
the herein parties are concerned. HSaEAD
Very truly yours,

Deputy Commissioner
November 20, 2007
Paragraph 4 (a), Diplomatic Exchange of Notes dated May

6, 2002; Art 5, Agreement between the Govt. of the Federal
Republic of Germany and the Govt. of the Republic of the
Philippines;
Sec. 109 (k), National Internal Revenue Code of 1997, as
amended;
Embassy of the Federal Republic of Germany

25th Floor, The RCBC Plaza, Tower 2
6819 Ayala Avenue
Makati City
Attention: Klaus Tesch

First Secretary
Gentlemen :
This has reference to your Note Verbale WZ 445.11/Auto KFZ No. 087/2007 dated September 14,
2007 indorsed to this Office by the Department of Finance and the Department of Foreign Affairs (DFA),
Office of Protocol, requesting for exemption from payment of taxes on the local purchase of one (1) motor
vehicle, for the official use of the Private Sector Development Program under the project of GDC-GTZ
Office of the German Embassy, specifically described as follows: ISCDEA
Type of use: Official use

Organization: German Development
Cooperation-German Technical Cooperation
(GDC-GTZ) 9/F, PDCP Bank Center, L.P. Leviste
corner V.A. Rufino Streets, Salcedo Village, Makati
City
Make: one (1) unit Toyota Innova E Diesel 2.5L M/T
Model year: 2007
Color: Silver Ash
Engine No.: 2KD-9947277
Frame No.: KUN40-5018277
In reply, please be informed that Section 109 of the National Internal Revenue Code of 1997
(NIRC), as amended by Section 7 of Republic Act No. 9337 dated November 1, 2005, provides, viz: aDcHIS
"SEC. 109. Exempt Transactions. — Subject to the provisions of Subsection (2) hereof, the
following transactions shall be exempt from the value-added tax:
xxx xxx xxx
(K) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree No. 529;"
SHCaEA
Based on the Section 109 above, a transaction is exempt from VAT when a special law or an
international agreement to which the Philippines is a signatory provides for such exemption. The
Agreement between the Government of the Federal Republic of Germany and the Government of the
Republic of the Philippines Concerning Technical Co-operation 1(4) executed on September 7, 1971, with
Diplomatic Exchange Notes dated May 6, 2002 partakes the nature of an international agreement as
required under Section 109. Paragraph 4 (a) of the Diplomatic Exchange of Notes dated May 6, 2002 and
which provides as follows, is, in effect, a grant of exemption from VAT:
"4. The Government of the Republic of the Philippines shall make the following
contributions:
It shall
(a) exempt the material and motor vehicles supplied for the Office from taxes, licenses, harbour
dues, import and export duties and other public charges, as well as storage fees, and ensure
that such material is cleared by customs without delay. The aforementioned exemptions
shall, with regard to value-added tax (VAT), also apply to material and services (including
consulting services) procured in the Republic of the Philippines, as well as to the renting of
office premises and accommodation for seconded experts; (Emphasis supplied) ADaSEH
In view thereof, this Office is of the opinion and so holds that the purchases made by GDC-GTZ of
materials and motor vehicles in the Philippines under the Agreement between the Government of the
Federal Republic of Germany and the Government of the Republic of the Philippines Concerning
Technical Co-operation executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6,
2002, are exempt from VAT, pursuant to Sec. 109 (K) of the NIRC of 1997, as amended.
Hence, your herein request for exemption from VAT and ad valorem taxes on the local purchase of
one (1) unit Toyota Innova E Diesel 2.5L M/T, for the official use of the Private Sector Development
Program under the project of GDC-GTZ is hereby granted. (BIR Ruling No. DA-ITAD-149-05 dated
November 30, 2005) ACETID
Very truly yours,

Deputy Commissioner
Footnotes
1. Article 1 of the Agreement states that the Contracting Parties "may conclude arrangements concerning
individual projects of technical co-operation."
November 20, 2007
Sec. 109 — National Internal Revenue Code 1997;

Article III, Section 10 — Vienna Convention on the
Privileges and Immunities of the Specialized Agencies of
the United Nations; BIR Ruling No. DA-ITAD-155-06
United Nations Children's Fund (UNICEF)

31st Floor, Yuchengco Tower
RCBC Plaza, 6819 Ayala Avenue
1200, Makati City
Attention: Colin Davis

Deputy Representative
Gentlemen :
This refers to your letter MA/DFA#07-0154 dated September 21, 2007, indorsed to this Office by
exemption from payment of value-added tax (VAT) on the local purchase of one (1) motor vehicle, for the
official use of the City Government of Davao under the project of the United Nations Children's Fund
(UNICEF), specifically described as follows: DaAIHC
Make: One (1) Toyota Hi Lux 4X4 3.0 Diesel M/T

Model Year: 2007
Color: Lithium
Engine Number: 1KD-7375959
Chassis Number: MROFZ29G501704766
(NIRC), as amended by Section 7 of Republic Act No. 9337 dated November 1, 2005, provides as follows:
AHSEaD
xxx xxx xxx
(k) Transactions which are exempt under international agreements to which the
In relation thereto, Section 10, Article III of the Convention on the Privileges and Immunities of the
Specialized Agencies of the United Nations dated November 21, 1947 provides: ESHAcI
"Article III
xxx xxx xxx
Section 10
While the specialized agencies will not, as a general rule, claim exemption from excise
duties and from taxes on the sale of movable and immovable property which form part of the price
to be paid, nevertheless when the specialized agencies are making important purchases for official
use of property on which such duties and taxes have been charged or chargeable, States parties to
this Convention will, whenever possible, make appropriate administrative arrangements for the
remission or return of the amount of duty or tax. (Emphasis supplied)
xxx xxx xxx"
Based on the above provisions, important purchases of property (goods) in the Philippines for
official use of the specialized agencies of the United Nations (UN) are accorded exemption from indirect
taxes such as the VAT imposed under Section 107 of the NIRC. cSEAHa
Such being the case, and since UNICEF is a specialized agency of the UN, this Office is of the
opinion and so holds that aforementioned purchase of one (1) unit 2007 Toyota Hi Lux 4X4 3.0 Diesel
M/T for the official use of the City Government of Davao under the project of UNICEF, is exempt from
VAT.
It is hereby understood that this exemption applies only to vehicles purchased under the name of
UNICEF for its official use.
the herein parties are concerned. cAaDCE
Very truly yours,
By:

Deputy Commissioner
November 20, 2007

Makati City
Gentlemen :
the exemption from payment of value-added tax (VAT) on the local purchase of one (1) unit motor vehicle
for the official use of the Embassy of Australia specifically described as follows: ATaDHC

Make: New Chevrolet Tahoe LS 4X2
Model Year: 2007
Color: Onyx Black
Frame Number: 1GNFC13J17J384636
Engine Number: C7J384636
reads: HIaTCc
"ARTICLE 34
goods and services;
"xxx xxx xxx"
from value-added tax (VAT) on its local purchases of goods and
Sections 106 and 108 of the National Internal Revenue Code of 1997. EAcHCI
Embassy of Australia and/or its personnel on their local purchases of goods and/or services it appearing
Hence, the local purchase of one (1) unit of 2007 New Chevrolet Tahoe LS 4X2 for the official use
of the Embassy of Australia is exempt from VAT. (BIR Ruling No. ITAD-19-04 dated February 23, 2004)
the herein parties are concerned. SaIHDA
Very truly yours,

Deputy Commissioner
November 20, 2007
Sec 106 & 108, Sec 149 of the Tax Code 1997;
Makati City
Attention: Mr. Jayne Mary Williams

Third Secretary
Gentlemen :
unit motor vehicle for the personal use of Ms. Jayne Mary Williams, Third Secretary of the Embassy of
Australia specifically described as follows: ISDCaT

Model Year: 2007
Color: Night Hawk Black
reads:
"ARTICLE 31
"(a) indirect taxes of a kind which are normally incorporated in the price of goods
or services; AaITCS
"xxx xxx xxx"
of 1997.
the list submitted by the Department of Foreign Affairs as of August 24, 2007, that your Government
Hence, the local purchase of one (1) unit of 2007 Honda Civic 1.8S A/T for the personal use of Ms.
Jayne Mary Williams, Third Secretary of the Embassy of Australia is exempt from VAT and ad valorem
tax. (BIR Ruling No. ITAD-19-04 dated February 23, 2004)
This ruling is issued on time basis of the facts as represented. However, if upon investigation it
shall be disclosed that the actual facts are different, then this ruling shall be without force and effect
insofar as the herein parties are concerned. ISEHTa
Very truly yours,

Deputy Commissioner
November 20, 2007
Sec 109 — National Internal Revenue Code 1997;
Article III, Section 10 — Vienna Convention on the
Privileges and Immunities of the Specialized Agencies of
the United Nations;
United Nations Children's Fund (UNICEF)

31st Floor, Yuchengco Tower
RCBC Plaza, 6819 Ayala Avenue
Makati City
Attention: Colin Davis

Deputy Representative
Gentlemen :
This refers to your letter dated August 6, 2007, indorsed to this Office by the Department of
Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for the exemption from payment
of value-added tax (VAT) on the local purchase of one (1) motor vehicle, for the official use of the United
Nations Children's Fund (UNICEF), specifically described as follows: SEcITC
Make: One (1) Toyota Hi Lux 4X4 3.0 Diesel M/T

Model Year: 2007
Color: Lithium
Chassis Number: MROFZ29G701546205
(NIRC), as amended by Section 7 of Republic Act No. 9337 dated November 1, 2005, provides as follows:
xxx xxx xxx
AHaDSI
In relation thereto, Section 10, Article III of the Convention on the Privileges and Immunities of the
Specialized Agencies of the United Nations dated November 21, 1947 provides:
"Article III
xxx xxx xxx
Section 10
remission or return of the amount of duty or tax.(Emphasis supplied) DAETcC
xxx xxx xxx"
Based on the above provisions, important purchases of property (goods) in the Philippines for
official use of the specialized agencies of the United Nations (UN) are accorded exemption from indirect
taxes such as the VAT imposed under Section 107 of the NIRC.
Such being the case, and since UNICEF is a specialized agency of the UN, this Office is of the
opinion and so holds that aforementioned purchase of one (1) unit 2007 Toyota Hi Lux 4X4 3.0 Diesel
M/T for the official use of UNICEF, is exempt from VAT.
UNICEF for its official use.
the herein parties are concerned. DcSEHT
Very truly yours,
By:

Deputy Commissioner
November 20, 2007
Secs. 106 & 108 of the National Internal Revenue Code of

1997;
Article 34 of the Vienna Convention;
Embassy of the United States of America

1201 Roxas Boulevard
Manila
Attention: Mr. Scott McDonald

Contracting Officer
Gentlemen :
This has reference to your Note Verbale No. 1265 dated September 25, 2007 referred to this Office
by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for a
tax-free purchase of one (1) locally assembled motor vehicle described hereunder for official use by the
Embassy of United States of America: HSaIET

Make: Ford Ranger 4X4 M/T XLT
Model Year: 2007
Color: Highlight Silver/T Gray
Chassis Number: MNCLSFE907W616355
Engine Number: WEAT 112334
reads: ECTAHc
"ARTICLE 34
services;
"xxx xxx xxx"
Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include
exemption from the value-added tax (VAT) on its local purchases of goods and services. In other words,
purchases by that Embassy of goods/and/or services shall, in general, be subject to the value-added tax
prescribed under Sections 106 and 108, both of the National Internal Revenue Code of 1997. AcICHD
of the United States of America and/or its personnel on their purchases of locally-assembled motor
vehicles it appearing from the list submitted by the Department of Foreign Affairs as of August 24, 2007,
that your Government allows similar exemption to Philippine Embassy and its personnel on their purchase
of locally-assembled motor vehicles in your country.
Hence, the herein local purchase of one (1) unit of 2007 Ford Ranger 4X4 M/T XLT for the official
use of the Embassy of the United States of America is exempt from VAT. (BIR Ruling No. ITAD-13-00
dated January 24, 2000)
the herein party is concerned. CSIDEc
Very truly yours,

Deputy Commissioner
November 16, 2007
Article 10, Philippines-Netherlands tax treaty;

BIR Ruling No. ITAD 029-01
Trilux Electronics & Luminaires, Inc.

Special Economic Zone
Laguna International & Industrial Park
Block 5, Lot 7, CNB Street, 4024 Mamplasan
Biñan Laguna, Philippines
Attention: Mr. Roger Balicao
Gentlemen :
This refers to your application for tax treaty relief dated July 14, 2006, requesting confirmation that
the cash dividends to be paid by Trilux Electronics and Luminaires, Inc. (Trilux Philippines) to Trilux
International Holding B.V. (Trilux Netherlands) are subject to the preferential tax rate of 10% pursuant to
Article 10 (2) (a) of the Philippines-Netherlands tax treaty. THIcCA
It is represented that Trilux Netherlands is a nonresident foreign corporation organized and existing
under the laws of the Netherlands with office address at Hardwareweg 5, NL-3821 BL Amersfoort, the
Netherlands; that it is not registered either as a corporation or as a partnership in the Philippines per
certification dated December 7, 2005 issued by the Securities and Exchange Commission; that Trilux
Philippines is a corporation duly organized and existing under and by virtue of Philippine laws, with
principal office address at Block 5, Lot 7, Laguna International & Industrial Park, Mamplasan, Biñan
Laguna, Philippines. ICTaEH
It is further represented that as of October 31, 2005, Trilux Netherlands is the registered owner of
approximately 99.98% of the total outstanding shares of Trilux Philippines or Thirty Thousand (30,000)
common shares with a par value of One Thousand Pesos (PhP1,000.00), such shareholding having a total
value of Thirty Million Pesos (PhP30,000,000.00); that on November 7, 2005, the Board of Directors of
Trilux Philippines declared cash dividends at the rate of US$33.33333 for each outstanding share,
provided that the total amount of cash dividends will not exceed the amount equivalent to One Million
One Hundred Thousand US Dollars (US$1,100,000.00), out of the unrestricted retained earnings of Trilux
Philippines as of October 31, 2005, in favor of the stockholders of record as of November 10, 2005; and
that the issue/s or transaction subject of the above request for ruling is not under investigation, on-going
audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings,
or a judicial appeal of the taxpayer/s involved. cDCEHa
In reply, please be informed that Article 10 of the Philippines-Netherlands tax treaty provides as
follows:
"Article 10
DIVIDENDS
1. Dividends paid by a company which is a resident of one of the States to a resident of the
other State may be taxed in that other State.
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:
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; ECTIHa
b) 15 per cent of the gross amount of the dividends in all other cases.
xxx xxx xxx
5. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or
'jouissance' rights, mining shares, founders' shares or other rights participating in profits, as
well as income from debt-claims participating in profits and income from other corporate
rights which is subjected to the same taxation treatment as income from shares by the
taxation law of the State of which the company making the distribution is a resident. EACIcH
xxx xxx xxx"
Based on the above-cited provision, the 10 percent preferential tax rate on dividends applies
whenever the beneficial owner of the dividends owns at least 10 percent of the capital of the paying
company. In all other cases, the 15 percent preferential tax rate applies. Such being the case and
considering that Trilux Netherlands holds 99.98% of the total outstanding shares subscribed in Trilux
Philippines the value of which is at least 10% of the capital of Trilux Philippines, this Office is of the
opinion and so holds that the dividend payments by Trilux Philippines to Trilux Netherlands shall be
subject to the preferential tax rate of 10 percent, based on the gross amount of dividends, pursuant to
Article 10 (2) (a) of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD 029-01 dated March 12,
2001)
the herein parties are concerned. ADTEaI
Very truly yours,
By:

Deputy Commissioner
November 16, 2007
Art. 11, Philippines-Netherlands tax treaty;

Angara Abello Concepcion Regala Cruz

Law Offices
ACCRA Building
122 Gamboa St., Legaspi Village
0770 Makati City
Attention: Ruby Rose J. Yusi

Rudyard S. Arbolado
Elaine Patricia S. Reyes
Gentlemen :
This refers to your letter dated January 22, 2007 on behalf of your client,
BELEGGINGSMAATSCHAPPIJ BROEM B.V. (hereinafter referred to as "BBBV"), requesting
confirmation that the interest income on the loan obtained by Asset Pool A (SPV-AMC) Inc. (hereinafter
referred to as "APA") from BBBV shall be subject to the preferential tax rate of fifteen percent (15%)
pursuant to Article 11 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 (Philippines-Netherlands). cDICaS
It is represented that BBBV is a nonresident foreign corporation duly organized and existing under
the laws of the Netherlands with office address at Naritaweg 165, 1043 BW Amsterdam as certified by the
Tax Customs Administration of the Netherlands on November 13, 2006; that it is not registered either as a
corporation or as a partnership per Certification of Non-registration of Corporation/Partnership issued by
the Securities and Exchange Commission dated January 16, 2007; that, on the other hand, APA is a
corporation duly organized and existing under the laws of the Philippines with office address at Units
1115-1116, Ayala Tower One and Exchange Plaza, Ayala Triangle, Ayala Avenue corner Paseo de Roxas,
Makati City; that APA is organized as a special purpose vehicle corporation under Republic Act No. 9182
otherwise known as the Special Purpose Vehicle Act of 2002. HETDAC
It is further represented that BBBV and APA executed two (2) loan agreements whereby BBBV
extended loans to APA as follows: 1) loan agreement dated September 30, 2005 in the principal amount of
Fifty-one Million Six Hundred Thousand United States Dollars (US$51,600,000.00) at the rate of 13.5%
per annum, and, 2) loan agreement dated July 6, 2006 for an additional amount of Twenty-five Million
Five Hundred Thousand United States Dollars (US$25,500,000.00) at the rate of 13.5% per annum; that
both loans were respectively approved by the Bangko Sentral ng Pilipinas (BSP) on September 1, 2005
and May 12, 2006, and that the transaction subject of the above request is not under any investigation or
on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection
proceedings, or a judicial appeal. CTSHDI
In reply, please be informed that Article 11 of the Philippines-Netherlands tax treaty provides, viz:
"Article 11
INTEREST
1. Interest arising in one of the States and paid to a resident of the other State may be
taxed in that other State.
2. However, such interest may also be taxed in the State in which it arises and according
to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged
shall not exceed:
a) 10 per cent of the gross amount if such interest is paid:
(i) in connection with the sale on credit of any industrial, commercial or

scientific equipment, or
(ii) on any loan of whatever kind granted by a bank, or any other financial
institution, ADHCSE
(iii) in respect of public issues of bonds, debentures or similar obligations,
b) 15 per cent of the gross amount of the interest in all other cases.
3. Notwithstanding the provisions of paragraph 2:
a) interest arising in one of the States and paid in respect of a bond, debenture or
other similar obligation of the Government of that State or of a political
subdivision or local authority thereof shall be exempt from tax in that State;
b) interest arising in one of the States and paid in respect of a loan made by or
guaranteed or insured by the Government of the other State the central bank
of that other State or any agency or instrumentality (including a financial
institution) owned or controlled by that Government shall be exempt from tax
in the first-mentioned State. AHCETa
xxx xxx xxx
5. The term "interest" as used in this Article means income from Government securities,
bonds or debentures, whether or not secured by mortgage but not carrying a right to participate in
profits, and debt-claims of every kind as well as all other income assimilated to income from money
lent by the taxation law of the State in which the income arises. Penalty charges for late payment
shall not be regarded as interest for the purpose of this Article.
6. The provisions of paragraphs 1, 2 and 3 shall not apply if the recipient of the interest,
being a resident of one of the States, carries on in the other 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. cDAEIH
xxx xxx xxx"
Based on the foregoing, interest arising from the Philippines and paid to a resident of the
Netherlands which does not have a permanent establishment in the Philippines will be taxed at a
preferential rate not exceeding ten percent (10%) of the gross amount of interest if paid in connection with
the sale on credit of any industrial, commercial or scientific equipment, or, on any loan of whatever kind
by a bank or any other financial institution, or, with respect to public issues of bonded indebtedness; or
exempt from income tax if the interest is derived, guaranteed or insured by the Netherlands government or
an instrumentality thereof or by other institutions as may be mutually agreed upon by the competent
authorities of the Philippines and the Netherlands. In all other cases, a tax rate not exceeding fifteen
percent (15%) of the gross amount of interest shall apply. TADIHE
Such being the case, this Office is of the opinion and so holds that since BBBV is not engaged in
business in the Philippines through a permanent establishment situated therein, and the interest is neither
with respect to public issues of bonded indebtedness nor derived, guaranteed or insured by the Netherlands
government or an instrumentality thereof, the interest income to be paid by APA to BBBV under the 2
subject loan agreements shall both be subject to a preferential tax rate of 15%, based on the gross amount
thereof pursuant to Article 11 (2) (b) of the Philippines-Netherlands tax treaty. (BIR Ruling No.
ITAD-123-02 dated July 17, 2002)
Moreover, the subject loan agreements shall be subject to the documentary stamp tax imposed
under Section 179 of the National Internal Revenue Code of 1997 (Tax Code), as amended. The same Tax
Code also 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 full amount of the documentary stamp tax due is
placed upon the parties to the contract and leaves the tax to be paid indifferently by either of the parties.
Provided, however, that as between themselves, the said parties may agree on who shall be liable or how
they may share on the cost of the tax. However, whenever one of the parties to the taxable transaction is
exempt from the tax, the other party thereto who is not exempt shall be the one directly liable to the tax.
(Section 3 (a) and (b), Revenue Regulations (RR) No. 9-2000) TSCIEa
In the case, however, of the documentary stamp tax on certificates of indebtedness/loan agreements,
the tax shall be remitted by the person who issued the instrument. (Section 3 (c) (1), RR 9-2000)
In view thereof, the documentary stamp tax (including penalties thereto, if there are any) on the
loan agreements must be paid and the corresponding return thereon be filed by BBBV in accordance with
the provisions of the Revenue Regulations No. 9-2000 (Mode of Payment and/or Remittance of the
Documentary Stamp Tax (DST) under Certain Conditions) and the Tax Code, as amended.
This ruling is issued on the basis on the facts as represented. However, if upon investigation it shall
the herein parties are concerned. HAaDTE
Very truly yours,
By:

Deputy Commissioner
November 16, 2007
Article 13 (b) (iii) of the Philippines-United States tax

treaty
Article 12 (2) (b) of the Philippines China tax treaty
RMC 46-2002
Isla Lipana & Co.

29th Floor Philam Tower
8767 Paseo de Roxas
1226 Makati City
Attention: Ms. Mary Assumption S. Bautista-Villareal

Gentlemen :
This refers to your letter dated October 16, 2006, on behalf of your client, Krispy Kreme Doughnut
Corporation (KKDC), requesting confirmation of your opinion that the royalties received by KKDC under
the Franchise Agreement it entered into with The Real American Doughnut Company (RADC), are subject
to a 10% preferential tax rate, pursuant to the most favored nation clause of the Philippines-United States
of America (Philippines-United States) tax treaty in relation to the Philippines-China tax treaty.
It is represented that KKDC, with office address at 370 Knollwood Street Suite 500,
Winston-Salem, NC, USA 27103 is a US corporation and a resident of the United States of America for
purposes of U.S. taxation with TIN Number 56-1318322, as certified on September 11, 2006 by the Field
Director, Philadelphia Accounts Management Center, Department of Treasury, Internal Revenue Service,
Philadelphia, PA.; that, it is not registered either as a corporation or as a partnership in the Philippines per
certification issued by the Securities and Exchange Commission dated October 16, 2006; that RADC is a
corporation duly organized and existing under the laws of the Philippines with principal address at 4/F
Salustiana D. Ty Bldg., Paseo de Roxas St., Makati City 1226.
It is further represented that on April 26, 2006, KKDC and RADC entered into an International
Franchise Agreement (Agreement) wherein KKDC grants RADC the right to use KKDC's system for a
term of fifteen (15) years solely in connection with the conduct and operation of the STORE; 1(5) that as a
consideration of the right granted, RADC shall pay KKDC, an initial franchise fee plus royalties based on
the gross sales of the Krispy Kreme Store; and that the issue and transaction subject of the request for
ruling filed on behalf of KKDC is not subject of any tax investigation or audit, administrative protest,
claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal per
certification issued by RADC dated December 19, 2006.
In reply please be informed that Article 13 of the Philippines-United States tax treaty provides as
follows:
"Article 13
Royalties
1. Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States. EAICTS
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
(ii) 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)
(c) in all other cases, 25 percent of the gross amount of the royalties.
3. The term 'royalties' as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literary, artistic or scientific
work, including cinematograph films or tapes for television or broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to
use, industrial, commercial or scientific equipment, or for information concerning industrial,
commercial or scientific experience. 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 hereof.
"xxx xxx xxx"
In relation thereto, Article 12 of the Philippines-China tax treaty provides, viz:
"Article 12
Royalties
1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other State.
2. However, such, royalties may also be taxed in the Contracting State in which they arise and
according to the laws of that State, but if the recipients is the beneficial owner of the
royalties, the tax so charged shall not exceed: HSaCcE
(a) 15 percent of the gross amount of the royalties arising from the use of, or the
right to use, any copyright of literary, artistic or scientific work including
cinematograph films or tapes for television or broadcasting, or
(b) 10 percent of the gross amount of royalties arising from the use of, or the
right to use, any patent, trademark, design, or model, plan, secret formula or
process, or from the use of, or the right to use, industrial, commercial, or
scientific equipment, or for information, concerning industrial, commercial or
scientific experience (Emphasis supplied)
Based on the above-mentioned provisions, the tax imposed on royalties derived by a resident of the
United States from sources within the Philippines shall be the lowest rate of Philippine tax that may be
imposed on royalties of the same kind and paid under similar circumstances to a resident of a third State.
Relative thereto, it is noteworthy that under Article 12 (2) (b) of the Philippines-China tax treaty, the tax
charged shall not exceed 10% of the gross amount of royalties arising from the use of, or the right to use,
any patent, trademark, design or model, plan, secret formula or process, or from the use of, or the right to
use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial
or scientific experience.
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" under the
Philippines-United States tax treaty, as referring to the manner of payment of taxes and not to the subject
matter of the tax which is royalties. (BIR Ruling No. DA-ITAD-142-03 dated September 23, 2003)
In connection with the manner of payment of taxes, Article 23 of the Philippines-United States 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 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 Philippines-China tax treaty provides, viz:
Article 23
METHODS FOR THE ELIMINATION OF DOUBLE TAXATION
1. In China, double taxation shall be eliminated as follows: CHcESa
Where a resident of China derives income from the Philippines the amount of tax on that income
payable in the Philippines in accordance with the provisions of this Agreement, may be credited
against the Chinese tax imposed on that resident. The amount of the credit, however, shall not
exceed the amount of Chinese tax on that income computed in accordance with the taxation laws
and regulations of China.
xxx xxx xxx
Article 23 of the Philippines-United States tax treaty and Article 23 of the Philippines-China tax
treaty, though differently worded, plainly reveal a similarity in the provisions on relief from or avoidance
of double taxation to their respective residents. Thus, the tax on royalty payments to residents of US and
China are paid under similar circumstances, i.e., the amount of royalty income tax paid or accrued to the
Philippine under the respective tax treaties is available as tax credit against the income tax payable in their
respective countries. US residents may, therefore, invoke the preferential tax rate of 10% on royalties,
accruing beginning January 1, 2002, 2(6) arising in be Philippines "from the use of, or the right to use, any
patent, trade mark, design or model, plan, secret formula or process, . . ., or for information concerning
industrial, commercial or scientific experience" under the Philippines-China tax treaty, pursuant to the
"most-favored-nation" clause of the .Philippines-United States tax treaty.
Such being the case, this Office is of the opinion and so holds that the royalty payments of KKDC
to RADC under the subject Agreement are subject to a final withholding tax at the rate of 10% pursuant to
the Philippines-China tax treaty. [Revenue Memorandum Circular (RMC) No. 46-2002 dated September 2,
2002; BIR Ruling No. DA-ITAD-101-03 dated July 24, 2003]
Furthermore, the royalty fees paid by KKDC are subject to the 12% 3(7) value-added tax (VAT)
pursuant to Section 108 of the Tax Code of 1997, as amended by Republic Act No. 9337. Accordingly,
KKDC, being the payor in control of the payment shall be responsible for the withholding of VAT on such
fees on behalf of RADC by filing a separate VAT return for and on behalf of the RADC using BIR Form
No. 1600 (Monthly Remittance return of Value-Added tax and Other Percentage Taxes Withheld). The
duly filed BIR Form 1600 and proof of payment thereof shall serve as sufficient basis for the claim of
input tax to be applied against the output tax that may be due from KKDC, if it is a VAT-registered
taxpayer. In case KKDC is a non-VAT registered taxpayer, the passed-on VAT withheld shall form part of
the cost, of the service purchased or treated as an "expense" or an "asset", whichever is applicable. In
addition, KKDC is required to issue the Certificate of Final tax Withheld at Source (BIR Form No. 2306)
in quadruplicate, the first three copies thereof to be given to RADC upon its request, and the fourth copy
to be retained by KKDC as its file copy. [Section 4.110-3 (b), Revenue Regulations (RR) No. 7-95, as
amended by RR Nos. 4-02, 8-02, and 14-02 (now Section 4, 114-2 (b), RR No. 16-05); Section 4.1144 (D),
RR No. 2-98, as last amended by RR No. 28-03]
the herein parties are concerned. IcHSCT
Very truly yours,
By:

Deputy Commissioner
Footnotes
1. STORE means the Krispy Kreme Store owned and operated by RADC pursuant to the subject Agreement.
2. September 2, 2002.
3. Effective February 1, 2006 rate is 12%.
November 16, 2007
Article 10, Philippines- Netherlands Tax Treaty

Section 23 (F) in relation to Section 42 (A) (3)
of the Tax Code of 1997, as amended;
Villanueva Nuñez & Associates Law Firm

Room 506, Makati Executive Center
V.A. Rufino cor. L.P. Leviste Sts.
Salcedo Village, Makati City
Attention: Atty. Rodeo J. Nuñez, Jr.

Legal Counsel
Gentlemen :
This refers to your letter dated July 23, 2007, received by this Office on August 3, 2007, filed on
behalf of your client, Schuurmans & Van Ginneken Philippines, Inc. (Schuurmans-Philippines), seeking
confirmation on the following:
1. the dividend payments made by Schuurmans-Philippines to ED & F Man Netherlands B.V.

(ED & F-Netherlands) is subject to ten percent (10%) income tax; and
2. the service fees paid by Schuurmans-Philippines to ED & F-Netherlands are tax exempt in
the Philippines.
It is represented that ED & F-Netherlands is a corporation organized and registered under the laws
of the Netherlands as evidenced by its Articles of Association; that its principal office is located at
Neslands 5, 1382 MZ Weesp, The Netherlands; that ED & F-Netherlands is not registered either as a
corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration dated
June 26, 2007 issued by the Securities and Exchange Commission of the Philippines; that
Schuurmans-Philippines is a domestic corporation with principal address at Rm. B6 WSC Building,
Locsin Street cor. San Sebastian Street, Bacolod City; that it is engaged in the business of buying, selling,
distributing, marketing at wholesale, including the warehousing and storage of molasses.
It is further represented that ED & F-Netherlands is a holder of 110,800 shares of the authorized
capital stock of 120,000 shares of Schuurmans-Philippines with an equity participation of 92.33% as
evidenced by the duly notarized Secretary's Certificate issued by Schuurmans-Philippines' Corporate
Secretary; that Schuurmans-Philippines declared cash dividends payable to stockholders of record as of
October 31, 2004 out of its unrestricted retained earnings.
It s also represented that on December 28, 2006, ED & F-Netherlands and Schuurmans-Philippines
entered into a Services Agreement (Agreement) whereby the former agreed to provide the latter the
following services. DHSCEc
1. Advice on trading operations and conditions;
2. Banking advice and. support;
3. Evaluation of markets;
4. Marketing advice;
5. Statistical advice;
6. Electronic Data Processing advice and services; and
7. Accounting system and procedures advice and services;
that the foregoing services are rendered entirely in Netherlands through electronic means like long
distance calls, cellular calls and through e-mails; that ED & F-Netherlands shall be remunerated by
Schuurmans-Philippines in consideration of providing of the said services having monthly or annually
invoiced in accordance with the level of services provided, the estimated time spent in dealing therewith
and any expenses incurred; that the said Agreement is valid for a period of one (1) year from November 1,
2006; and that the issues or transactions subject of the above application are not under investigation,
proceedings, or a judicial appeal.
In reply, please be informed that as regards dividend payments, Article 10 of the

Philippines-Netherlands tax treaty provides:
"Article 10
DIVIDENDS
2 However, such dividends may also be taxed in the State of which the company paying the
a) 10 percent of the gross amount of the dividends if the recipient is a company

the capital of which is wholly or partly divided into shares and which holds directly
at least 10 percent of the capital of the company paying the, dividends;
b) 15 percent of the gross amount of the dividends in all other cases.
xxx xxx xxx

5. The term "dividends" as used in this Article means income from shares, "jouissance" shares
or "jouissance" rights, mining shares, founders' shares or other rights participating in profits,
as well as income from debt-claims participating in profits and income from other corporate
taxation law of the State of which the company making the distribution is a resident. DHcESI
xxx xxx xxx"
Based on the above-cited provisions, the 10 percent preferential tax rate on dividends applies
considering that ED & F-Netherlands holds more than 10% of the capital of Schuurmans-Philippines, this
Office is of the opinion and so holds that the dividend payments by Schuurmans-Philippines pertaining to
ED & F-Netherlands shall be subject to the preferential tax rate of 10 percent of the gross amount of the
dividends pursuant to Article 10 (2) (a) of the Philippines-Netherlands tax treaty. (BIR Ruling No.
DA-ITAD 82-07 dated July 11, 2007).
As regards the service fees paid by Schuurmans-Philippines to ED & F-Netherlands under the
Agreement, Section 23 (F) of the Tax Code of 1997, as amended, provides:
xxx xxx xxx
(F) A foreign corporation, whether engaged or not in trade or business in the

Philippines, is taxable only on income derived from sources within the
Philippines.
xxx xxx xxx"
According to Section 23 (F), a foreign corporation like ED & F-Netherlands is taxable only on
income derived from sources within the Philippines. In the case of income from the provision of services,
such income is considered derived from sources within the Philippines if the services are performed in the
Philippines, as stated in Section 42 (A) (3) of the Tax Code of 1997, as amended, below:
A. Gross Income Front Sources Within the Philippines. — The following items of gross
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in

the Philippines;
xxx xxx xxx"
Such being the case and since the subject services will be carried out entirely in Netherlands, the
service fees to be paid by Schuurmans-Philippines to ED & F-Netherlands, being income not derived from
Ruling No. DA-ITAD 105-05 dated August 24, 2005)
Lastly, since it is represented that the said services will be rendered in Netherlands, the service fees
by Schuurmans-Philippines to ED & F-Netherlands will not be subject to VAT imposed under Section 108
(A) of the Tax Code of 1997, as amended, which provides:
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties: Provided, That the President, upon recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied: AcSCaI
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)

of the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year

exceeds one and one-half percent (1 1/2%).
the Philippines for others for a fee, remuneration or consideration, . . ."
Section 108 (A) clearly states that the sale or exchange of services subject to VAT include only
those services that are performed in the Philippines. Accordingly, since the subject services will not be
performed in the Philippines, the service fees in consideration for the said services to be paid by
Schuurmans-Philippines to ED & F-Netherlands are therefore exempt from VAT.
Very truly yours,
By:

Deputy Commissioner
November 14, 2007
Sections 106 & 108 of the National Internal Revenue Code

of 1997;
Article 34, Vienna Convention;

Manila
Attention: Mr. Scott McDonald

Supervisory General Services Officer
Gentlemen :
This has references to your Note Verbale No. 1185 dated September 14, 2007, referred to this
Office by the Department of Finance (DOF) and the Office of Protocol and State Visits, Department of
Foreign Affairs (DFA), requesting for tax-free purchase on local motor vehicles for the official use of the
Embassy of United States of America, specifically described as follows:
Make: Two (2) units Ford Everest 4X4 A/T 3.0L

DuraTORQ TDCI
Model Year: 2007
Color: Black/Arizona Gold
Engine Number: 130307/130321
VIN Number: MNCUS4E907W205454/
MNCUS4E907W205486
reads: IECAaD
"ARTICLE 34
services;
xxx xxx xxx"
purchases by that Embassy of goods and/or services shall, in general, be subject to the VAT prescribed
under Sections 106 and 108, both of the National Internal Revenue Code of 1997. IDTHcA
Embassy of the United States of America or its personnel on their local purchase of motor vehicles it
appearing from the list submitted by the Department of Foreign Affairs as of August 24, 2007 that your
Government allows similar exemption to Philippine Embassy and/or its personnel on their purchases of
Hence, the herein local purchase of two (2) units of 2007 Ford Everest 4X4 A/T 3.0L DuraTORQ
TDCI for the official use of the Embassy of the United States of America is exempt from VAT. (BIR
Ruling No. ITAD-34-99 dated October 18, 1999)
be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar As
the herein parties are concerned. AETcSa
Very truly yours,

Deputy Commissioner
October 24, 2007
Article 13 Philippines-United States Tax Treaty;

Article 12 Philippines-China Tax Treaty;
Section 108 National Internal Revenue Code of 1997;
Romulo Mabanta Buenaventura

Sayoc & De Los Angeles
30th Floor, Citibank Tower
8741 Paseo de Roxas, City of Makati, Philippines
Attention: Tranquil G. Salvador III and

Jayson L. Fernandez
Gentlemen :
This refers to your letter dated February 28, 2007 on behalf of your client Coors Global Properties,
Inc. (hereinafter referred to as "CGPI") requesting confirmation that the royalties to be paid by Asia
Brewery, Inc. (hereinafter referred to as "ABI") to CGPI pursuant to their Exclusive Manufacturing and
Distribution Licensing Agreement are subject to a withholding tax rate of ten percent (10%) pursuant to
the "most favored-nation" clause of the Convention between the Government of the Republic of the
Philippines and the Government of the United States of America for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (hereinafter
referred to as the "Philippines-United States tax treaty") in relation to the Agreement between the
Government of the Republic of the Philippines and the Government of the People's Republic of China for
the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to the Taxes on
Income (hereinafter referred to as the "Philippines-China tax treaty").
It is represented that CGPI is a corporation organized and existing under the laws of the State of
Colorado, United States of America with principal office address at Union tower, Suite 170, 165 South
Union Blvd., Lakewood Colorado 80228 as supported by the Articles of Amendment to Articles of
Incorporation certified as filed with the Colorado Secretary of State on January 14, 2003 by Patti Zenk
Beacom, General Counsel for Coors Global Properties, Inc.; that CGPI is not registered either as a
corporation or as a partnership in the Philippines as supported by the Certification of Non-Registration of
Corporation/Partnership issued by the Securities and Exchange Commission on February 14, 2007; that
ABI is a corporation organized and existing under the laws of the Philippines with principal office at
Allied Banking Center, Ayala Avenue, Makati City.
It is further represented that CGPI and ABI entered into an Exclusive Manufacturing and
Distribution Licensing Agreement (hereinafter referred to as "Agreement") whereby CGPI grants to ABI a
license to produce, package, distribute and sell Coors Light and Coors Banquet (hereinafter referred to as
"Products") in the form of cans and bottles in the Philippines; that in consideration for the grant of license,
ABI shall pay to CGPI quarterly royalty fee per hectoliter of the Products produced by ABI; and, that the
Agreement shall be effective November 16, 2006 for an initial term of ten (10) years unless terminated at
an earlier date pursuant to the provisions of the Agreement; that the Agreement was registered with the
Philippine Intellectual Property Office on December 15, 2006 under Certificate of Compliance No.
5-2006-00116; and that the issue subject of the above request is not under any investigation or on-going
audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings,
or a judicial appeal. DASCIc
In reply, please be informed that Article 13 of the Philippines-United States tax treaty provide:
"Article 13
ROYALTIES
(1) Royalties derived by a resident of one of the Contracting States from sources within the
other Contracting State may be taxed by both Contracting States.
(2) However, the tax imposed by the 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:
paid by a corporation registered by the Philippine Board of
(iii) the lowest rate of Philippine tax that may be imposed on royalties of
the same kind paid under similar circumstances to a resident of a third
State.
(3) The term "royalties" as used in this articles means payments of any kind received as a
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."
Pursuant to the "most-favored-nation" clause in Article 13 (2) (b) (iii) of the Philippines-United
States tax treaty, the tax imposed on royalties derived by a resident of the United States from sources
within the Philippines shall be the lowest rate of Philippine tax that may be imposed on royalties of the
same kind paid under similar circumstances to a resident of a third State.
In this light, Article 12 of the Philippines-China tax treaty 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 laws of that State, but if the recipient is the beneficial owner of the
royalties, the tax so charged shall not exceed: IaSCTE
a) 15 percent of the gross amount of royalties arising from the use of, or the
b) 10 per cent of the gross amount of royalties arising from the use of, or the
right to use, any patent, trade mark, design or model, plan, secret formula or
process, or from the use of, or the right to use, industrial, commercial or
scientific equipment, or for information concerning industrial, commercial or
scientific experience.
For as long as the transfer of technology, under Philippine law, is subject to approval, the
limitation of the tax rate mentioned under (b) shall, in the case of royalties arising in the
Republic of the Philippines, only apply if the contract giving rise to such royalties has been
approved by the Philippine competent authorities.
3. The term "royalties" as used in this Article means payments of any kind received as a
work including cinematography films, or films or tapes for radio or television broadcasting,
any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or
the right to use, industrial, commercial, or scientific equipment, or for information
concerning industrial, commercial or scientific experience."
xxx xxx xxx"
Under Article 12 (2) (b) of the Philippines-China tax treaty, a tax rate not exceeding 10 percent of
the gross amount is charged on royalties arising from the use of, or the right to use, any patent, trademark,
design or model, plan, secret formula or process, or from the use of, or the right to use, industrial,
commercial, or scientific equipment, or for information concerning industrial, commercial or scientific
experience.
"most-favored-nation" clause, particularly the phrase "paid under similar circumstances", as referring to
the manner of payment of taxes and not to the subject matter of the tax which is royalties. [BIR Ruling No.
DA-ITAD-52-03 dated April 8, 2003]
In this regard, Article 23 of the Philippines-United States tax treaty provides, viz:
"Article 23
Double taxation of income shall avoided in the following manner:
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. . . ." ESTAIH
"Article 23
1. In China, double taxation shall be eliminated as follows:
Where a resident of China derives income from the Philippines the amount of tax on that
income payable in the Philippines in accordance with the provisions of this Agreement, may
be credited against the Chinese tax imposed on that resident. The amount of the credit,
however, shall not exceed the amount of the Chinese tax on that income computed in
accordance with the taxation laws and regulations of China.
xxx xxx xxx"
treaty, through differently worded, plainly reveal a similarity in the provisions on relief from or avoidance
of double taxation to their respective residents. Thus, the tax on royalty payments to residents of the
United States and China is paid under similar circumstances, i.e., the amount of royalty income tax paid or
accrued to the Philippines under the respective tax treaties is available as tax credit against the income tax
payable in their respective countries. United States residents may, therefore, invoke the preferential tax
rate of 10% on royalties, accruing beginning January 1, 2002, arising in the Philippines "from the use of,
or the right to use, any patent, trade mark, design or model, plan, secret formula or process, . . . , or for
information concerning industrial, commercial or scientific experience" under the Philippines-China tax
treaty, pursuant to the "most-favored-nation" clause of the Philippines-United States tax treaty.
Such being the case, this Office is of the opinion and so holds that the royalty payments of ABI to
CGPI under the subject Agreement are subject to final withholding tax at the rate of 10% pursuant to the
"most-favored-nation" provision of the Philippines-United States tax treaty in relation to the
Philippines-China tax treaty. [Revenue Memorandum Circular (RMC) No. 46-2002 dated September 2,
2002; BIR Ruling No. DA-ITAD-101-03 dated July 24, 2003] Accordingly, ABI shall deduct and withhold
the tax at the time the royalty income payment is paid or payable, or the income payment is accrued or
recorded as an expense or as an asset, whichever is applicable, and whichever comes first. The term
"payable" refers to the date the obligation becomes due, demandable, or legally enforceable. [Section 4 —
Time of Withholding, Revenue Regulations No. 12-2002; BIR Ruling No. DA-ITAD-163-05 dated
December 20, 2005]
Moreover, as provided in Section 108 of the National Internal Revenue Code of 1997, the said
royalty payments are subject to value-added tax (VAT):
"Sec. 108. 1(8) Value-added Tax on Sale of Services and Use or Lease of Properties.
—
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added
tax equivalent to ten percent (10%) 2(9) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties.
xxx xxx xxx
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or
right; DHaECI
xxx xxx xxx"
With regard to the procedures for withholding and paying the VAT, ABI, being the resident
withholding agent and payor in control of payment shall be responsible for the withholding of the final
VAT on such fees before making any payment to CGPI. In remitting the VAT withheld, ABI shall use BIR
Form No. 1600 (Monthly Remittance Return of Value-Added Tax & Other Percentage Taxes Withheld).
The duly filed BIR Form No. 1600 and the proof of payment thereof shall serve as documentary
substantiation for the claim of input tax to be applied against the output tax that may be due from ABI if it
is a VAT-registered taxpayer. In case ABI is a non-VAT-registered taxpayer, the passed-on VAT withheld
shall form part of the cost of the service purchased and may treat such VAT as an "expense" or as an
"asset", whichever is applicable. In addition, ABI is required to issue in quadruplicate a Certificate of
Final Tax Withheld at Source (BIR Form No. 2306), the first three copies for CGPI and the fourth copy for
ABI as its file copy. [Sections 4 & 6, Revenue Regulations (RR) No. 4-2002; Section 3 of RR 8-2002;
Section 7 of RR 14-2002]
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation, it will be disclosed that the actual facts are different, then this ruling shall be without force
and effect insofar as the herein parties are concerned. AaDSTH
Very truly yours,
By:

Deputy Commissioner
Footnotes
1. Section 108 was amended by Republic Act No. 9337 (An Act Amending Sections 27, 28, 34, 106, 107,
108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 And 288 Of The National
Internal Revenue Code Of 1997, As Amended, And For Other Purposes), which was signed into law on
May 24, 2005 and became effective on November 1, 2005, read as:
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including
the use or lease of properties selling price or gross value in money of the goods or properties sold, bartered
or exchanged, such tax to be paid by the seller or transferee: Provided, that the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12%), after any of the following conditions has been satisfied: HTIEaS
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds one and one-half percent (1 1/2%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).
xxx xxx xxx
2. The VAT rate was increased to 12% on February 1, 2006, in accordance with the Memorandum of the
Executive Secretary to the Secretary of Finance dated January 31, 2006, as circularized by Revenue
Memorandum Circular No. 7-2006 (Publishing the Full Text of the Memorandum from Executive Secretary
Eduardo R. Ermita dated January 31, 2006 Approving the Recommendation of the Secretary of Finance to
Increase the Value Added Tax Rate from Ten Percent to Twelve Percent) dated January 31, 2006.
October 24, 2007
Section 109 (K), National Internal Revenue Code of 1997;

Section 10, Article 3, Convention on the Privileges
and Immunities of the Specialized Agencies of the UN;
Section 9, Article of Agreement of the IFC;
BIR ITAD No. ITAD 46-07
International Finance Corporation

11 Floor, Tower One
Ayala Triangle, Ayala Avenue
1226 Makati City
Attention: Ms. Maricar Solis
Gentlemen :
This refers to your e-mail dated July 18, 2007 inquiring on the value-added tax (VAT) zero rating
and other tax immunities of the International Finance Corporation (IFC), attaching therewith the following
documents:
1. Letter dated February 18, 1977 to the Department of Finance (DOF) on the opening of the
IFC office in the Philippines and to which the government, through the DOF, acceded;
2. Articles of Agreement of the IFC dated April 1993;
3. Convention on the Privileges and Immunities of the Specialized Agencies of the United
Nations dated November 21, 1947 (UN Convention); and
4. VAT Review Committee Ruling No. 109-99 dated November 22, 1999.
In reply, please be informed that pursuant to the Articles of Agreement of the IFC and the UN
Convention, it is clear that the properties, funds, assets, income and authorized operations and transactions
of the IFC itself as an agency, are not subject to tax. The pertinent provisions of the aforecited
Agreements state that:
"Articles of Agreement
xxx xxx xxx
SEC. 9. Immunities from Taxation. —
(a) The Corporation, its assets, property, income and its operations and transactions
authorized by this Agreement, shall be immune from all taxation and from all customs duties. The
Corporation shall also be immune from liability for the collection or payment of any tax or duty."
(Emphasis supplied) AcISTE
xxx xxx xxx"
"Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations
dated November 21, 1947.
Article III
Property, Funds and Assets
xxx xxx xxx
Section 10.
this Convention will whenever possible, make appropriate administrative arrangements for the
remission or return of the amount of duty or tax." (Emphasis supplied)
This Bureau has taken a position that based on the above provision on the imposition of taxes on
the important purchases for official use by specialized agency of the UN, in lieu of the provision on the
remission or refund of amount of tax due, a tax exemption privilege can be granted. (VAT Ruling No.
143-90 revoking VAT Ruling No. 176-89) Such being the case, the local purchases of property by IFC are
exempt from VAT (and not subject to VAT at zero percent) pursuant to Section 109 (K) 1(10) of the
National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act No. 9337. 2(11)
However, a closer examination of the Articles of Agreement and the UN Convention reveals that
only important purchases for official use of property on which taxes may be charged are exempt.
Property, in the legal context, is defined as anything which is or may be the object of appropriation.
3(12) It may either be immovable and/or real property or movable and/or personal property. 4(13)
The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part
of an immovable;
(3) Everything attached to an immovable in a fixed manner in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, places in buildings or
lands by the owner of the immovable in such a manner that it reveals the intention to attach
them permanently to the tenements;
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement
for an industry or works which may be carried on in a building or on a piece of land, and
which tend directly to meet the needs of the said industry or works;
(6) Animal houses, pigeon houses, beehives, fish ponds or breeding places of similar nature, in
case their owner has placed them or preserves them with the intention to have them
permanently attached to the land and forming a permanent part of it; the animals attached in
these places are included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries and slag dumps, while the matter thereof forms part of the bed and waters
either running or stagnant;
(9) Docks and structures which, though floating are intended by their nature and object to
remain at a fixed place on the river, lake, coast;
(10) Contracts for public works, and servitudes and other real rights over immovable property.
5(14)
On the other hand, the following things are deemed to be personal property:
(1) Those movables susceptible of appropriation which are not included in Article 415;
(2) Real property which by any special provision of law is considered as personalty;
(3) Forces of nature which are brought under control by science; CSTDEH
(4) In general, all things which can be transferred from place to place without impairment of the
real property to which they are fixed. 6(15)
The following are also considered personal property:
(1) Obligations and actions which have for their object movables or demandable sums; and
(2) Shares of stock of agricultural, commercial and industrial entities, although they may have
real estate. 7(16)
The tests to determine whether an object is movable or not are:
(1) Whether the object can be transported from place to place;
(2) Whether the change of location can take place without injury to the immovable to which it
may be attached; and
(3) Whether it is not included in the enumeration found in Article 415 of the Civil Code.
If the answer to all the above questions is in the affirmative, then the object is movable.
With the above definitions and discussions on property, it is understood that purchases of
something other than those enumerated cannot be considered purchase of property and are therefore not
exempt from VAT. One example is the purchase of an airline ticket. A transaction which involves a
contract of carriage of passengers whereby an airline company binds itself to transport the passenger who
availed of the services from place of origin to place of destination usually evidenced by an airline ticket is
clearly a purchase of service and not a purchase of property (immovable/real or movable/personal).
Such being the case, this Office is of the opinion that the IFC, its properties, funds, interests and
assets, its authorized operations and transactions are exempt from direct taxes. Moreover, important
purchases of goods by the IFC are exempt from VAT.
It must be understood, however, that the tax privilege accorded to IFC does not extend to its
personnel.
the herein parties are concerned. aTICAc
Very truly yours,
By:

Deputy Commissioner
Footnotes
1. SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added tax: STHAID
xxx xxx xxx

(K) Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws, except those under Presidential Decree No. 529.
2. An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121,
148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, As Amended, And For Other
Purposes.
3. Article 414, Civil Code of the Philippines.
4. Ibid.
5. Article 415, Ibid.
October 24, 2007
Secs. 106 & 108 of the Tax Code 1997;

Article 34, Vienna Convention on Diplomatic Relations
Embassy of the State of Kuwait

1230 Acacia Street
Dasmariñas Village
Makati City
Attention: H.E. Bader Nasser Al Douti

Ambassador
Gentlemen :
This has reference to your Note Nos. EKM 07-222 dated August 29, 2007 and EKM 07-248 dated
September 25, 2007, referred to this Office by the Department of Finance and the Department of Foreign
Affairs, requesting for the exemption from payment of taxes on the local purchase of a motor vehicle, for
the official use of the Embassy of the State of Kuwait, specifically described as follows: AEHTIC

Make: Toyota Camry 2.4V A/T
Model Year: 2007
Color: Xtreme Black
Chassis Number: MR053BK4007016022
Engine Number: 2AZE057330
reads:
"ARTICLE 34
goods and services;
"xxx xxx xxx"
However, applying the principle of reciprocity, this Office may confirm exemption to the Embassy
of the State of Kuwait on their purchase of locally-assembled motor vehicles it appearing from the list
submitted by the Department of Foreign Affairs as of August 24, 2007 that your Government allows
similar exemption to the Philippine Embassy on their purchase of locally-assembled motor vehicles in
your country. TAIEcS
Hence, the local purchase of one (1) unit of 2007 Toyota Camry 2.4V A/T, for the official use of
the Embassy of State of Kuwait is exempt from value-added tax. (BIR Ruling No. DA-ITAD-068-05 dated
July 4, 2005)
the herein parties are concerned. AcHSEa
Very truly yours,

Deputy Commissioner
October 23, 2007

of 1997;
Royal Embassy of Belgium

9/F Multinational Bancorporation Center
6805 Ayala Avenue
Makati City
Gentlemen :
This has reference to your Note Verbale No. 883 dated September 12, 2007, referred to this Office
by the Department of Finance (DOF) and the Office of Protocol, Department of Foreign Affairs (DFA),
requesting for a tax-free purchase on a local motor vehicle for the personal use of Mr. Rene Peeters,
Deputy Head of Mission & Consul of the Royal Embassy of Belgium, specifically described as follows:
Make: Toyota Fortuner 4X4 V Diesel A/T
Model Year: 2007
Color: Grayish Brown Metallic
Engine Number: 1KD7378065
Serial Number: MR0YZ59G700061059
reads: DAaIEc
"ARTICLE 34
services;
xxx xxx xxx"
from the value-added tax (VAT) on its local purchases of goods and services. In other words, purchases by
that Embassy of goods and/or services shall, in general, be subject to the VAT prescribed under Sections
106 and 108, both of the National Internal Revenue Code of 1997.
Royal Embassy of Belgium or its personnel on their local purchase of motor vehicles it appearing from the
list submitted by the Department of Foreign Affairs as of August 24, 2007 that your Government allows
motor vehicles thereat. SECATH
Hence, the herein local purchase of one (1) unit of 2007 Toyota Fortuner 4X4 V Diesel A/T for the
personal use of the Royal Embassy of Belgium is exempt from VAT. (BIR Ruling No. ITAD-11-00 dated
January 19, 2000)
the herein parties are concerned. TADaCH
Very truly yours,

Deputy Commissioner
October 17, 2007
Article 12 (Royalties) Philippines-Australia tax treaty;

Sections 28 (B) (4) and 108 (A)
National Internal Revenue Code of 1997;
BIR Ruling Nos. DA-229-06 and DA-ITAD 39-04

6760 Ayala Avenue
1226 Makati City
Attention: Atty. W. U. Villanueva

Gentlemen :
This refers to your letter dated April 11, 2007, requesting confirmation that rental payments to be
made by the branch office in the Philippines of Aristocrat (Philippines) Pty. Limited (hereinafter,
Aristocrat Philippines) to Aristocrat (Asia) Pty. Limited (hereinafter, Aristocrat Asia) for the lease of
electronic gaming machines are subject to 7.5% Philippine income tax based on the gross amount thereof,
pursuant to Article 12 the Agreement between the Government of the Republic of the Philippines and the
Government of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income (Philippines-Australia tax treaty) 1(17) in relation to Section 28 (B) (4) of the
National Internal Revenue Code of 1997 (Tax Code of 1997).
BASIC FACTS
It is represented that Aristocrat Asia and Aristocrat Philippines are corporations both organized and
existing under the laws of Australia, with the same address at 71 Longueville Road, Lane Cove, Sydney,
New South Wales, 2006, Australia; that Aristocrat Asia is a registered company under the Corporations
Act 2001 and is taken to be registered in New South Wales, as evidenced by a Certificate of Registration
of a Company dated July 15, 2005, issued by the Australian Securities and Investments Commission; that
Aristocrat Asia is not registered as a corporation or as a partnership in the Philippines, as evidenced by a
Certificate of Non-Registration of Corporation/Partnership dated April 2, 2007, issued by the Securities
and Exchange Commission; that, on the other hand, Aristocrat Philippines, is licensed to establish a
branch office in the Philippines, under Company Registration No. FS200603712, to sell and/or lease
various types of gaming machines and equipment, games, systems, and associated products and services
in the Philippines, as evidenced by a License to Transact Business in the Philippines dated March 31,
2006, issued by the Securities and Exchange Commission; and that this branch office is Aristocrat
(Philippines) Pty. Limited Philippine Branch (hereinafter, Aristocrat Philippines — Philippine Branch),
with address at the 12th Floor, Net One Center, 26th Street corner 3rd Avenue, Crescent Park West,
Bonifacio Global City, Taguig, Metro Manila, Philippines. HcISTE
It is also represented that on February 21, 2007, Aristocrat Asia and Aristocrat Philippines, acting
through Aristocrat Philippines — Philippine Branch, entered into a Lease Agreement (Agreement)
whereby Aristocrat Asia appointed Aristocrat Philippines — Philippine Branch as its exclusive
Intellectual Property Rights 2(18) licensee in connection with the lease and sub-lease, maintenance and
support of the Products in the Territory 3(19) in respect of Recurring Revenue; 4(20) that the Products are
the Gaming Machines, 5(21) the Systems, 6(22) the Conversion Kits, 7(23) and any components, Parts,
8(24) accessories, fixtures or fittings of materials pertaining thereto, and including main boards; that under
the Agreement, Aristocrat Asia grants Aristocrat Philippines — Philippine Branch an exclusive and
non-transferable right in the Territory solely in connection with Recurring Revenue:
a) to lease the Products from Aristocrat Asia;
b) to enter into sub-lease agreements with Customers 9(25) in the Territory;
c) to perform Maintenance and Support Services 10(26) within the Territory; and
d) to perform such other services as are agreed from time to time between the parties;
that in consideration of the foregoing, Aristocrat Asia will invoice Aristocrat Philippines — Philippine
Branch on a monthly basis for the lease of the Products and Aristocrat Philippines — Philippine Branch
will pay such invoices in full demand; that Aristocrat Asia will invoice Aristocrat Philippines under the
following Recurring Revenue Model:
1. Aristocrat Philippines — Philippine Branch will be liable to pay a Rental Fee to Aristocrat
Asia for each financial year in relation to a recurring revenue transaction entered into by
Aristocrat Philippines — Philippine Branch with Aristocrat Asia.
2. The Rental Fee payable will be based on the Gross Revenue derived by Aristocrat
Philippines — Philippine Branch under a recurring revenue transaction. The Rental Fee is
equal to 50% of the Gross Revenue, unless other percentage is agreed upon between the
parties.
3. No payment of the Rental Fee is required if the Gross Revenue is zero or negative.
4. Gross Revenue means those items relating to the recurring revenue model as characterized in
Aristocrat Philippines — Philippine Branch's financial statements using its accounting
standards for a particular financial year. HEIcDT
5. Forecasted numbers will be used to calculate the Rental Fee payable throughout the financial
year.
6. Aristocrat Philippines — Philippine Branch will receive an arm's-length return for a

financial year where its operating margin in relation to a recurring revenue for that financial
year is between the Low Rate and the High Rate. If this is not the case, a Compensating
Adjustment will be calculated.
7. The Rental fee is exclusive of value added tax (VAT).
It is finally represented that the Agreement becomes effective on April 1, 2006, for an initial period
of one year, unless earlier terminated; that after this initial period, the Agreement will be automatically
renewed for a one-year period, unless either party gives notice of non-renewal at least sixty (60) days prior
to any renewal date.
RULING
A. On income tax
In reply, please be informed that the Rental Fee to be paid by Aristocrat Philippines — Philippine
Branch to Aristocrat Asia for the lease of the Products, generally comprising of gaming machines and
other tangible objects associated therewith, are considered royalties as the same are "payments for the use
of, or the right to use, any individual, commercial or scientific equipment" under paragraph 3 (b), Article
12 of the Philippines-Australia tax treaty, which provides:
"Article 12
ROYALTIES
1. Royalties arising in one of the Contracting States, being royalties to which a resident of the
other Contracting State is beneficially entitled, may be taxed in that other State.
2. Such royalties may also be taxed in the Contracting State in which they arise, and according
to the law of that State. However, the tax so charged shall not exceed —
a) 15 per cent of the gross amount of the royalties where the royalties are paid by an
enterprise registered with the Philippine Board of Investments and engaged in
preferred areas of activities; and
b) in all other cases, 25 per cent of the gross amount of the royalties.
3. Then term 'royalties' in this Article means payments or credits, whether periodical or not,
and however described or computed, to the extent to which they are made as consideration
for —
a) the use of, or the right to use, any copyright, patent, design or model, plan, secret
formula or process, trademark, or other like property or right;
b) the use of, or the right to use, any individual, commercial or scientific equipment;
CIScaA
c) the supply of scientific, technical, industrial or commercial knowledge or

information;
d) the supply of any assistance that is ancillary and subsidiary to, and is furnished as a
means of enabling the application or enjoyment of, any such property or right as is
mentioned in paragraph (a), any such equipment as is mentioned in paragraph (b) or
any such knowledge or information as is mentioned in paragraph (c);
e) the use of, or the right to use —
(i) motion picture films;
(ii) films or video tapes for use in connection with television; or
(iii) tapes for use in connection with radio broadcasting; or
f) total or partial forbearance in respect of the use of a property or right referred to in
this paragraph."
With respect to taxation of royalties, paragraph 2 above states that royalties arising in the
Philippines and derived by a resident of Australia are subject to Philippine income tax at the rate not
exceeding (a) 15% of the gross amount of the royalties where they are paid by an enterprise registered
with the Philippine Board of Investments and engaged in preferred areas of activities, or (b) 25% of the
gross amount of the royalties, in all other cases.
Accordingly, the Rental Fee to be paid by Aristocrat Philippines — Philippine Branch to Aristocrat
Asia is subject to Philippine income tax at a rate not exceeding 25% of the gross amount thereof. The
Rental Fee cannot be subject to the lower rate not exceeding 15% because Aristocrat Philippines
(Philippine Branch), the enterprise paying the royalties in this case, is not registered with the Philippine
Board of Investments and engaged in preferred areas of activities.
However, because the rates mentioned in paragraph 2 are the maximum rates which the country of
source can impose on royalties, the Philippines, being the country of source in this case, provides under its
domestic law for an even lower rate of income tax of 7 1/2% on rentals of equipment including rentals,
charters and other fees of aircraft and machineries, based on the gross amount thereof. Section 28 (B) (4)
of the Tax Code of 1997, as amended by Republic Act No. 9337, 11(27) provides:
"SEC. 28. Rates of Income Tax on Foreign Corporations. —
xxx xxx xxx
(B) Tax on Nonresident Foreign Corporation. —
xxx xxx xxx
(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other

Equipment. — Rentals, charters and other fees derived by a
nonresident lessor of aircraft, machineries and other equipment shall
be subject to a tax of seven and one-half percent (7 1/2%) of gross
rentals or fees." SDITAC
We note that the Rental Fee is a payment for the rental of the Products under the Agreement and for
the use of, or the right to use, certain intangible properties resulting from Aristocrat Philippines —
Philippine Branch leasing and sub-leasing of and providing maintenance and support for such Products in
the Territory. Under the Agreement, these intangible properties were referred to as patents, trade marks,
copyright, design, domain name, circuit layout rights and other proprietary rights. Thus, the question arises
whether the 7 1/2% tax rate under the Tax Code of 1997 or the 25% tax rate under the
Philippines-Australia tax treaty shall be applied in the instant case.
In this connection, the commentaries in the Model Tax Convention on Income and on Capital
(Condensed Version, July 15, 2005), published by the Organisation for Economic Cooperation and
Development, provides the following guide on the characterization of payments involved in mixed
contracts, to wit:
"11.6. In business practice, contracts are encountered which cover both know-how and the
provision of technical assistance. One example, amongst others, of contracts of this kind is that of
franchising, where the franchisor imparts his knowledge and experience to the franchisee and, in
addition, provides him with varied technical assistance, which, in certain cases, is backed up with
financial assistance and the supply of goods. The appropriate course to take with a mixed contract
is, in principle, to break down, on the basis of the information contained in the contract or by means
of a reasonable apportionment, the whole amount of the stipulated consideration according to the
various parts of what is being provided under the contract, and then to apply to each part of it so
determined the taxation treatment proper thereto. If, however, one part of what is being provided
constitutes by far the principal purpose of the contract and the other parts stipulated therein are
only of an ancillary and largely unimportant character, then the treatment applicable to the
principal part should generally be applied to the whole amount of the consideration." 12(28)
Applying the above commentaries to the Rental Fee, there is no doubt that the use of, or the right to
use, the Products (equipment) constitutes by far the principal purpose of the Agreement, and the use of, or
the right to use, certain intangible properties involved in the Products are only of an ancillary and largely
unimportant character so that the Rental Fee should be generally characterized as payments for the use of,
or the right to use, any individual, commercial or scientific equipment. This being the case, the Rental Fee
should therefore be subject to income tax at the rate of 7 1/2% based on the gross amount thereof pursuant
to Section 28 (B) (4) of the Tax Code of 1997, as amended by Republic Act No. 9337. (BIR Ruling No.
DA-ITAD 39-04 dated April 28, 2004 and DA-229-06 dated April 11, 2006.)
B. On VAT
Finally, the Rental Fee is subject to VAT under Section 108 (A) of the Tax Code of 1997, as
amended by Republic Act No. 9337, which provides:
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties selling price or gross value in money of the
goods or properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: Provided, that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied: ESTcIA
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds one and one-half percent (1 1/2%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%). 13(29)
. . . The phrase 'sale or exchange of services' shall likewise include:
xxx xxx xxx
(2) The lease or the use of, or the right to use of any industrial, commercial or scientific
equipment;" (BIR Ruling No. DA-ITAD 39-04 dated April 28, 2004 and DA-229-06 dated
April 11, 2006.)
With regard to the procedures for withholding and paying the VAT, pursuant to Sections 4 and 6 of
Revenue Regulations No. 4-2002, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of
Revenue Regulations No. 14-2002, Aristocrat Philippines — Philippine Branch shall be responsible for
the withholding of VAT on the Rental Fee before remitting it to Aristocrat Asia. In remitting to the Bureau
of Internal Revenue the VAT withheld, Aristocrat Philippines — Philippine Branch shall use BIR Form
No. 1600 (Monthly Remittance Return of VAT and Other Percentage Taxes Withheld). If it is a
VAT-registered taxpayer, Aristocrat Philippines — Philippine Branch may use as documentary
substantiation for its claim of input VAT the duly file BIR Form No. 1600 and the proof of payment
accompanying such form. On the other hand; if it is a non-VAT-registered taxpayer, Aristocrat Philippines
— Philippine Branch may include as part of the cost of the Products (equipment) leased to it by Aristocrat
Asia the VAT consequently shifted or passed on to it by Aristocrat Asia and may treat such VAT either as
expense or asset, whichever is applicable. In addition, Aristocrat Philippines — Philippine Branch is
required to issue the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate,
the first three copies for Aristocrat Asia and the fourth copy for Aristocrat Philippines — Philippine
Branch as its file copy.
the herein parities are concerned.
Very truly yours,
By:

Deputy Commissioner
Legal and Inspection Group
Footnotes
1. Signed on May 11, 1979, and became effective on January 1, 1980.
2. Intellectual Property Rights includes the Patents, the Trade Marks, the Copyright and
(a) all other rights in the nature of patent, copyright design, domain name, trade mark, service mark, trade
name, circuit layout rights and other proprietary rights;
(b) applications and registrations thereof, all rights identified in Article 2 of the Convention Establishing
the World Intellectual Property Organisation, as amended in September 28, 1979; and
(c) all rights to the registration of such rights wherever such rights exist in the world, comprising or
related to the Products. ECcDAH
Patents means the granted patents and patent applications owned by Aristocrat Asia or its licensors
and rights of a similar nature that relate to the Products, equipment to manufacture the Products or the
process according to which the Products are made filed in the Territory, patents issuing from those patent
applications, claims of all patent applications and of the resultant patents that are directed to the subject
matter described in the patents and/or patent applications specified in this definition, and any re-issues,
continuations, divisional applications, supplemental disclosures or extensions of any patents or patent
applications specified in this definition.
Trade Marks means the trade marks owned by Aristocrat Asia or its licensors in the Territory relating
to the Products, components of the Products, or services relating to the Products.
Copyright means all rights of copyright owned by Aristocrat Asia or its licensors in the Territory
which relate to the Products, including but not limited to such rights in Software, artistic, musical and
literary works, and cinematograph films comprising or related to the Products.
Software means any program or series of programs, containing instructions for a computer required
either for the operational processes of the computer itself or for the accomplishment of other tasks.
3. Territory means the Philippines or such other territory as may be agreed between the parties from time to
time.
4. Recurring Revenue means a revenue model where a Product (e.g., a Gaming Machine), is leased or
sub-leased to a Customer. Ownership of the leased Product at all times remains with Aristocrat Asia and
title is never transferred to the Customer.
5. Gaming Machine means an electronic gaming machine or other electronic gaming device (including tables
with software embedded within the machine to make this operational and includes the Game.
Game means an electronic gaming machine or other electronic gaming device supplied under the
Agreement consisting of the Software and firmware expressing the machine game and associated artwork.
6. System means a combination of hardware (including computer equipment) and Software (including third
party software) which operates and maintains a network connection between gaming machines and other
devices (including, for example, gaming machines and a table) and a central computer. System includes the
system known as Dacom.
7. Conversion Kits means a kit consisting of components of electronic gaming machines, associated hardware,
software and artwork sold, hired or otherwise provided for the purpose of enabling an existing electronic
gaming machine to be used for the playing of new or updated Games.
8. Parts means any components, parts, accessories, fixtures or fittings of materials which are part of a Gaming
Machine or Conversion Kits and includes main boards.
9. Customer means any person within the Territory to whom Aristocrat Philippines (Philippine Branch) has
leased or intends to lease the Gaming Machines, and also includes such persons outside the Territory where
the context requires this meaning.
10. Maintenance and Support Services means maintenance and support services including but not limited to
account management, training, installation, product delivery and product maintenance and support.
11. Entitled An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119,
121, 148, 151, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, as Amended, and for
other Purposes, signed on May 24, 2005, and became effective on November 1, 2005.
12. Page 182.
13. The VAT rate was increase to 12% on February 1, 2006, in accordance with the Memorandum of the
October 16, 2007

of 1997;
Embassy of the Russian Federation

1245 Acacia Road, Dasmariñas Village
Makati City
Gentlemen :
This has reference to your Note Verbale No. 118 dated June 27, 2007, referred to this Office by the
Department of Finance (DOF) and the Office of Protocol, Department of Foreign Affairs (DFA),
requesting for a tax-free purchase on a local motor vehicle for the official use of the Embassy of the
Russian Federation, specifically described as follows: aTCAcI
Make: Chrysler 300C 3.5 V6

Model Year: 2007
Color: Magnesium
Engine Number: 7Y515193
Serial Number: 1C3H863G37Y515193
reads:
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of
goods or services; TDCaSE
"xxx xxx xxx"
Embassy of the Russian Federation on their local purchase of motor vehicles it appearing from the list
motor vehicles thereat. ICTDEa
Hence, the herein local purchase of one (1) unit of 2007 Chrysler 300C 3.5 V6 for the official use
of the Embassy of the Russian Federation is exempt from VAT. (BIR Ruling No. ITAD-180-00 dated
November 29, 2000)
the herein parties are concerned. EIDATc
Very truly yours,

Deputy Commissioner
September 28, 2007
Art. 5 & Art. 7, Philippine-United Kingdom Tax Treaty;

BIR Ruling No. DA-ITAD 126-02/154-02
Instone Philippines, Inc.

8th Floor 1st E-Bank Building
8737 Paseo de Roxas, Makati City
Attention: Atty. Bernard D. Bandonell
Gentlemen :
This refers to your application for relief from double taxation, which was filed on behalf of Instone
International, Ltd. (IIL) formerly Instone Group Services Ltd. 1(30) (IGSL), requesting confirmation of
your opinion that the management fee which your company, Instone Philippines, Inc. (INPHIL) pays to IIL
is exempt from Philippine income tax, and therefore, not subject to any withholding tax, pursuant to
Article 7 of the Philippines-United Kingdom (Philippines-UK) tax treaty, and Section 28 (B) (1), in
relation to Section 23 (F), both of the National Internal Revenue Code (Tax Code) of 1997. CaESTA
It is represented that IIL is a company duly registered in the United Kingdom of Great Britain, and
is a resident in the United Kingdom for tax purposes, per Certification issued by the Inland Revenue
Northern Ireland dated May 6, 2003; that it is not registered either as a corporation or as a partnership in
the Philippines as evidenced by a Certificate of Non-Registration of Corporation/Partnership issued by the
Philippine Securities and Exchange Commission dated June 30, 2004; that INPHIL is a corporation
organized and existing under and by virtue of the laws of the Philippines and is a subsidiary of IIL; that it
acquired its License To Do Business Under The Foreign Investment Act on account of its being a 99.99%
owned by its foreign principal; that it is engaged in the business of "travel and tour agency for any person,
firm, corporation or association, whether domestic or foreign, arranging and/or conducting domestic
tours for foreign visitors and local tourists, providing tourists guides and, in general, to engage in the
business of tours service in or outside the Philippines where laws and regulations will allow"; 2(31) that
INPHIL exclusively provides its services of booking and confirming reservations for, and issuing of,
airline tickets for outbound Filipino seamen exclusively for international shipping companies; that IIL
maintains subsidiaries all over the world undertaking services similar to that of INPHIL; that as a
subsidiary of IIL, INPHIL caters to clients which are mainly international shipping companies whose bases
of operations are outside of the Philippines (for brevity, INPHIL and IIL and the latter's subsidiaries
worldwide, shall be referred to as "Instone Group"); that inasmuch as the clients of the Instone Group are
closely the same worldwide, IIL adopts uniform systems and procedures in its financial, marketing, and
other administrative support services; that those uniform policies and procedures are being monitored by
IIL by sending its employee(s) to check on the level of compliance to these policies and procedures by
INPHIL; that for such services, IIL collects "group services costs" from its entire subsidiaries equivalent to
1.7% of ticket price; that these "group services costs" are reasonable estimate of the amount expended by
IIL in the performance of its service to its subsidiaries including INPHIL; INPHIL treats its share in the
"group services costs' as management fee, pursuant to the Management Services Agreement (Agreement)
executed and signed by and between IIL and INPHIL on October 10, 2000; and that under the Agreement
the services to be rendered are enumerated as follows:
"Instone International Limited agrees to provide the following services, in so far as they will be
provided totally outside of the Philippines:
1) Policy determination services involving group sales coordination, method of liaison with
clients and suppliers and advisory services regarding staff, accommodation and business
issues generally, as may be required by Instone Philippines, Inc.; cTaDHS
2) Administrative support which is confined to consultation and recommendation on the supply

of staff for ad hoc work regarding Instone Group Information Technology issues, Instone
Group quality standards, and policy coordination on sales processing and administration;
3) Financial planning and control services to Instone Group members involving group
management accounting, financial accounting advice, group corporate taxation compliance
and, in general, financial control;
4) Provide Group treasury policy development on management of group treasury and foreign
exchange facilities and group banking facilities; and
5) Generally perform the services with a view to ensuring that Instone Philippines, Inc. meets
its requirements in accordance with the policies of Instone Group, and the standards of the
International Air Travelers Association (IATA)".
It is further represented that Mr. Richard Parotte, as the representative employee of IIL, will
monitor and supervise the implementation of the Agreement between INPHIL and IIL by visiting the
office of INPHIL in the Philippines, and that the rendition of these services in the Philippines did not
exceed a total of one-hundred eighty (180) days in any twelve-month period during the previous years, per
sworn statement dated February 11, 2005 executed by Ms. Marie Catherine Han, the General Manager of
INPHIL. cAHIST
In reply, please be informed that the pertinent portions of Article 7 and Article 5 of the
Philippine-United Kingdom tax treaty provide as follows:
"Article 7
Business Profits
1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless
establishment situated therein. If the enterprise carries on business as aforesaid, the profits of
the enterprise may be taxed in the other State but only so much of them as is directly or
indirectly attributable to that permanent establishment.
xxx xxx xxx"
"Article 5
Permanent Establishment
1. For the purposes of this Convention, the term 'permanent establishment' means a fixed place
of business in which the business of the enterprise is wholly or partly carried on.
2. The term 'permanent establishment' shall include especially:
a) a place of management;
b) a branch;
c) an office;
d) a factory;
e) a workshop;
f) a mine, oil well, quarry or other place of extraction of natural resources;
g) an installation or structure used for the exploration of natural resources;
h) a building site or construction or assembly project which exists for more than
183 days;
3. An enterprise of a Contracting State shall likewise be deemed to have a permanent

establishment in the other Contracting State if:
a) it carries on supervisory activities within that other Contracting State for more
than 183 days in connection with a building site, or a construction or
assembly project which is being undertaken, in that other Contracting State;
or
b) if furnishes services, including consultancy services, in that other Contracting

State through its employees or other personnel (other than agents of an
independent status within the meaning of paragraph 7 of this Article) for a
period exceeding in the aggregate of 183 days within any twelve-month
period.
xxx xxx xxx"
Based on the aforequoted provisions, the profits of IIL, shall be taxable only in the United Kingdom
(UK) unless it carries on business in the Philippines through a permanent establishment situated therein.
For this purpose, an enterprise which is a resident of UK may be deemed to have permanent establishment
in the Philippines if among others, the furnishing of services by such enterprise, through its employees or
other personnel, continue within the Philippines for a period exceeding in the aggregate 183 days within
any twelve-month period. DTAHEC
Inasmuch as all the services and activities of IIL are represented to be rendered outside the
Philippines and that its personnel who, in connection with the said services, are anticipated to stay in the
Philippines only for a limited period of time not exceeding 183 days within any twelve-month period, IIL
is not deemed to have permanent establishment in the Philippines to which its business profits may be
attributed to.
In view thereof, this Office confirms your opinion and so holds that the management fees derived
by IIL for services rendered to INPHIL outside the Philippines are not subject to Philippine income tax
and, thus, are not also subject to withholding tax pursuant to Article 7 (1) in relation to Article 5 (3) (b) of
the Philippine-United Kingdom tax treaty, and Section 28 (B) (1) in relation to Section 23 (F), both of the
Tax Code of 1997. (BIR Ruling No. ITAD 126-02 dated August 02, 2002) IEAacT
As regards the compensation of IIL representative, Mr. Parotte, who will come to the Philippines to
monitor and supervise the implementation of the Agreement, Article 14 of the same treaty provides, viz:
"Article 14
Dependent Personal Services
1. Subject to the provisions of Articles 15, 16, 17, 18, 19 and 20, salaries, wages and other
similar remuneration derived by a resident of a Contracting State in respect of an
employment shall be taxable only in that State unless the employment is exercised in the
other Contracting State. If the employment is so exercised, such remuneration as is derived
therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph (1) of this Article, remuneration derived by a

resident of a Contracting State in respect of an employment exercised in the other
Contracting State shall be taxable only in the first-mentioned State if:
a) the recipient is present in the other State for a period or periods not exceeding
in the aggregate 183 days in the fiscal year concerned; and
b) the remuneration is paid by, or on behalf of, an employer who is not a

resident of the other State; and
c) the remuneration is not borne by a permanent establishment or a fixed base

which the employer has in the other State.
xxx xxx xxx."
Based on the above, the remuneration derived by Mr. Parotte in connection with his visit to the
Philippines shall be subject to Philippine income tax when his stay in the Philippines exceeds in the
aggregate 183 days in a fiscal year, and if his remuneration is paid by an enterprise which is a resident of
the Philippines, and if his remuneration is borne by a fixed base which IIL has in the Philippines. ATCaDE
Considering that Mr. Parotte's stay in the Philippines did not exceed 183 days and his remuneration
is borne by IIL, a UK resident, which has no permanent establishment in the Philippines, said
remuneration is not subject to Philippine income tax.
However, as provided in Section 108 of the National Internal Revenue Code of 1997, the ratable
portion of the fee corresponding to services actually rendered in the Philippines is subject to value-added
tax (VAT):
"SEC. 108. 3(32) Value-added Tax on Sale of Services and Use or Lease of Properties. —
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.
Philippines for others for a fee . . ." (Emphasis supplied)
With regard to the procedures for withholding and paying the VAT, INPHIL, being the resident
VAT on such fees before making any payment to IIL. In remitting the VAT withheld, INPHIL shall use
BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax & Other Percentage Taxes
Withheld). The duly filed BIR Form No. 1600 and the proof of payment thereof shall serve as
documentary substantiation for the claim of input tax to be applied against the output tax that may be due
from INPHIL if it is a VAT-registered taxpayer. In case INPHIL is a non-VAT-registered taxpayer, the
passed-on VAT withheld shall form part of the cost of the service purchased and may treat such VAT as
an "expense" or as an "asset", whichever is applicable. In addition, INPHIL is required to issue in
quadruplicate a Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate, the
first three copies for IIL and the fourth copy for INPHIL as its file copy. (Sections 4 & 6, Revenue
Regulations (RR) No. 4-2002; Section 3 of RR 8-2002; Section 7 of RR 14-2002)
This ruling is issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force
and effect insofar as the herein parties are concerned. IcHAaS
Very truly yours,
By:

Deputy Commissioner
Footnotes
1. It was incorporated as Pridelure Limited and then changed its name to Instone Aircraft Trading Limited
(IATL) as evidenced by Certificate of Incorporation on Change of Name No. 2136314 issued by
Companies Registration Office dated September 8, 1987. It further changed its name from IATL to Instone
Groups Services Ltd. (IGSL) as evidenced by Certificate of Incorporation on Change of Name No. 2136314
issued by the Registrar of Companies for England and Wales dated April 13, 2001.
2. As stated in Article Two (Primary Purpose) of its Articles of Incorporation.
3. Section 108 was amended by Republic Act No. 9337, which was signed into law on May 24, 2005 and
became effective on November 1, 2005, to read as:
A. Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipt derived from the sale or exchange of services, including the use or
lease of properties selling price of gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor: Provided, that the President, upon the
tax to twelve percent (12%), after any of the following conditions has been satisfied:
one-half percent (1 1/2%)
xxx xxx xxx
The VAT rate was increased to 12% on February 1, 2006, in accordance with the Memorandum of the
September 27, 2007
Paragraph 4 (a), Diplomatic Exchange of Notes dated May

6, 2002; Art. 5, Agreement between the Govt. of the Federal
Republic of Germany and the Govt. of the Republic of the
Philippines;
Sec. 109 (K), National Internal Revenue Code of 1997, as
amended;
Embassy of the Federal Republic of Germany

25th Floor, The RCBC Plaza, Tower 2
6819 Ayala Avenue
Makati City
Attention: Klaus Tesch

First Secretary
Gentlemen :
This has reference to your Note Verbale WZ 445.11/Auto KFZ No. 074/2007 dated August 9, 2007
indorsed to this Office by the Department of Finance and the Department of Foreign Affairs (DFA), Office
of Protocol, requesting for exemption from payment of tax on the local purchase of one (1) motor vehicle,
for the official use of the Decentralization Program under the project of GDC-GTZ Office of the German
Embassy, specifically described as follows: aEHAIS
Type of use: Official use

Organization: German Development Cooperation-
German Technical Cooperation (GDC-GTZ)
9/F, PDCP Bank Center, L.P. Leviste corner
V.A. Rufino Streets, Salcedo Village, Makati City
Make: one (1) unit Mitsubishi Fuzion GLX A/T
Model year: 2007
Color: Talavera Blue
Engine No.: 4G64T007207
Frame No.: A6007166
(NIRC), as amended by Section 7 of Republic Act No. 9337 dated November 1, 2005, provides, viz: HDCTAc
xxx xxx xxx
Based on the Section 109 above, a transaction is exempt from VAT when a special law or an
international agreement to which the Philippines is a signatory provides for such exemption. The
Agreement between the Government of the Federal Republic of Germany and the Government of the
Republic of the Philippines Concerning Technical Co-operation 1(33) executed on September 7, 1971,
with Diplomatic Exchange Notes dated May 6, 2002 partakes the nature of an international agreement as
required under Section 109. Paragraph 4 (a) of the Diplomatic Exchange of Notes dated May 6, 2002 and
which provides as follows, is, in effect, a grant of exemption from VAT: cEHSIC
"4. The Government of the Republic of the Philippines shall make the following
contributions:
It shall
(a) exempt the material and motor vehicles supplied for the Office from taxes,
licenses, harbour dues, import and export duties and other public charges, as
well as storage fees, and ensure that such material is cleared by customs
without delay. The aforementioned exemptions shall, with regard to
value-added tax (VAT), also apply to material and services (including
consulting services) procured in the Republic of the Philippines, as well as to
the renting of office premises and accommodation for seconded experts;
(Emphasis supplied)
In view thereof, this Office is of the opinion and so holds that the purchases made by GDC-GTZ of
materials and motor vehicles in the Philippines under the Agreement between the Government of the
Federal Republic of Germany and the Government of the Republic of the Philippines Concerning
Technical Co-operation executed on September 7, 1971, with Diplomatic Exchange Notes dated May 6,
2002, are exempt from VAT, pursuant to Sec. 109 (K) of the NIRC of 1997, as amended. cEHITA
Hence, your herein request for exemption from VAT on the local purchase of one (1) unit Toyota
Mitsubishi Fuzion GLX A/T, for the official use of the Decentralization Program under the project of
GDC-GTZ is hereby granted. (BIR Ruling No. DA-ITAD-149-05 dated November 30, 2005)
Very truly yours,

Deputy Commissioner
Footnotes
September 26, 2007
Section 108 — National Internal Revenue Code of 1997;

United States Agency for International Development

8/F, PNB Financial Center
Pres. Diosdado Macapagal Blvd.
1308 Pasay City
Philippines
Attention: Ms. Aye Aye Thwin

Acting Deputy Director
Gentlemen :
This refers to your letter dated August 16, 2007, regarding Certifications for the United States
Agency for International Development's (USAID) implementing agents under Revenue Memorandum
Circular No. 40-2007, and requesting therein a Bill Ruling on the eligibility of purchase of airline tickets
for value-added tax (VAT) exemption in connection with USAID development assistance activities. HAICTD
In reply, please be informed that the VAT exemption privilege accorded to a diplomatic mission,
pursuant to the principle of reciprocity, does not extend to the purchase of airfare tickets of the
participants to a project which is sponsored by the said diplomatic mission or by an attached agency of the
latter, for the following apparent reasons:
1. To allow the same is tantamount to an indirect grant of VAT exemption to persons who are
otherwise directly subjected to VAT, considering that the persons who would utilize the
airfare tickets are not part of the diplomatic mission and are non-privileged persons; Thus,
what is prohibited directly cannot be allowed indirectly; IcESDA
2. The VAT exemption privilege is personal to the grantee and as such, shall extend only to
transactions which directly involve the embassy and/or its qualified personnel (meaning the
embassy itself or the qualified embassy personnel themselves are the ones benefited by the
services/goods purchased). Thus, where the transaction is one which does not directly
involve the US Embassy from which the USAID derives its VAT exemption privilege, or its
qualified personnel as in this case where the contracts of carriage (airfare tickets) are
between PAL and the USAID implementing agents' personnel, then, exemption from VAT
cannot be applied (BIR Ruling No. DA-ITAD-171-03);
3. Tax exemptions are construed in strictissimi juris or strictly construed against the taxpayer,
grantee or the one claiming the exemption, and liberally in favor of the taxing authority; and
acEHSI
4. To allow the same would open the floodgate for abuse of a privilege.
Very truly yours,
By:

Legal Service
September 24, 2007
Article 10 of the Philippines-Japan tax treaty;

ITAD Ruling No. 008-99
Gramata & Associates Law Office

2nd Floor, FCC Building
7494 Santillan Street
1230 Makati City
Attention: Atty. Delfin N. Gramata
Gentlemen :
This refers to your letter dated June 8, 2006, on behalf of your client Nissin Precision Philippines
Corporation (Nissin Philippines), requesting confirmation that the dividends to be received by Nissin
Precision Machines Co. Ltd. (Nissin Japan) from Nissin Philippines is subject to 10% preferential tax rate
pursuant to Article 10 of the Philippines-Japan tax treaty.
It is represented that Nissin Japan is a corporation organized and existing under the laws of Japan
with principal address at 29-21 Tamagawa 2-Chome, Ohta-ku, Tokyo, Japan; that it is not registered either
as a corporation or as a partnership in the Philippines per certification issued by the Securities and
Exchange Commission dated April 21, 2006; that Nissin Philippines is a corporation organized and
existing under the laws of the Philippines with principal address at Lot-15A, First Philippine Industrial
Park, Sto. Tomas, Batangas; that Nissin Japan is a major stockholder of Nissin Philippines with a
shareholding of 99.987% or 39,995 shares with a par value of One Thousand Pesos (P1,000.00) per share
acquired since November 21, 2001; that per certification dated September 2, 2006 issued by the Corporate
Secretary of Nissin Philippines, from November 21, 2001, and during the period of more than six (6)
months immediately prior to the date of declaration and payment of the cash dividends on June 1, 2006
and on June 21, 2006, respectively, there were no changes which took place in the percentage
shareholdings of Nissin Japan; that the issue or transaction subject of this request for ruling is not under
investigation, on-going audit, administrative protest, claims for refund or issuance of a tax credit
certificate, collection proceedings, or judicial appeal.
In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:
cASIED
"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:
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
assimilated to income from shares by the taxation laws of the Contracting State of which the
company making the distribution is a resident.
"xxx xxx xxx"
Based on the aforequoted provisions, the Philippines may tax the dividends paid by a company
which is a resident thereof to a company which is a resident of Japan at a rate not exceeding 10 percent if
the last-mentioned company holds directly at least 25 percent 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. AIHaCc
In view thereof and considering that Nissin Japan is a major stockholder of Nissin Philippines with
a shareholding of 99.987% for a period of six months immediately preceding the date of payment, said
dividends paid by Nissin Philippines to Nissin Japan are subject to 10 percent preferential tax rate,
pursuant to the Philippines-Japan tax treaty. (ITAD Ruling No. 008-99 dated July 20, 1999)
investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force
and effect insofar as the herein parties are concerned.
Very truly yours,
By:

Deputy Commissioner
September 24, 2007
Article 9, Philippines-United Kingdom of Great Britain

and Northern Ireland tax treaty
Ong Meneses Gonzales & Gupit Law Offices

Suite 1515 Cityland 10
Tower 1, 6815 Ayala Avenue
Makati City 1226 Philippines
Attention: Mr. Francisco B. Gonzales V

Tax Counsel
Gentlemen :
This refers to your application for tax treaty dated 4 December 2006, on behalf of your clients,
Instone International Limited (Instone UK) and Instone Philippines, Inc. (Instone Phil), requesting
confirmation of your opinion that the dividends declared and paid by Instone Phil to Instone UK, are
subject to the preferential tax rate of 15%, pursuant to Article 9 of the Convention between the
Government of the Republic of the Philippines and Government of the United Kingdom of Great Britain
and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and Capital Gains (Philippines-UK tax treaty).
It is represented that Instone UK is a corporation organized and existing under the laws of the
United Kingdom with registered office at 69 Kings Road, Brentwood CM14 438, United Kingdom; that it
is not registered either as a corporation or as a partnership in the Philippines per certification dated 5
October 2006 issued by the Securities and Exchange Commission; that Instone Phil is a corporation duly
organized and existing under Philippine laws with principal office address at 8th Floor, 1st E-bank
Building, 8737 Paseo cor. Makati Ave., Makati City, Philippines.
It is further represented that out of a total number of Twenty Million common shares in Instone
Phil, Instone UK has a shareholding of Nineteen Million Nine Hundred Ninety-Nine Thousand Nine
Hundred Ninety-Five (19,999,995) common shares in Instone Phil with a par value of One Peso (PhP1.00)
per share, amounting to Nineteen Million Nine Hundred Ninety-Nine Thousand Nine Hundred
Ninety-Five Pesos (PhP19,999,995) as of 30 July 2006; that the five (5) remaining shares in Instone Philip
which are under the name of Michael Andrew Murphy, Richard Parotte, Catherine Han, Francisco B.
Gonzales V and Atty. Bernard Bandonnel are held in trust for Instone UK; that the percentage ownership
of Instone UK to the total subscribed stock of Instone Phil amounts to One Hundred percent (10%) of the
total subscribed stock of Twenty Million Pesos (PhP20,000,000.00) with a par value of PhP1.00 each; that
on 2 December 2006, the Board of Directors of Instone Phil declared cash dividends in the amount of
Seven Million Two Hundred Thousand Pesos (PhP7,200,000.00) to all stockholders of record, fifty
percent (50%) of which is payable on 8 December 2006, and another fifty percent (50%) payable on 15
December 2006; that the recipient of the dividends shall be primarily Instone UK; and that the issue/s or
transaction subject of the above request for ruling is not under investigation, on-going audit, administrative
protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal
of the taxpayer/s involved. HAEDIS
In reply, please be informed that Article 9 of the Philippines-UK tax treaty provides as follows, viz:
"Article 9
Dividends
1. Dividends derived from a company which is a resident of the Philippines by a resident of the
United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in
the Philippines but where such dividends are beneficially owned by a resident of the United
Kingdom the tax so charged shall not exceed:
a) 15% of the gross amount of the dividends if the beneficial owner is a

company which controls directly or indirectly at least 10 per cent of the
voting power in the company paying the dividends;
b) in all other cases, 25% of the gross amount of the dividends.
xxx xxx xxx
4. The term 'dividends' as used in this Article means income from shares, or other rights, not
being debt-claims, participating in profits, as well as income from corporate rights
assimilated to income from shares by the taxation law of the State of which the company
making the distribution is a resident and also includes any other item (other than interest
relieved from tax under the provisions of Article 10 of this Convention) which, under the
law of the Contracting State of which the company paying the dividend is a resident, is
treated as a dividend or distribution of a company.
xxx xxx xxx"
whenever the recipient, who is the beneficial owner of the dividends, owns at least 10% of the voting
power of the paying company. In all other cases, 25% preferential tax rate shall apply. Such being the case
and considering that Instone UK actually holds approximately 99.99% of the subscribed common shares of
Instone Phil, this Office is of the opinion and so holds that the dividend payments by Instone Phil to
Instone UK shall be subject to the preferential tax rate of 15% based on the gross amount of dividends,
pursuant to Article 9 (1) (a) of the Philippines-UK tax treaty. (BIR Ruling No. ITAD-187-00 dated
December 7, 2000) CHcTIA
Very truly yours,
By:

Deputy Commissioner
September 24, 2007

of 1997;
Embassy of Spain
27th Floor, Yuchengco Tower
RCBC Plaza
Ayala Ave. cor. Sen. Gil Puyat Ave.
Makati City
Attention: Mr. Francisco Javier Casanova Alvarez

Economic and Commercial Counsellor
Gentlemen :
This has reference to your Note Verbale No. 96 dated August 3, 2007, referred to this Office by the
Office of Protocol and State Visits, Department of Foreign Affairs (DFA), requesting for a tax-free
purchase on a local motor vehicle for the personal use of Mr. Francisco Javier Casanova Alvarez,
Economic and Commercial Counsellor of the Embassy of Spain, specifically described as follows:
Make: Mitsubishi Outlander GLS

Model Year: 2007
Color: Adobe Gray
Engine Number: 6B31AG3314
Frame Number: JMYXLCW6W7Z000159
reads:
"ARTICLE 34
regional or municipal, except: CAHaST
goods or services;
"xxx xxx xxx"
Embassy of Spain or its personnel on their local purchase of motor vehicles it appearing from the list
similar exemption to Philippine Embassy and/or its personnel on their purchases of local goods and
services.
Hence, the herein local purchase of one (1) unit of 2007 Mitsubishi Outlander GLS for the personal
use of Mr. Francisco Javier Casanova Alvarez, Economic and Commercial Counsellor of the Embassy of
Spain is exempt from VAT. (BIR Ruling No. ITAD-052-00 dated March 2, 2000)
Very truly yours,

Deputy Commissioner
September 24, 2007

of 1997;
Embassy of the People's Republic of China

4896 Pasay Road, Dasmariñas Village
Makati City
Attention: Mr. Wang Jiaxin

Second Secretary
Gentlemen :
This has reference to your Note Verbale No. (07) 300 dated August 17, 2007, referred to this Office
by the Office of Protocol and State Visits, Department of Foreign Affairs (DFA), requesting for tax-free
purchase of a local motor vehicle for the personal use of Mr. Wang Jiaxin, Second Secretary of the
Embassy of the People's Republic of China, specifically described as follows:
Make: Mazda6 2.3Li A/T

Model Year: 2007
Color: Silver Contrail
Engine Number: L310251887
Chassis Number: JM7GG423271544700
reads:
"ARTICLE 34
regional or municipal, except: HASDcC
goods or services;
"xxx xxx xxx"
Embassy of the People's Republic of China or its personnel on their local purchase of motor vehicles it
appearing from the list submitted by the Department of Foreign Affairs as of August 24, 2007 that your
local goods and services.
Hence, the herein local purchase of one (1) unit of 2007 Mazda6 2.3Li A/T for the personal use of
Mr. Wang Jiaxin, Second Secretary of the Embassy of the People's Republic of China is exempt from
VAT. (BIR Ruling No. ITAD-44-05 dated May 19, 2005)
Very truly yours,

Deputy Commissioner
October 25, 2007
DFA Indorsement dated August 24, 2007;

Embassy of the Republica Democratica De Timor-Leste

12th Floor Centerpoint Condominium
Garnet Road, Julia Vargas Avenue
Ortigas Center
Pasig City
Gentlemen :
This has reference to your letter (RDTL Embassy No. 08/NV/07) dated July 23, 2007, referred to
this Office by the Department of Finance and the Department of Foreign Affairs, requesting for the
exemption from payment of taxes on the local purchase of motor vehicles, for the official use of the
Embassy of the Republica Democratica de Timor-Leste, specifically described as follows: TCEaDI
Type of Use: Official Official

Make: Nissan Sentra 1.6L GS A/T Nissan Sentra 1.3L GX MT PWR
Model Year: 2007 2007
Color: Vivid Black Vivid Black
Chassis Number: CDGALUAN16-C13899 CDEALDFN16-C13852
Engine Number: QGT6-003841 QG13-006271
reads:
"ARTICLE 34
(a) indirect taxes of a kind which are normally incorporated in the price of the
goods and services;
xxx xxx xxx"
from value-added tax (VAT) on their local purchases of goods and services. In other words, purchases by
Sections 106 and 108 of the National Internal Revenue Code of 1997. cTDECH
However, applying the principle of reciprocity, this Office may confirm entitlement of VAT
exemption of an Embassy and/or its personnel on their local purchases of goods and/or services if it
appears from the list submitted by the DFA that the Government of and/or its personnel allows similar
exemption to the Philippine Embassy and/or personnel on their purchase of goods and services in its
country.
The list submitted by DFA dated August 23, 2007 indicates that the Embassy of the Republica
Democratica de Timor-Leste is entitled to VAT exemption on local basic goods and services in the
Philippines, on the basis of reciprocity. Hence, the Embassy of the Republica Democratica de Timor-Leste
and its staff is exempt from VAT on its purchases of basic goods and/or services in the Philippines.
Moreover, a separate DFA list of diplomatic missions entitled to VAT exemption on

locally-assembled motor vehicle dated August 24, 2007 includes the Embassy of the Republica
Democratica de Timor-Leste.
Hence, the local purchase of two (2) units of 2007 Nissan Sentra for the official use of the Embassy
of the Republica Democratica de Timor-Leste are exempt from VAT. cHEATI
Very truly yours,

Deputy Commissioner
August 31, 2007
Sec. 106 (a) & 149 of the Tax Code 1997;

Sec. VII, Article XIII of the Agreement between RP and
International Bank for Reconstruction and Development
(The World Bank)
The World Bank/International Bank for

Reconstruction and Development (IBRD)
The World Bank
23/F Taipan Place
Emerald Avenue, Ortigas Center
Pasig City
Gentlemen :
This refers to your letter dated June 7, 2007, indorsed to this Office by the Department of Finance
(DOF) and the Department of Foreign Affairs (DFA), requesting for the exemption from payment of
value-added tax (VAT) and ad valorem tax on the purchase of (1) locally-produced motor vehicle, for the
official use of The World Bank/International Bank for Reconstruction and Development, specifically

Make: Toyota Fortuner 4X4 Diesel A/T
Model Year: 2007
Color: Lithium
Engine Number: 1 KD-7326479
Chassis Number: MR0YZ59G700057061
In reply, please be informed that Section VII, Article XIII of the Agreement between the Republic
of the Philippines and International Bank for Reconstruction and Development (The World Bank)
concerning Establishment of a Resident Mission in the Republic of the Philippines provides as follows: cTESIa
"VII. OFFICERS, EXPERTS AND CONSULTANTS OF THE BANK
Article XII
"Officers, experts, persons on secondment and consultants of the Bank assigned to perform
service with the Resident Mission shall enjoy in the territory of the Philippines, the following
exemptions, privileges and immunities:
"xxx xxx xxx
"(h) except with respect to nationals or permanent residents of the

Philippines, the right to import and re-export or sell their furniture and effects,
including motor vehicles and spare parts therefore subject to payment of applicable
taxes thereon if sold to and enjoying the same privileges and immunities as regards to
goods, including motor fuel, purchased in the Philippines to the resident members of
diplomatic and international organizations.
"xxx xxx xxx
"(j) all such other exemptions, privileges and immunities which are or may
be accorded by the Government to members or officers of other international
organizations."
It is evident that the intention of the foregoing provisions is to place the officers of the World Bank
at par with the officers of other international organizations insofar as exemption from taxes is concerned.
One such organization is the Asian Development Bank whose officers are granted exemption from
value-added tax (VAT) on their local purchase of motor vehicles pursuant to Memorandum of the
Executive Secretary to the Secretary of Foreign Affairs and Secretary of Finance dated August 15, 1973 as
implemented by Department Order No. 43-89. (BIR Ruling No. ITAD-115-00 dated August 29, 2000) cHITCS
Accordingly, on the basis of the favorable recommendation of the Department of Foreign Affairs
and in line with the precedent rulings granting VAT to ADB personnel and members of diplomatic
missions on their local purchase of motor vehicles, your request for exemption from VAT imposed under
Sections 106 (A) and 149 of the Tax Code of 1997 on The World Bank's local purchase of one (1) unit
Toyota Fortuner 4X4 Diesel A/T is hereby granted.
The World Bank/International Bank for Reconstruction and Development (IBRD).
Very truly yours,

Legal Service
July 25, 2007

Embassy of the State of Qatar

1378 Caballero St. cor. Lumbang St.,
Dasmariñas Village, Makati City
Attention: Hon. Jamal A.J. Al-Shamlan

Charge d' Affaires, a.i.
Gentlemen :
This has reference to your Note Verbale No. QAT/MNL/074/2007 dated July 4, 2007 referred to
this Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting
for a refund of value-added tax (VAT) on the local purchase of a motor vehicle, for the official use of the
Embassy of the State of Qatar, specifically described as follows:

Make: Toyota Hi-Ace GL Grandia 2T
Model Year: 2007
Chassis Number: JTFRS13PX00005469
Engine Number: 2KD 1590298
reads:
"ARTICLE 34
the goods and services;
"xxx xxx xxx"
from the value-added tax (VAT) on its local purchases of locally-assembled motor vehicles. In other
words, purchases by that Embassy and its diplomatic agents of locally-assembled motor vehicles shall, in
general, be subject to the value-added tax prescribed under Sections 106 and 108 of the National Internal
Revenue Code of 1997. CASaEc
of the State of Qatar and its personnel on their local purchases of motor vehicles it appearing from the list
submitted by the Department of Foreign Affairs as of October 18, 2005 that your Government allows
similar exemption to the Philippine Embassy and its personnel on their purchases of motor vehicles in
your country.
Hence, the local purchase of one (1) unit of 2007 Toyota Hi-Ace GL Grandia 2T, for the official
use of the Embassy of the State of Qatar, is exempt from VAT. (BIR Ruling No. DA-ITAD-102-05 dated
September 19, 2005)
This ruling is issued on the basis of the facts as represented and is rendered only for the purpose of
determining whether the Embassy of the State of Qatar is entitled to VAT exemption on the basis of
reciprocity. The determination on whether your request for tax refund should be given due course is upon
the Office which will be conducting the investigation for that purpose. Thus, the docket pertaining thereto
(including a copy of this ruling) shall be endorsed to the proper office for processing and investigation.
Very truly yours,

Legal Service
July 27, 2007

1997;
Delegation of European Commission in the Philippines

30th Floor, Tower 2, RCBC Plaza
6819 Ayala Avenue
1200, Makati City
Attention: Mr. Alistair Macdonald

Ambassador and Head of Delegation
Gentlemen :
This has reference to your Note No. 07/088 dated June 29, 2007 referred to this Office by the
Department of Finance and the Department of Foreign Affairs, Office of Protocol, requesting for the
exemption from payment value-added tax (VAT) on the local purchase of one (1) unit motor vehicle for
the personal use of Mr. Alistair Macdonald, Ambassador and Head of Delegation of the Delegation of the
European Commission, specifically described as follows:
Make: Honda CRV 4X2 A/T

Model Year: 2007
Color: Satellite Silver
Engine Number: R20A11800889
Frame Number: MRHRE18307P010631
In reply, please be informed that pursuant to Article 34 of the Vienna Convention on Diplomatic
Relations, pertinent portion of which reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
from the VAT on its local purchases of goods and services. In other words, purchases by that Embassy of
goods and/or services shall, in general, be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997. TcHCIS
However, applying the principle of reciprocity, this Office may grant exemption to Mr. Alistair
Macdonald, Ambassador and Head of Delegation, a British national, and whose Embassy in the
Philippines is included in the updated list of diplomatic missions entitled to VAT exemption on the
purchase of locally-assembled motor vehicles, on the basis of reciprocity, as confirmed by the Office of
Protocol of the DFA in its letter dated October 18, 2005 that his Government allows similar exemption to
Philippine Embassy personnel on their local purchases of motor vehicles in his country.
Hence, the herein request for VAT exemption on the local purchase of one (1) unit of 2007 Honda
CRV 4X2 A/T, for the personal use of Mr. Alistair Macdonald, Ambassador and Head of Delegation of
the Delegation of the European Commission in the Philippines, is hereby granted. (BIR Ruling No.
ITAD-156-02 dated September 10, 2002)
Very truly yours,

Legal Service
July 20, 2007
Article 13, Phil.-Switzerland tax treaty;

BIR Ruling No. 060-82
Bernaldo Mirador & Directo Law Offices

Unit 1807 Cityland Condominium 10-Tower 1
6815 Ayala Avenue corner
H.V. dela Costa Street, Makati City
Attention: Perfecto E. Mirador, Jr.

Partner
Pepito G. Po
Legal Manager
Gentlemen :
This refers to your letter dated July 15, 2004, requesting confirmation of your opinion that the
sale/transfer of shares in Wacker Machinery Philippines, Inc. (WMPI) by Interwac Holding AG (Interwac)
to Wacker Construction Equipment AG (WCEA) is not subject to the capital gains tax, pursuant to the
Philippines-Switzerland tax treaty.
It is represented that your client, WMPI, is a domestic corporation duly organized and existing
under the laws of the Republic of the Philippines with principal address at Lot 9, Block 7, PEZA Drive,
First Cavite Industrial Estate, Bo. Langkaan, Dasmariñas, Cavite; that WMPI is duly registered with the
Philippine Economic Zone Authority (PEZA) with a pioneer status; that as a PEZA-registered enterprise,
WMPI is entitled to the 5% preferential tax regime under Republic Act No. 7916, as amended by Republic
Act No. 8748 (PEZA Law); that Interwac is a nonresident foreign company created under the laws of
Switzerland, with principal address at CH-8305 Dietlikon, Bahnhofstrasse 3, Switzerland; that Interwac
used to wholly own WMPI until it sold/transferred its stockholdings therein, consisting of One Million
One Hundred Ninety Nine Thousand Nine Hundred Ninety Five (1,199,995) shares with a par value of
P100.00 per share to WCEA, through a Certificate of Transfer of Shares of Stock (Certificate); that the
said Certificate was signed by the representative of Interwac on September 29, 2003, while the
representative of WCEA signed the same on February 3, 2004; that under the said Certificate, it was
stipulated among others, that "(a)ll capital gains, documentary stamp taxes, shall be for the account of the
Transferor (i.e., Interwac)"; and that WCEA is a nonresident foreign company created under the laws of
Germany sometime in September 2003, with principal address located at D-80809 Munchen,
Preussenstrasse 41, Germany. aDSHIC
In reply, please be informed that Article 13 of the Philippines-Switzerland tax treaty provides as
follows, viz:
"Article 13
GAINS FROM THE ALIENATION OF PROPERTY
1. Gains from the alienation of immovable property referred to in Article 6 (Income from
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 independent
personal services, including such gains from the alienation of such permanent establishment
(alone or with the whole enterprise) or of such fixed base may be taxed in that other State.
3. Gains from the alienation of ships or aircraft operated in international traffic or movable
property pertaining to the operation of such ships or aircraft, shall be taxable only in the
Contracting State in which the place of effective management of the enterprise is situated.
4. Gains from the alienation of shares of a company the property of which consist directly
principally of immovable property situated in a Contracting State may be taxed in that State.
5. Gains from the alienation of any property, other than that mentioned 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 Interwac from the sale or transfer of its
shares of stock in WMPI to WCEA shall be taxable only in Switzerland. 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 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]. CcAESI
Verification of the 2003 Audited Financial Statements of WMPI disclosed that its real property
interest located in the Philippines is only 20.22% of its total assets, thereby making the assets of WMPI
not principally consisted of real property interest located in the Philippines.
Accordingly, your opinion that the sale or transfer by Interwac to WCEA of its shares in WMPI is
not subject to capital gains tax is hereby confirmed. (ITAD Ruling No. 38-00 dated February 4, 2000)
This ruling is issued based on the facts as represented. However, if upon investigation it shall be
disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein
parties are concerned.
Very truly yours,
By:

Legal Service
July 19, 2007
Sec. 109 — National Internal Revenue Code 1997;

Article III, Section 10 — Vienna Convention
on the Privileges and Immunities of the
Specialized Agencies of the United Nations;
United Nations-World Food Programme (UN-WFP)

5th Floor, Jaka II Building
150 Legaspi Street, Legaspi Village
1226 Makati City
Gentlemen :
This refers to your letter dated September 19, 2006, requesting exemption from indirect taxes on all
sale of movable/immovable properties, non-food items and services provided to UN-WFP and its officials
such as security upgrades to offices, rentals etc.
In reply, please be informed that Section 109 (k) of the National Internal Revenue Code, as
amended by Republic Act 9337, provides, viz:
xxx xxx xxx
(k) Transactions which are exempt under international agreements to which the
DTCAES
In relation, thereto, Section 10, Article III of the Convention on the Privileges and Immunities of the
Specialized Agencies of the United Nations dated November 21, 1947 (Convention) provides:
"Article III
xxx xxx xxx
Section 10
remission or return of the amount of duty or tax. (emphasis ours)
"xxx xxx xxx"
This Bureau has taken the position that the aforecited provision on the imposition of taxes on the
important purchases for the official use of UN-WFP shall mean that, in lieu of the provision on the
remission or refund of amount of tax due, a tax exemption privilege can be granted. (BIR Ruling No.
DA-ITAD 046-07 dated April 11, 2007). Accordingly, the local purchases by UN-WFP are exempt from
VAT pursuant to Section 109 (K) of the NIRC of 1997, as amended by R.A. 9337.
Moreover, a closer examination of the Section 10 of the Convention provides that the exemption
accorded to UN-WFP on its important purchases refers to property for its official use. STaCIA
of an immovable;
(7) Fertilizer actually used on a piece of land; TSIDEa
remain at a fixed place on the river, lake, or coast;
3(36)
(3) Forces of nature which are brought under control by science;
real estate. 5(38)
If the answer to all the above questions is in the affirmative, then the object is movable. EAICTS
Applying the above definitions and discussions on property, it is clear that services provided to
UN/WFP such as security upgrades to offices and rentals purchases are not considered as purchase of
property, hence, outside the scope of the tax exemption privilege accorded it. (BIR Ruling No.
DA-ITAD-46-07 dated April 11, 2007)
Finally, this Office is of the opinion that Section 10 of the Convention extends the tax exemption
privilege to the specialized agencies of the UN such as UN-WFP but not to its officials as stated in your
letter.
Very truly yours,

Deputy Commissioner
Footnotes
2. Ibid.
July 17, 2007

of 1997;
Embassy of the State of Qatar

1378 Caballero Street corner Lumbang Street
Attention: H.E. Abdulla Ahmed Al-Mutawaa

Ambassador Extraordinary and Plenipotentiary
Gentlemen :
This has reference to your Note Verbale No. QAT/MNL/045/2007 dated May 4, 2007, referred to
this Office by the Department of Finance (DOF) and the Office of Protocol, Department of Foreign Affairs
(DFA), requesting for a tax-free purchase of a local motor vehicle for the official use of the Embassy of
the State of Qatar, specifically described as follows:
Make: Toyota GL Grandia 2.5 Diesel M/T

Model Year: 2007
Color: Noble Pearl
Chassis Number: JTFRS13PX00005469
In reply, please be informed that Article 34 of the Vienna Convention of Diplomatic Relations
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
106 and 108, both of the National Internal Revenue Code of 1997. TCAHES
Embassy of the State of Qatar on their local purchase of motor vehicles it appearing from the list
Hence, the herein local purchase of one (1) unit of 2007 Toyota GL Grandia 2.5 M/T for the
official use of the Embassy of the State of Qatar is exempt from VAT. (BIR Ruling No. ITAD-154-03
dated October 15, 2003)
Very truly yours,

Legal Service
July 16, 2007

of 1997;

Makati City
Gentlemen :
This has reference to your Note Verbale No. 118 dated June 27, 2007, referred to this Office by the
Russian Federation, specifically described as follows:
Make: Chrysler Pacifica AWD

Model Year: 2007
Color: Stonewhite
Engine Number: 7R147924
Serial Number: 2A8GF68X17R147924
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
106 and 108, both of the National Internal Revenue Code of 1997. IcaHTA
Embassy of the Russian Federation on their local purchase of motor vehicles it appearing from the list
Hence, the herein local purchase of one (1) unit of 2007 Chrysler Pacifica AWD for the official use
of the Embassy of the Russian Federation is exempt from VAT. (BIR Ruling No. ITAD-180-00 dated
November 29, 2000)
Very truly yours,

Legal Service
July 11, 2007
Article 10 (2) (a), Philippines-Netherlands tax treaty;

SyCip Salazar Hernandez & Gatmaitan

Attorneys-at-Law
105 Paseo De Roxas
Makati City
1226 Metro Manila
Philippines
Attention: Hector M. de Leon, Jr.

Anna Cristina V. Collantes-Garcia
Claire L. C. Salva-Sia
Gentlemen :
This refers to your application for tax treaty relief dated May 22, 2006, on behalf of your client,
CLSA Exchange Capital, Inc., (CLSA ExCap), requesting confirmation of your opinion that the cash
dividends to be paid by CLSA ExCap to CLSA BV are subject to the preferential tax rate of 10% pursuant
to Article 10 (2) (a) of the Philippines-Netherlands tax treaty.
It is represented that CLSA BV with address at Strawinskylaan 3501, 1077 ZX Amsterdam, the
Netherlands is a resident of the Netherlands within the meaning of Article 4 of the Philippines-Netherlands
tax treaty, per Certification dated January 17, 2006 issued by the Inspector of the Tax and Customs
Administration of the Netherlands; that it is not registered either as a corporation or as a partnership in the
Philippines per certification dated March 20, 2006 issued by the Securities and Exchange Commission;
that CLSA ExCap is a corporation duly organized and existing under and by virtue of Philippine laws,
with principal office address at 3rd Floor, Corporate Business Center, 151 Paseo de Roxas, Makati City,
Philippines.
It is further represented that a total of One Million Four Hundred Ninety Seven Thousand Four
Hundred Ninety Seven (1,497,497) shares of CLSA ExCap have been subscribed and paid-up out of the
Three Million (3,000,000) authorized capital stock of CLSA ExCap; that as of March 29, 2006, CLSA BV
is the beneficial owner of approximately sixty percent (60%) of the shares of CLSA ExCap or Eight
Hundred Ninety Eight Thousand Four Hundred Ninety Eight (898,498) shares with a par value of One
Hundred Pesos (PhP100), such shareholding having a total value of Eighty Nine Million Eight Hundred
Forty Nine Thousand Eight Hundred Pesos (PhP89,849,800.00); and that on December 7, 2005, the Board
of Directors of CLSA ExCap unanimously approved and declared cash dividends in the amount of Ninety
Four Thousand Three Hundred Sixty Seven Dollars and Thirty Four Cents (US$94,367.34) in favor of
stockholders of record as of March 30, 2005 and appropriated such amount out of retained earnings of
CLSA ExCap as of December 31, 2004 in accordance with the proportion of the stock ownership of each
stockholder.
follows, viz:
"Article 10
DIVIDENDS
dividends;
b) 15 per cent of the gross amount of the dividends in all other cases. EaSCAH
xxx xxx xxx
taxation law of the State of which the company making the distribution is a resident.
xxx xxx xxx"
company. In all other cases the 15 percent preferential tax rate applies. Such being the case and
considering that CLSA BV holds more than 10% of the capital of CLSA ExCap, this Office is of the
opinion and so holds that the dividend payments by CLSA ExCap pertaining to CLSA BV shall be subject
to the preferential tax rate of 10 percent, based on the gross amount of dividends, pursuant to Article 10
(2) (a) of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD 029-01 dated March 12, 2001)
Very truly yours,
By:

Legal Service
July 5, 2007

1997;
Delegation of European Commission in the Philippines

7th Floor, Salustiana D. Ty Tower
104 Paseo de Roxas
Legaspi Village
Makati City
Attention: Mr. Oliver Schwock

Attaché, Administration Section
Gentlemen :
This has reference to your Note No. 07/068 dated June 5, 2007 referred to this Office by the
Department of Finance and the Department of Foreign Affairs, Office of Protocol, requesting for the
exemption from payment value-added tax (VAT) on the local purchase of one (1) unit motor vehicle for
the personal use of Mr. Oliver Schwock, Attaché, Administration Section of the Delegation of the
European Commission, specifically described as follows:
Make: Honda Civic 1.8S M/T

Model Year: 2007
Color: Bluish Silver
"ARTICLE 34
services;
"xxx xxx xxx"
from the VAT on its local purchases of goods and services. In other words, purchases by that Embassy of
goods and/or services shall, in general, be subject to the value-added tax prescribed under Sections 106
and 108, both of the National Internal Revenue Code of 1997.
However, applying the principle of reciprocity, this Office may grant exemption to Mr. Oliver
Schwock, a German national, and whose Embassy in the Philippines is included in the updated list of
diplomatic missions entitled to VAT exemption on the purchase of locally-assembled motor vehicles, on
the basis of reciprocity, as confirmed by the Office of Protocol of the DFA in its letter dated October 18,
2005 that his Government allows similar exemption to Philippine Embassy personnel on their purchases of
goods and services in his country. DTaAHS
Hence, the herein request for VAT exemption on the local purchase of one (1) unit of 2007 Honda
Civic 1.8S M/T, for the personal use of Mr. Oliver Schwock, Attaché, Administration Section of the
Delegation of the European Commission in the Philippines, is hereby granted. (BIR Ruling No.
ITAD-156-02 dated September 10, 2002)
Very truly yours,

Legal Service
July 2, 2007
BIR Ruling Nos. DA-ITAD-123-06 & 33-05
Embassy of the Republic of Korea

18th Floor, The Pacific Star Building
Makati Avenue, Makati City
Gentlemen :
This refers to your request for exemption from payment of taxes, i.e. capital gains tax, documentary
stamp tax, real estate tax and other taxes, relating to the purchase by your Embassy of a lot located at
Mckinley Hill, Taguig for diplomatic use and to serve as new Embassy premises which was duly indorsed
to this Bureau by the Department of Foreign Affairs (DFA) on December 15, 2006.
In reply, please be informed of Article 23 of the Vienna Convention on Diplomatic Relations

(Convention) adopted on April 18, 1961, pertinent portion of which reads:
"ARTICLE 23
1. The sending state and the head of mission shall be exempt from all national, regional or
municipal dues and taxes in respect of the premises of the mission, whether owned or leased,
other than such as represent payment for services rendered. (Emphasis supplied)
2. The exemption from taxation referred to in this article shall not apply to such dues and taxes
payable under the law of the receiving state by the person contracting with the sending state
or the head of the mission. TCIDSa
xxx xxx xxx"
Clearly, from the aforequoted provisions of the Convention, the Embassy of Korea is exempt from
all national, regional or municipal dues and taxes on its acquisition of a real property specifically, a piece
of lot at McKinley Hill, Taguig for diplomatic use and to serve as new Embassy premises. [BIR Ruling
No. DA-ITAD-123-06 dated October 13, 2006]
Given the foregoing, this Office hereby clarifies the tax consequences of the purchase of a piece of
lot by the Embassy of Korea:
1. On capital gains tax —
The transaction may be subject to capital gains tax (CGT) if the property to be purchased is a
capital asset. In which case, however, the CGT is the liability of the seller and not the buyer, which is the
Embassy of Korea.
2. On value-added tax —
The transaction may be subject to value-added tax (VAT) if the property to be purchased is held
primarily for sale to customers in the ordinary course of trade or business by a VAT-registered seller.
VAT, being in the nature of an indirect tax, may be shifted or passed on to the buyer, transferee or lessee
of the goods, properties or services. However, since the buyer in this instance is the Republic of Korea
thru its Embassy in the Philippines, by specific provision of the Convention that the sending state is
exempt from national taxes in respect of the premises of the mission, whether owned or leased, it cannot,
therefore, be passed on with VAT. Accordingly, it is the opinion of this Office that the sale is subject to
VAT at zero percent pursuant to Sec. 106 1(39) of the Tax Code in relation to the Convention.
Moreover, applying the principle of reciprocity, this Office confirms the VAT exemption privilege
of the Embassy of Korea on its local purchases of goods and/or services, in general, it appearing from the
list submitted by the DFA that the Korean Government allows similar exemption to Philippine Embassy
on its purchase of goods and services in Korea. As of 14 March 2007, the Korean Embassy is included in
the above-mentioned DFA list. As further assurance to the observance of the principle of reciprocity, in
this particular transaction, Director Maria Cynthia P. Pelayo of Immunities and Privileges of the Office of
Protocol and State Visits of the DFA in her letter dated 9 May 2007, the Philippine Embassy in Seoul has
confirmed that the Korean government will grant VAT exemption and Acquisition Tax exemption in the
event that the Philippine government buys real property for use as chancery or official residence in Korea.
[BIR Ruling No. DA-ITAD-33-05 dated April 15, 2005]
3. On documentary stamp tax —
The transaction is also subject to documentary stamp tax (DST) pursuant to Section 196 2(40) of the
Tax Code. In this regard, Section 196 must be read together with the provision of Sec. 173. 3(41) It bears to
stress at this point that as provided in the latter section, whenever one party to the taxable document
enjoys exemption from the DST imposed on the conveyance of land, the other party thereto who is not
exempt shall be the one directly liable for the tax. Accordingly, since the Korean Embassy is exempt from
all taxes in respect of the premises of the mission, and, as such, is exempt from DST arising from its
property acquisition for the new chancery in the Philippines, the seller of the lot to the Korean Embassy
shall be the party directly liable for the payment of the documentary stamp tax thereon. [BIR Ruling No.
DA-ITAD-33-05 dated April 15, 2005]
4. On real property tax —
This Bureau declines to rule on this issue since it is beyond its jurisdiction to pass upon matters
relating to taxes outside the scope of the Tax Code.
the herein parties are concerned. ECAaTS
Very truly yours,
By:

Legal Service
Footnotes
1. Section 106 of the Tax Code, as amended by Republic Act No. 9337 provides as follows:
"SEC. 106. Value-added Tax on Sale of Goods or Properties. —
xxx xxx xxx
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(c) Sales to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such sales to zero rate.
xxx xxx xxx"
2. Section 196 of the Tax Code provides as follows:
"SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property. — On all
conveyances, deeds, instruments or writings, other than grants, patents or original certificates of
adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted,
assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or
persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at
the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its
fair market value determined in accordance with Section 6 (E) of this Code, whichever is higher: Provided,
That when one of the contracting parties is the Government, the tax herein imposed shall be based on the
actual consideration:
(a) When the consideration, or value received or contracted to be paid for such realty, after
making proper allowance of any encumbrance, does not exceed One Thousand pesos (P1,000), Fifteen
pesos (P15.00).
(b) For each additional One thousand pesos (P1,000), or fractional part thereof in excess of One
thousand pesos (P1,000) of such consideration or value, Fifteen pesos (P15.00).
xxx xxx xxx
3. Section 173 of the Tax code provides as follows:
"SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. — Upon
documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and
transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for,
and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes
prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or
transferring the same wherever the document is made, signed, issued, accepted or transferred when the
obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the
same time such act is done or transaction had: Provided, That whenever one party to the taxable document
enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one
directly liable for the tax." (emphasis ours)
June 20, 2007
Art. 23, Vienna Convention on Diplomatic Relations;

Ms. Maria Cynthia P. Pelayo
Acting Director for Immunities and Privileges
Office of Protocol and State Visits
Department of Foreign Affairs
2330 Roxas Blvd. Pasay City
Madam:
This refers to the letter of then Director for Immunities and Privileges, Mr. Ruel U. Gunabe dated
December 29, 2006 requesting on behalf of the Philippine Embassy in Berlin, which is planning to
purchase land for the purpose of building the Chancery in Berlin, information on the specific taxes levied
on the acquisition of land by diplomatic missions in the Philippines.
In reply, please be informed of Article 23 of the Vienna Convention on Diplomatic Relations

(Convention) adopted on April 18, 1961, pertinent portion of which reads:
"ARTICLE 23
1. The sending state and the head of mission shall be exempt from all national, regional or
other than such as represent payment for services rendered. (Emphasis supplied)
2. The exemption from taxation referred to in this article shall not apply to such dues and taxes
payable under the law of the receiving state by the person contracting with the sending state
or the head of the mission.
xxx xxx xxx"
It is clear from the aforequoted provisions of the Convention that diplomatic missions in the
Philippines are exempt from all national, regional or municipal dues and taxes on the acquisition of
property for the premises of the mission. Thus, the diplomatic mission is exempt from capital gains tax and
documentary stamp taxes (DST) arising from such acquisition of property.
However, as regards DST, please note that Section 173 of the National Internal Revenue Code of
1997 provides that whenever one party to a taxable document enjoys exemption from DST, the other party
thereto who is not exempt shall be the one directly liable for the tax. Accordingly, since diplomatic
missions are exempt from DST on its acquisition of property for the premises of the mission, the seller of
the real property to the German Embassy shall be the party directly liable for the payment of the DST. CDcHSa
With respect to value-added tax (VAT), please be informed that the Philippines, which likewise
follows the principle of reciprocity as a basis for the grant of VAT exemptions, currently issues VAT
exemption certificates for the purchase of goods and services by the German Embassy and its personnel,
based on favorable indorsements by the DFA. Thus, this Bureau may confirm exemption from VAT on an
acquisition of land by the German embassy for the embassy's premises, based on a favorable indorsement
by the DFA stating therein that the Philippine Embassy in Germany is granted the same privilege in
Germany.
Very truly yours,
By:

Legal Service
June 13, 2007

of 1997;

18/F Pacific Star Building, Makati Avenue
Makati City
Attention: Mr. Jong-Yong Park

KOICA Senior Administrative Officer
Gentlemen :
This has reference to your Note Verbale No. KPH 2007-144 dated May 16, 2007, referred to this
(DFA), requesting for a tax-free purchase on a local motor vehicle for the personal use of Mr. Jong-Yong
Park, KOICA Senior Administrative Officer of the Embassy of the Republic of Korea, specifically
Make: Toyota Vios 1.5G AT

Model Year: 2007
Color: 1D4 Thermalyte
Engine Number: 1NZ-X534856
Frame Number: MR053HY42 04221000
reads:
"ARTICLE 34
services;
"xxx xxx xxx"
Embassy of the Republic of Korea or its personnel on their local purchase of motor vehicles it appearing
from the list submitted by the Department of Foreign Affairs as of October 18, 2005 that your Government
allows similar exemption to Philippine Embassy and/or its personnel on their purchases of
Hence, the herein local purchase of one (1) unit of 2007 Toyota Vios 1.5G AT for the personal use
of Mr. Jong-Yong Park, KOICA Senior Administrative Officer of the Embassy of the Republic of Korea is
exempt from VAT. (BIR Ruling No. ITAD-072-00 dated May 18, 2000) AIDSTE
Very truly yours,

Legal Service
June 13, 2007
Secs. 106, 108 & 149, Tax Code of 1997;


4896 Pasay Road,
Dasmariñas Village
Makati City
Attention: Mr. Zhao Wenku

Staff Member
Gentlemen :
This has reference to your Note No. (07)PG-161 dated May 9, 2007 referred to this Office by the
Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for the exemption
from payment of value-added tax (VAT) and ad valorem tax on the local purchase of one (1) motor
vehicle, for the personal use of Mr. Zhao Wenku, Staff Member of the Embassy of the People's Republic
of China, specifically described as follows:
Make: Mazda3 1.6 L V

Model Year: 2007
Color: Techno Gray
Engine Number: AT8964
Chassis Number: PE3BVSV261ZF01581
reads:
"ARTICLE 34
services;
xxx xxx xxx"
tax prescribed under Sections 106 and 108, and ad valorem taxes under Section 149, all of the National
Internal Revenue Code of 1997.
of the People's Republic of China and/or its personnel on their purchases of locally-assembled motor
vehicles it appearing from the list submitted by the Department of Foreign Affairs as of October 18, 2005
and as confirmed by the Office of the Protocol (DFA) in its Indorsement letter dated October 17, 2005,
of locally-assembled motor vehicles in your country. ECcTaS
Hence, the local purchase of one (1) unit of 2007 Mazda3 1.6 L V for the personal use of Mr. Zhao
Wenku, Staff Member of the Embassy of the People's Republic of China is exempt from value-added tax
and ad valorem tax. (BIR Ruling No. DA-ITAD-54-06 dated May 11, 2006)
Very truly yours,

Legal Service
June 5, 2007

Section 108 (A) National Internal Revenue Code;
Puyat Jacinto & Santos Law Office

12/F Manilabank Building
6772 Ayala Avenue, Makati City
Attention: Atty. Virginia B. Viray

Atty. Lai-Lynn Angelica B. Barcenas
Gentlemen :
This refers to your letter dated September 20, 2006 on behalf of your client, IndusInd Bank Limited
(IndusInd-India), requesting confirmation of your opinion that the transaction fee paid by Customer
Contact Center, Inc. (CCC-Philippines) to IndusInd-India is considered as income earned in India under
Article 7 (1) of the Philippines-India tax treaty in relation to Section 23 (F) of the National Internal
Revenue Code (Tax Code) of 1997, as amended, and thus not subject to Philippine income tax. TAcCDI
It is represented that IndusInd-India is a nonresident foreign corporation organized and existing

under the laws of India with registered office at Solitaire Corporate Park, 167 Guru Hargovindji Marg,
Andheri (E) Mumbai, 400 018, India; that IndusInd-India is not registered either as a corporation or as a
partnership in the Philippines as evidenced by the Securities and Exchange Commission's Certificate of
Non-Registration of Corporation/Partnership dated June 28, 2006; that CCC-Philippines is a domestic
corporation with principal office at HTMT Cyberpark, 86 E. Rodriguez Jr. Avenue, Brgy. Ugong Norte,
Quezon City.
It is further represented that on November 6, 2005, IndusInd-India and CCC-Philippines entered

into a Financial Advisory Agreement through a letter whereby CCC-Philippines exclusively engaged
IndusInd-India as its financial advisor in connection with the raising of long term loan funds involving an
amount up to USD 10 Million for use towards capital expenditure and other corporate purposes in one or a
series of transaction(s); that IndusInd-India will provide CCC-Philippines financial advice on structuring
of the transaction, identification of the most economical source of funds but shall exclude assistance in
any legal/statutory compliance requirements; that the said financial services rendered by IndusInd in favor
of CCC-Philippines were performed in India and Bahrain where IndusInd-India assisted and advised
CCC-Philippines when it negotiated for the release of a loan in its favor from ICICI Bank Limited (ICICI),
a bank organized and existing under the laws of India, through ICICI's Bahrain branch, for the loan of
USD 10 Million; that in consideration of the said services, CCC-Philippines agreed to pay to
IndusInd-India a transaction fee, which would be computed as 50 basis points only (including out of
pocket expenses) of the total funds raised out of the transaction; and that the issue or transaction subject of
the above application is not under investigation, on-going audit, administrative protest, claim for refund or
issuance of a tax credit certificate, collection proceedings, or a judicial appeal.
In reply, please be informed that the existing tax treaty between the Philippines and India is for the
avoidance of double taxation. Inasmuch as it has been represented that all the services to be performed by
IndusInd-India in favor of CCC-Philippines have been performed outside the Philippines, then the
Philippines-India tax treaty will find no application as the transaction does not result in a case of double
taxation. Section 23 (F) of the Tax Code of 1997, as amended, provides:
"Section 23. General Principles of Income Taxation in the Philippines. — Except when
otherwise provided in this Code:
xxx xxx xxx
xxx xxx xxx"
According to Section 23 (F), a foreign corporation like IndusInd-India is taxable only on income
derived from sources within the Philippines. In the case of income from the provision of services, such
Philippines, as provided in Section 42 (A) (3) of the Tax Code of 1997, as amended, which states:
A. Gross Income From Sources Within the Philippines. — The following items of gross income
xxx xxx xxx
(3) Services. — Compensation for labor or personal services performed in the Philippines;
xxx xxx xxx"
Such being the case and since the subject services were actually performed in India and Bahrain,
the transaction fee to be paid by CCC-Philippines to IndusInd-India, being income not derived from
Ruling No. DA-ITAD 105-05 dated August 24, 2005) aITECD
Lastly, since it is represented that the said services will be rendered in India and Bahrain, the
transaction fee paid by CCC-Philippines to IndusInd-India will not be subject to VAT imposed under
Section 108 (A) of the Tax Code of 1997, as amended, below:
tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
. . . The phrase 'sale or exchange of services' means the performance of all kinds of services
in the Philippines for others for a fee, remuneration or consideration, . . ." 1(42)
Section 108 (A) clearly states that the sale or exchange of services subject to VAT include only
those services that are performed in the Philippines. Accordingly, since the subject services will not be
performed in the Philippines, the transaction fee in consideration for the said services paid by
CCC-Philippines to IndusInd-India are therefore exempt from VAT. ESDHCa
be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the
herein parties are concerned.
Very truly yours,
By:

Legal Service
Footnotes
1. Republic Act No. 9337 (An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113,
114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And 288 Of The National Internal Revenue Code Of
1997, As Amended, And for Other Purposes), which was signed into law on May 24, 2005 and became
effective on November 1, 2005, amended Section 108(A) to read as:
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or
lease of properties selling price or gross value in money of the goods or properties sold, bartered or
year exceeds two and four-fifth percent (2 4/5%); or
xxx xxx xxx"
June 4, 2007
Article 109 (K), National Internal Revenue Code of 1997;

Article 3, Cooperation Agreement Between the Government
of the Republic of the Philippines and the International
Organization for Migration;
Article 3, Section 10, Convention on the Privileges and
Immunities of the Specialized Agencies of the United
Nations;
International Organization for Migration

25th Floor, Citibank Tower Condominium
8741 Paseo de Roxas
1226 Makati City
Attention: Mr. Bruce Reed

Regional Representative and
Director of Administration, Manila
Gentlemen :
This refers to your letter with Ref. No. C.1.O1.E.052 dated April 13, 2007, endorsed to this Office
by the Department of Finance, requesting exemption from the payment of ad valorem and value-added
taxes on the local purchase of one (1) motor vehicle, for the official use of the International Organization
for Migration (IOM), specifically described as follows:
Make: Toyota GL Grandia 2.5 Diesel M/T
Model Year: 2006
Color: Silver Metallic
Chassis Number: JTFRS13P500005248
In reply, Section 109 (K) of the National Internal Revenue Code of 1997, as amended, provides:
"SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added
tax:
xxx xxx xxx
TCAScE
In connection thereto, Article 3 of the Cooperation Agreement Between the Government of the
Republic of the Philippines and the International Organization for Migration dated March 13, 2003, states
as follows:
"Article 3
1. The Organization shall enjoy in the Republic of the Philippines the same privileges and
immunities as those granted to specialized agencies of the United Nations by virtue of the
Convention on the privileges and immunities of the specialized agencies of 21 November 1947.
2. In particular, the Organization shall be exempt from all indirect taxes for purchases or
articles intended for official use. (Emphasis supplied)
xxx xxx xxx"
Such being the case, and since the above purchase of a motor vehicle is for the official use of IOM,
this Office is of the opinion and so holds that the herein purchase of one (1) unit 2006 Toyota GL Grandia
2.5 Diesel M/T is exempt from ad valorem and value-added taxes.
It is hereby understood that this exemption applies only to vehicles purchased under the name of the
International Organization for Migration for its official use.
the herein parties are concerned. SHECcD
Very truly yours,
By:

Legal Service
June 4, 2007

of 1997;
BIR Ruling No. DA-322-97
Royal Embassy of Saudi Arabia

No. 389 Sen. Gil J. Puyat Avenue Ext.
Makati City
Attention: H.E. Mohammed Ameen Wali

Ambassador Extraordinary and Plenipotentiary
Gentlemen :
This has reference to your Note Verbale No. DFA/1428H/059 dated April 26, 2007, referred to this
(DFA), requesting for a tax-free purchase on a local motor vehicle for the official use of the Royal
Embassy of Saudi Arabia, specifically described as follows: cIEHAC
Make: Toyota Fortuner G 2.7L VVT
Model Year: 2007
Color: Xtreme Black
Engine Number: 2TR-8035107
VIN Number: MR0ZX69G000011088
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
Royal Embassy of Saudi Arabia or its personnel on their local purchase of motor vehicles it appearing
allows similar exemption to Philippine Embassy and/or its personnel on their purchases of
Hence, the herein local purchase of one (1) unit of 2007 Toyota Fortuner G2.7L VVT for the
official use of the Royal Embassy of Saudi Arabia is exempt from VAT. (DA-322-97 dated September 24,
1997)
the herein parties are concerned. DcAEIS
Very truly yours,

Legal Service
June 4, 2007

of 1997;

Manila
Attention: Mr. John Prukop

Information Management Specialist
Gentlemen :
This has reference to your Note Verbale No. 0412 dated April 2, 2007, referred to this Office by the
requesting for a tax-free purchase on a local motor vehicle for the personal use of Mr. John Prukop,
Information Management Specialist of the Embassy of the United States of America, specifically
Make: Suzuki APV 1.6 A/T
Model Year: 2007
Color: Silky Silver Metallic
Conduction Sticker No.: ZB 1812
Engine Number: G16AID108820
VIN Number: MHYDN71V76J103548
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
106 and 108, both of the National Internal Revenue Code of 1997. HIaTDS
Embassy of the United States of America or its personnel on their local purchase of motor vehicles it
appearing from the list submitted by the Department of Foreign Affairs as of October 18, 2005 that your
Hence, the herein local purchase of one (1) unit of 2007 Suzuki APV 1.6L GLX A/T for the
personal use of Mr. John Prukop, Information Management Specialist of the Embassy of the United States
of America is exempt from VAT. (ITAD Ruling No. 34-99 dated October 18, 1999)
Very truly yours,

Legal Service
June 1, 2007
Article 21, Philippines-France tax treaty;

European International School

Ecole Francaise de Manille
75 Swaziland St., Better Living Subdivision
1711 Parañaque City
Attention: Odille Malay
Gentlemen :
This refers to your letter dated September 12, 2006, requesting for a Certificate of Tax Exemption
for Ms. DELPHINE GOMES (Ms. Gomes), as a visiting teaching staff in the Philippines, pursuant to
Article 21 of the Philippines-France tax treaty.
It is represented that Ms. GOMES, immediately before her employment in the Philippines, was a
resident of the French Republic with address at 5 Le Vallon 33370 Fargues St., Hilaire, France; that the
European International School (Ecole Francaise de Manille) (hereinafter referred to as EIS-EFM) and Ms.
GOMES entered into a Contract of Employment whereby Ms. GOMES is engaged to teach full time
French language at EIS-EFM for the school year 2006-2008, from September 1, 2006 to August 31, 2008;
that the employment ends on August 31, 2008 without requiring a resignation or further notice from
EIS-EFM; and that in consideration of Ms. GOMES' services, she shall receive a monthly salary and will
receive a 13th month pay in December pro rata to her months of service with the school.
In reply, please be informed that Article 21 of the Philippines-France tax treaty provides as follows:
"Article 21
TEACHERS AND RESEARCHERS
1. A teacher or a researcher who, resident of a Contracting State, visits the other

Contracting State for the purpose of teaching or engaging in research shall be exempt from tax in
that other Contracting State for a period not exceeding two years on remuneration in respect of such
activities. TcCDIS
2. This Article shall not apply to income from research if such research is undertaken not
in the general interest but primarily for the private benefit of a specific person or persons."
Based on the aforequoted provision, it is clear that the remuneration paid to teachers who are
residents of France and who stay in the Philippines for the purpose of teaching for a period not exceeding
two (2) years shall not be subject to Philippine income tax. Such being the case, this Office is of the
opinion and so holds that the subject remuneration of Ms. GOMES for teaching in EIS-EFM for a period
not exceeding two (2) years, more particularly from September 1, 2006 to August 31, 2008, shall not be
subject to Philippine income tax pursuant to Article 21 of the Philippines-France tax treaty. (BIR Ruling
No. DA-ITAD-29-06 dated March 16, 2006) aDCIHE
investigation it shall be disclosed or discovered that the actual facts are different, then this ruling shall be
without force and effect insofar as the herein parties are concerned.
Very truly yours,
By:

Legal Service
June 1, 2007
Arts. 5 & 7, Philippines-Korea Tax Treaty;


10F Pag-IBIG Fund
WT Corporate Tower
Mindanao Avenue, Cebu Business Park
Cebu City
Attention: Fabian K. Delos Santos

Partner, Tax Services
Gentlemen :
This refers to your letter dated January 31, 2007 filed on behalf of your client, Philippine BXT
Corporation (BXT-Philippines), requesting confirmation that the payments made under the Sales and
Marketing Support Service Agreement (Agreement) entered into between BXT-Philippines and BXT
Resort Development Corporation (BXT-Korea) are not subject to Philippine income tax pursuant to the
Philippines-Korea tax treaty.
It is represented that BXT-Korea is a nonresident foreign corporation duly organized and existing
under the laws of Korea as evidenced by its Articles; that its principal office is located at Seoul City,
Korea; that BXT-Korea is not registered either as a corporation or as a partnership in the Philippines as
evidenced by the Certification of Non-Registration of Corporation/Partnership dated December 11, 2006
issued by the Securities and Exchange Commission; that BXT-Philippines is a domestic corporation with
principal office located at M.L. Quezon Highway, Maribago, Lapu-lapu City.
It is further represented that on January 10, 2007, BXT-Korea and BXT-Philippines entered into an
Agreement whereby BXT-Korea agrees to provide the following sales and marketing support services to
BXT-Philippines:
1. Promotion and marketing services in Korea and other countries through BXT-Korea's
network of international contacts and representatives;
2. Conduct marketing research, consumer preferences and market trends determination and
competitive price studies;
3. Assistance in developing a marketing strategy and specific marketing activities outside the
Philippines; and
4. Undertake other incidental marketing activities as may be requested by BXT-Philippines to

promote its condominium business in Korea and in other countries abroad.
That the foregoing services shall be rendered entirely by BXT-Korea outside the Philippines; that
BXT-Korea, when necessary, shall send suitable personnel and/or staff to conduct marketing research and
analysis in the Philippines during the term of the Agreement; that however, the duration of stay in the
Philippine of the said BXT-Korea's personnel shall not exceed an aggregate period of one hundred eighty
(180) days within any twelve-month period; that in consideration of the said services, BXT-Philippines
shall pay BXT-Korea equivalent to fifteen percent (15%) of the sales price of the condotel units as
commission; and that the issue or transaction subject of the above application is not under investigation,
proceedings, or a judicial appeal.
In reply, please be informed of Article 7(1) in relation to Article 5 of the Philippines-Korea tax
treaty which respectively provides, viz:
"Article 7
BUSINESS PROFITS
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
of business through which the business of an enterprise is wholly or partly carried on.
2. The term 'permanent establishment' includes especially:
b) a branch;
c) an office;
d) a factory;
e) a workshop;
f) a mine, an oil or gas well, a quarry or any other place of extraction of natural
resources;
g) premises used as a sales outlet; and
h) a warehouse, in relation to a person providing storage facilities for others.
3. a) a building site or construction, installation or assembly project or supervisory activities in

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

employee or other personnel constitutes a permanent establishment only if activities of that
nature continue within a Contracting State for a period or periods exceeding in the aggregate
183 days within any twelve-month period; and
xxx xxx xxx"
Based on the abovequoted provisions, the profits of BXT-Korea are taxable only in Korea, unless it
carries on business in the Philippines through a permanent establishment situated therein to which such
profits are attributable. For this purpose, BXT-Korea may be deemed to have a permanent establishment in
the Philippines if, among others, it furnishes services in the Philippines through its personnel for a period
or periods exceeding in the aggregate 183 days within any twelve-month period.
Inasmuch as it is represented that the services will generally be performed by BXT-Korea outside
the Philippines and that should it be necessary to send its employees to the Philippines, said employees
will not stay in the Philippines for more than 183 days within any twelve-month period in their rendition
of services to BXT-Philippines, BXT-Korea may be considered as not having a permanent establishment
in the Philippines. In other words, BXT-Korea is deemed not to have a permanent establishment for as
long as its employees do not stay in the Philippines for a period or periods aggregating more than 183 days
within any twelve-month period in the course of their rendition of services to BXT-Philippines. (BIR
Ruling No. DA-ITAD 083-05 dated August 22, 2005) Thus, the income derived by BXT-Korea from
services rendered to BXT-Philippines shall not be subject to Philippine income tax and, consequently, to
withholding tax.
Moreover, while the payments for services rendered outside the Philippines are not subject to VAT,
the fees paid for the services rendered for BXT-Philippines within the Philippines are, however, subject to
12% value-added tax (VAT) pursuant to Section 108 of the Tax Code of 1997, as amended. Accordingly,
BXT-Philippines, being the resident withholding agent and payor in control of payment shall be
responsible for the withholding of the final VAT on such fees before making any payment to BXT-Korea.
In remitting the VAT withheld, BXT-Philippines shall use BIR Form No. 1600 (Monthly Remittance
Return of Value-Added Tax & Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and
proof of payment thereof shall serve as documentary substantiation for the claim of input tax to be applied
against the output tax that may be due from BXT-Philippines if it is a VAT-registered taxpayer. In case it
is a non-VAT registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service
purchased or treated as an "expense" or as an "asset", whichever is applicable. In addition, it is required to
issue in quadruplicate the relevant Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307)
in quadruplicate, the first three copies for BXT-Korea and the fourth copy for BXT-Philippines as its file
copy. (Sections 4 & 6, Revenue Regulations (RR) No. 4-2002; Section 3 of RR 8-2002; Section 7 of RR
14-2002) cSHATC
Very truly yours,
By:

Legal Service
May 31, 2007
Article 11, Philippines-Japan tax treaty;

Sections 23 (F) and 42 (A) (1), National Internal Revenue Code of 1997

6760 Ayala Avenue
1226 Makati City
Attention: Atty. Emmanuel C. Alcantara

Co-Head, Tax Services
Gentlemen :
This refers to your letter dated May 23, 2007, requesting confirmation of the following:
1. That interests to be paid by CrimsonPower Holdings Company Inc. (CrimsonPower) to the

Japan Bank for International Cooperation (JBIC) are exempt from Philippine income tax
pursuant to Article 11 of the Convention between the Republic of the Philippines and Japan
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income (Philippines-Japan tax treaty); 1(43)
2. That interests to be paid by CrimsonPower to Mizuho Corporate Bank (Mizuho Bank) and
Sumitomo Mitsui Banking Corporation (Sumitomo Bank) on loans to be guaranteed by JBIC
are exempt from Philippine income tax pursuant to Article 11 of the Philippines-Japan tax
treaty; and
3. That interests to be paid by Mizuho Bank and Sumitomo Bank to Australia and New Zealand
Banking Group Limited, Tokyo Branch (ANZ Japan Branch), ING Bank, N.V., Tokyo Branch
(ING Japan Branch) and Calyon Tokyo Branch (Calyon Japan Branch) are exempt from
Philippine income tax pursuant to Sections 23 (F) and 42 (C) (1) of the National Internal
Revenue Code of 1997 (Tax Code).
BACKGROUND
It is represented that CrimsonPower is a corporation organized and existing under the laws of the
Philippines and registered with the Securities and Exchange Commission under Company Registration No.
CS200619721; that its principal stockholders are Tokyo Electric Power Company International B.V. and
Marubeni Corporation, being foreign corporations that won the bid for the acquisition of the power
generation interests in the Philippines owned by the subsidiaries of Mirant Corporation; that
CrimsonPower was established to acquire Mirant Asia Pacific Limited (Mirant Asia), a Bermuda exempt
company with limited liability with registered number 18241 2(44) and is a subsidiary of Mirant
Corporation which owned the power generation interests in the Philippines; that to finance the acquisition
of Mirant Asia, CrimsonPower will be obtaining a loan from JBIC and from Mizuho Bank and Sumitomo
Bank; that JBIC is an entity wholly-owned by the Japanese government, while Mizuho Bank and Sumitomo
Bank are foreign corporations organized and existing under the laws of Japan, with addresses at 3-3
Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan and at 1-2 Yurakucho 1-chome Chiyoda-ku, Tokyo,
Japan, respectively; and that based on the Certificates of Non-Registration of Corporation/Partnership
dated May 18, 2007, issued by the Securities and Exchange Commission, a name similar to Mizuho Bank
is registered under the name Mizuho Corporate Bank Ltd., Manila Branch under Company Registration
No. AF95000069, and a name similar to Sumitomo Bank is registered under the name Sumitomo Mitsui
Banking Corporation, Manila Representative Office under Company Registration No. AF95000032.
It is further represented that CrimsonPower will be obtaining the loan twenty-one (21) days before
it completed the acquisition of the shares and assets of Mirant Asia; 3(45) and that the total amount of the
loan is UD$2,700,000,000.00 (US$2.7 Billion), 60% or US$1.62 Billion of which is by way of a direct
loan (Facility A) from JBIC and the other 40% or US$1.08 Billion by way of a direct loan (Facility B)
from Mizuho Bank and Sumitomo Bank. 4(46) TSEHcA
It is further represented that JBIC will be providing guarantee in favor of Mizuho Bank and
Sumitomo Bank. JBIC, at all times during the guaranty period, will be guaranteeing 100% repayment
installment of the principal of the facility loan and 100% payment of the ordinary interest on the principal
accrued at commercial interest rate, which become due and demandable on the scheduled dates mentioned
in the Senior Loan Agreement.
It is further represented that Mizuho Bank and Sumitomo Bank will be entering into a Funded
Participation Agreement with ANZ Japan Branch, ING Japan Branch and Calyon Japan Branch whereby
the latter, proportionate to its participation, will be paying Mizuho Bank and Sumitomo Bank on a
particular settlement date or dates in order for Mizuho Bank and Sumitomo Bank to fund the loan to be
extended to CrimsonPower; that while CrimsonPower will be named the beneficiary of the loan, it is
neither a party to the Participation Agreement nor is it privy to any contractual rights and obligations
existing between Mizuho Bank and Sumitomo Bank and ANZ Japan Branch, ING Japan Branch and
Calyon Japan Branch; that ANZ Japan Branch, ING Japan Branch and Calyon Japan Branch are
branches of foreign corporations organized and existing under the laws of Australia, The Netherlands and
France, respectively, and their addresses are at Level 6, 100 Queen Street, Melbourne, Australia, for ANZ
Japan Branch, at Amstelveenseweg 500 1081 KL Amsterdam, The Netherlands for ING Japan Branch,
and at 9, quai du President Paul Doumer 92920 Paris La Defense Cedex, France, for Calyon Japan
Branch; and that based on the Certificates of Non-Registration of Corporation/Partnership dated May 18,
2007, issued by the Securities and Exchange Commission, a name similar to ANZ Japan Branch is
registered under the name Australia and New Zealand Banking Group Limited under Company
Registration No. F-1332, and a name similar to ING Japan Branch is registered under the name ING Bank
N.V. under Company Registration No. F-1324, while a name similar to Calyon Japan Branch does not
appear to be registered at all.
RULING
1. On whether the interests to be paid by CrimsonPower to JBIC are exempt from Philippine income
tax.
On the taxation of interest arising in the Philippines and derived by a resident of Japan, paragraphs
1, 2 3 and 4, Article 11 of the Philippines-Japan tax treaty provides as follows:
"Article 11
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State
may be taxed in that other Contracting State.
2. However, such interest may also be taxed in the Contracting State in which it arises, and
according to the laws of that Contracting State, but if the recipient is the beneficial owner of
the interest the tax so charged shall not exceed:
a) 10 per cent of the gross amount of the interest if the interest is paid in respect
of Government securities, or bonds or debentures;
b) 15 per cent of the gross amount of the interest in all other cases.
3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the Philippines
on the interest paid by a company, being a resident of the Philippines, registered with the
Board of Investments and engaged in preferred pioneer areas of investment under the
investment incentives laws of the Philippines to a resident of Japan, who is the beneficial
owner of the interest, shall not exceed 10 per cent of the gross amount of the interest.
4. Notwithstanding the provisions of paragraphs 2 and 3, interest arising in a Contracting State

and derived by the Government of the other Contracting State including political
subdivisions and local authorities thereof, the Central Bank of that other Contracting State or
any financial institution wholly owned by that Government, or by any resident of the other
Contracting State with respect to debt-claims guaranteed or indirectly financed by the
Government of that other Contracting State including political subdivisions and local
authorities thereof, the Central Bank of that other Contracting State or any financial
institution wholly owned by that Government shall be exempt from tax in the
first-mentioned Contracting State.
For the purposes of this paragraph, the term "financial institution wholly owned by the
Government" means:
a) In the case of Japan, the Export-Import Bank of Japan, the Overseas

Economic Cooperation Fund and the Japan International Cooperation
Agency;
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."
According to the above paragraphs, interest arising in the Philippines and derived by a resident of
Japan is subject to Philippine income tax at the rate of (a) 10% of the gross amount of the interest if the
interest is paid in respect of government securities, or bonds or debentures, or if the interest is paid by a
domestic company in the Philippines registered with the Board of Investments and engaged in preferred
pioneer areas of investment under the investment incentives laws of the Philippines, or (b) 15% of the
gross amount of the interest in all other cases.
However such interest is exempt from Philippine income tax if the interest is derived by or paid to
the Government of Japan, the political subdivisions and local authorities of Japan, the Central Bank of
Japan, or any financial institution wholly owned by the Government of Japan, or if the interest is derived
by or paid to a resident of Japan with respect to debt-claims guaranteed or indirectly financed by the
Government of Japan, the political subdivisions and local authorities of Japan, the Central Bank of Japan,
or any financial institution wholly owned by the Government of Japan. The term financial institution
wholly owned by the Government of Japan includes the Export-Import Bank of Japan, the Overseas
Economic Cooperation Fund and the Japan International Cooperation Agency, and any such financial
institution the capital of which is wholly owned by the Government of Japan, which may be agreed from
time to time between the Governments of Japan and the Philippines. In BIR Ruling No. DA-ITAD 21-99
dated August 24, 1999, this Bureau ruled and considered that JBIC was also a financial institution wholly
owned by the Government of Japan, which can enjoy exemption from interest arising in the Philippines.
Considering that the Facility A of the loan amounting to US$1.62 Billion will be extended directly
to CrimsonPower by JBIC and considering that JBIC is a financial institution wholly owned by the
Government of Japan, pursuant to paragraph 4, Article 11 of the Philippines-Japan tax treaty, the interests
to be paid by CrimsonPower to JBIC for such loan are therefore exempt from Philippine income tax. (BIR
Ruling Nos. DA-ITAD 104-06 dated August 30, 2006, DA-ITAD 58-06 dated May 31, 2006, and
DA-ITAD 21-99 dated August 24, 1999.)
2. On whether the interests to be paid by CrimsonPower to Mizuho Bank and Sumitomo Bank on the
loan that will be guaranteed by JBIC are exempt from Philippine income tax.
As previously stated, JBIC will be providing guarantee in favor of Mizuho Bank and Sumitomo
Bank so that JBIC, at all times during the guaranty period, will be guaranteeing 100% repayment
installment of the principal of the facility loan and 100% payment of the ordinary interest on the principal
accrued at commercial interest rate, which become due and demandable on the scheduled dates mentioned
in the Senior Loan Agreement. EcTDCI
In connection with such guarantee, paragraph 4, Article 11 of the Philippines-Japan treaty provides
also that interest arising in the Philippines and derived by a resident of Japan is exempt from Philippine
income tax if such interest arises from debt-claims guaranteed or indirectly financed by the Government of
Japan, the political subdivisions and local authorities of Japan, the Central Bank of Japan, or any financial
institution wholly owned by the Government of Japan like JBIC.
Considering that the Facility B of the loan amounting to US$1.08 Billion will be extended directly
to CrimsonPower by Mizuho Bank and Sumitomo Bank and considering that such loan will be guaranteed
by JBIC, a financial institution wholly owned by the Government of Japan, particularly, 100% repayment
installment of the principal and 100% payment of the ordinary interest on the principal, pursuant to
paragraph 4, Article 11 of the Philippines-Japan tax treaty, the interests to be paid by CrimsonPower to
Mizuho Bank and Sumitomo Bank for such loan are therefore exempt from Philippine income tax. (BIR
Ruling Nos. DA-ITAD 104-06 dated August 30, 2006)
With respect to the guarantee, we are of the opinion that if JBIC does not guarantee fully the
payment of the principals and the interests to be paid to Mizuho Bank and Sumitomo Bank, the interest to
be paid by CrimsonPower to these commercial banks cannot enjoy the exemption provided in paragraph 4,
Article 11 of the Philippines-Japan tax treaty. In such a situation, the interests to be paid by CrimsonPower
to Mizuho Bank and Sumitomo Bank are otherwise subject to Philippine income tax at the rate of 15% of
the gross amount thereof, pursuant to paragraph 2 (b), Article 11 of the tax treaty, or even subject to a
different tax treatment considering that Mizuho Bank and Sumitomo Bank are registered with the Securities
and Exchange Commission which might be considered already as having permanent establishments in the
Philippines. This is confirmed in paragraph 6, Article 11 of the tax treaty, thus:
"6. The provisions of paragraphs 1, 2 and 3 above shall not apply if the beneficial owner of the
interest, being a resident of a Contracting State, carries on business in the other Contracting
State in which the interest arises, through a permanent establishment situated therein, or
performs in that other Contracting State independent personal services from a fixed base
situated therein, and the debt-claim in respect of which the interest is paid is effectively
connected with such permanent establishment or fixed base. In such case the provisions of
Article 7 or Article 14, as the case may be, shall apply."
3. On whether the interests to be paid by Mizuho Bank and Sumitomo Bank to ANZ Japan Branch, ING
Japan Branch and Calyon Japan Branch are exempt from Philippine income tax.
As represented, under the Funded Participation Agreement, Mizuho Bank and Sumitomo Bank will
be getting the fund for the Facility B of the loan to be extended to CrimsonPower from ANZ Japan
Branch, ING Japan Branch and Calyon Japan Branch, which are branches of foreign corporations
organized and existing under the laws of Australia, the Netherlands and France, respectively.
Accordingly, on the interests to be paid by Mizuho Bank and Sumitomo Bank to ANZ Japan Branch,
ING Japan Branch and Calyon Japan Branch, which may or may not be equal to the amount of interests
originally paid by CrimsonPower, pursuant to Section 42 (A) (1) of the Tax Code, such interests are not
considered derived from sources within the Philippines because the obligations to pay such interests are
NOT upon persons (ANZ Japan Branch, ING Japan Branch and Calyon Japan Branch) residents of the
Philippines. 5(47)
Further, under Section 23 (F) of the Tax Code, a foreign corporation like ANZ Japan Branch, ING
Japan Branch and Calyon Japan Branch, whether or not engaged in trade or business in the Philippines, is
taxable only with respect to income derived from sources within the Philippines, thus:
"SEC. 23. General Principles of Income Taxation in the Philippines. — Except when
xxx xxx xxx
taxable only on income derived from sources within the Philippines." EATCcI
This ruling is issued on the basis of the facts as represented and shall be applicable only to the
foregoing when such representations are supported by relevant documents consistent thereto. However, if
upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without
force and effect insofar as the herein parties are concerned.
Very truly yours,
(SGD.) JOSE MARIO C. BUÑAG

Commissioner
Footnotes
1. Signed on February 13, 1980, and became effective on January 1, 1981.
2. See definition of Target in the Senior Loan Agreement.
3. See definition of Acquisition, Closing and Closing Date in the Senior Loan Agreement.
4. See Section 2.1 (The Facilities) and Schedule 1 (Part 2) of the Senior Loan Agreement.
5. The term resident for this purpose may include a domestic corporation and even a resident foreign
corporation.
May 23, 2007
Article 12 (Royalties) Old Philippines-Sweden tax treaty;

Article 12 (Royalties) Renegotiated Philippines-Sweden tax
treaty;
BIR Ruling Nos. DA-ITAD 115-06, 112-05, 157-05,
136-04, 58-02 and 12-02
Panasonic Mobile Communications

Corporation of the Philippines
102 Laguna Boulevard, Laguna Technopark
Barrio Don Jose, Sta. Rosa
Laguna 4026
Attention: Mr. Marlon M. Molano

General Manager
Gentlemen :
This refers to your letter dated October 4, 2005, requesting confirmation that royalties to be paid by
Panasonic Mobile Communications Corporations of the Philippines (Panasonic Philippines) 1(48) to
Telefonaktiebolaget LM Ericsson (Ericsson Sweden) on January 1, 2004, and thereafter, are subject to
15% income tax, pursuant to Article 12 (Royalties) of the renegotiated Convention between the Republic
of the Philippines and the Kingdom of Sweden for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income of June 24, 1998 (renegotiated Philippines-Sweden tax
treaty), whose provisions on taxes apply on income derived or which accrued beginning January 1, 2004.
In relation, you also request for a refund of allegedly overpaid income taxes on royalties paid by Panasonic
Philippines to Ericsson Sweden in May, August, and November, 2004, amounting to PHP8,019,229.82,
which were subject to 25% income tax under the old Convention between the Republic of the Philippines
and the Kingdom of Sweden for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with Respect to Taxes on Income of May 7, 1987 (old Philippines-Sweden tax treaty), instead of 15%
under the renegotiated tax treaty.
BASIC FACTS
It is represented that Ericsson Sweden is a corporation organized and existing under the laws of
Sweden, with address at Torshamngatan 23, S-164 80, Stockholm, Sweden, and Organization No.
556016-0680, as evidenced by its Articles of Association; that Ericsson Sweden is engaged in carrying on
workshops on business and trade, in acquiring, setting-up, and carrying on and trading in electric and other
plants, and in carrying on other activities; that Ericsson Sweden is not registered as a corporation or as a
partnership in the Philippines, as confirmed by the Certificate of Non-Registration of
Corporation/Partnership dated August 4, 2005, issued by the Securities and Exchange Commission; that,
on the other hand, Panasonic Philippines is a corporation, organized and existing under the laws of the
Philippines, with address at 102 Laguna Boulevard, Laguna Technopark, Barrio Don Jose, Sta. Rosa,
Laguna, Philippines; and that Panasonic Philippines is registered with the Philippine Economic Zone
Authority as an Ecozone Export Enterprise (as confirmed by its Registration Agreement dated October 31,
2001, and amended Certificate of Registration No. 01-064 dated June 3, 2003), to engage in (1) the
manufacture of amplifiers, cartridges, 3.5 floppy disk drives, black and white and colored monitors and
rear-view monitors, charged couple devices, sequential switchers, audio portable four-bus mixers, camera
drive units (PS), portable wireless audio products, GSM cellular phones and parts and accessories, ECM
cartridges for mobile phones, digital CCTV color camera (video surveillance equipment), and ETC system
including parts and accessories thereof, and (2) the undertaking of the central office sales and
documentation function for the supply of floppy disk drives of the Matsushita Group of Companies at
Laguna Technopark — Special Economic Zone. ATICcS
It is further represented that on September 25, 2003, Ericsson Sweden entered into a Global Patent
License Agreement (Agreement) with Panasonic Mobile Communications Company, Ltd (Panasonic
Japan), a corporation organized and existing under the laws of Japan with address at Saedo-Cho,
Tsuzuki-Ku, Yokohama City, 224-8539, Japan, and who has Affiliates 2(49) worldwide including Panasonic
Philippines; that under the Agreement, Ericsson Sweden granted Panasonic Japan a worldwide,
nontransferable, non-exclusive license under the Ericsson Licensed Patents 3(50) to make, have made, use,
sell, offer for sale, lease or otherwise dispose of Panasonic Products, 4(51) all operating under the applicable
standards; that Panasonic Japan shall have the right to grant sublicenses of such rights to its Affiliates
only, who shall agree to be bound in all respects to all the obligations in the Agreement, including but not
limited to the payment of royalties, for which Panasonic Japan is originally bound to; and that the
Agreement shall be effective on September 25, 2003, and shall continue for the License Period 5(52) unless
otherwise terminated.
Moreover, it is represented that on September 25, 2003, Panasonic Japan and Panasonic Philippines
entered into a Memorandum of Agreement (Memorandum) whereby Panasonic Japan granted Panasonic
Philippines the license it originally acquired from Ericsson Sweden under the Global Patent License
Agreement; that under the Memorandum, Panasonic Philippines shall also pay royalties to Ericsson
Sweden equivalent to 0.55% of the Net Selling Price of the Panasonic Products sold globally by Panasonic
Philippines which are compliant with any or more of the standards of GSM, GPRS and EDGE; that the
payment shall be done through wire transfer, on the first day of March, June, September, and December of
any calendar year; and that the Memorandum shall be effective on September 25, 2003, and shall remain
to be effective unless otherwise terminated.
RULING
A. On income tax
In reply, please be informed that the royalties to be paid by Panasonic Philippines to Ericsson
Sweden on the Ericsson Licensed Patents are subject to the reduced income tax rates under the respective
Article 12 (Royalties) of the old Philippines-Sweden tax treaty for royalties paid from September 23 to
December 31, 2003, and of the renegotiated Philippines-Sweden tax treaty for royalties paid on January 1,
2004 and thereafter, thus:
Old Philippines-Sweden tax treaty:
"Article 12
ROYALTIES
2. However, such royalties may also be taxed in the Contracting State in which they arise, and
according to the law of that State, but if the recipient is the beneficial owner of the royalties,
the tax so charged shall not exceed
a) 15 per cent of the gross amount of the royalties, where the royalties are paid
by an enterprise registered with and engaged in preferred areas of activities
and also royalties in respect of cinematographic films or tapes for television
or broadcasting and royalties for the use of, or the right to use, any copyright
of literary, artistic or scientific work;
b) in all other cases, 25 per cent of the gross amount of the royalties."
Renegotiated Philippines-Sweden tax treaty:
"Article 12
ROYALTIES
according to the laws of that State, but if the beneficial owner of the royalties is a resident of
the other Contracting State, the tax so charged shall not exceed 15 per cent of the gross
amount of the royalties."
Accordingly, royalties to be paid by Panasonic Philippines to Ericsson Sweden on the Ericsson

Licensed Patents before January 1, 2004, or before the effectivity of the renegotiated Philippines-Sweden
tax treaty, cannot be subject to 15% under paragraph 2 (a), Article 12 of the old Philippines-Sweden tax
treaty because Panasonic Philippines, being the enterprise paying the royalties, is not registered with and
engaged in preferred areas of activities, 6(53) nor are such royalties paid in respect of cinematographic films
or tapes for television or broadcasting or for the use of, or the right to use, any copyright of literary,
artistic or scientific work. Thus, such royalties to be paid by Panasonic Philippines to Ericsson Sweden
before January 1, 2004, are subject instead to 25% income tax based on the gross amount thereof under
paragraph 2 (b), Article 12 of the old Philippines-Sweden tax treaty. (BIR Ruling No. DA-ITAD 58-02
dated April 24, 2002) CTDHSE
On the other hand, royalties to be paid by Panasonic Philippines to Ericsson Sweden on the
Ericsson Licensed Patents on January 1, 2004, and thereafter, are subject to 15% income tax based on the
gross amount thereof under paragraph 2, Article 12 of the renegotiated Philippines-Sweden. (BIR Ruling
No. DA-ITAD 136-04 dated November 24, 2004)
B. On value-added tax
Under Section 108 (A) (1) of the National Internal Revenue Code of 1997 (Tax Code), the use or
the right to use of the Ericsson Licensed Patents in the Philippines by Panasonic Philippines is subject to
value-added tax (VAT), thus:
"Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
services, including the use or lease of properties
The phrase 'sale or exchange of services 'shall likewise include:
xxx xxx xxx
(1) The lease or the use of or the right or privilege to use any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right;" 7(54)
Under Section 105 of the Tax Code, the VAT, being an indirect tax, may be shifted or passed on to
Panasonic Philippines by Ericsson Sweden, thus:
"SEC. 105. Persons Liable. — Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall be
subject to value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. . . " aTcIEH
However, under Section 109 (q) of the Tax Code, certain transactions are exempt from VAT if they
are so exempt under international agreements to which the Philippines is a signatory or under special laws,
thus:
"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;" 8(55)
With respect to special laws that are significant to Panasonic Philippines and other enterprises
registered with the Philippine Economic Zone Authority (PEZA), Republic Act No. 7916 (An Act
Providing For The Legal Framework and Mechanism For The Creation, Operation, Administration, And
Coordination Of Special Economic Zones in the Philippines, Creating For This Purpose, The Philippine
Economic Zone Authority (PEZA), And For Other Purposes) (particularly Section 24 thereof) and its
Implementing Rules and Regulations thereof (particularly Section 1, Rule XIV [Incentives to ECOZONE
Developers/Operators] thereof) provide:
"Section 24. Exemption from Taxes Under the National Internal Revenue Code. — Any provision
of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national,
shall be imposed on business establishments operating within the ECOZONE. In lieu of paying
taxes, five percent of the gross income earned by all business and enterprises within the ECOZONE
shall be remitted to the national government. . .
"Section 1. ECOZONE Developers/Operators. — ECOZONE Developers/Operators shall be

entitled to the following incentives:
A. Exemption from National and Local Taxes and Licenses. — An ECOZONE

Developer/Operator shall to the extent of its construction and operation, be exempt from
payment of all national internal revenue taxes and local government impost, fees, licenses or
taxes, including but not limited to the following:
1. Internal revenue taxes such as gross receipts tax, value-added tax, ad valorem
and excise taxes;
2. Franchise, common carrier or value added taxes and other percentage taxes on
public and service utilities and enterprises."
As an incentive to Panasonic Philippines and other PEZA-registered enterprises, Republic Act No.
7916 provides that such enterprises are liable only to the payment of 5% of their gross income in lieu of all
national and local taxes including VAT. This being so, the transaction between Panasonic Philippines and
Ericsson Sweden involving the use or the right to use of the Ericsson Licensed Patents that give rise to the
royalties will be treated as exempt 9(56) from VAT. (BIR Ruling No. DA-ITAD 112-05 dated September 30,
2005)
The same conclusion is reached in VAT Ruling No. 100-99 dated September 16, 1999, involving
PEZA-registered enterprises, where this Bureau ruled:
"In the case of payment for royalties to a non-resident owner, the responsibility for withholding the
VAT and paying the same rests on the payor. However, since PEZA-registered export enterprise
may not be passed on with nor claim input VAT, then payment of royalties to a non-resident lessor,
. . . , should be as it is hereby confirmed to be, exempt from VAT." (BIR Ruling No. DA-ITAD
112-05 dated September 30, 2005)
And in the recent Supreme Court ruling, Commissioner of Internal Revenue versus Seagate Technology
(Philippines) (G.R. No. 153866) dated February 11, 2005, also involving PEZA-registered enterprises,
where the Supreme Court ruled:
"Applying the special laws we have earlier discussed, respondent as an entity is exempt from
internal revenue laws and regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as
a tax on consumption, for which the direct liability is imposed on one person but the indirect burden
is passed on to another. Respondent, as an exempt entity, can neither be directly charged for the
VAT on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its
purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish,
we ought not to distinguish.
Moreover, the exemption is both express and pervasive for the following reasons:
First, RA 7916 states that 'no taxes, local and national shall be imposed on business establishments
operating within the ecozone. Since this law does not exclude the VAT from the prohibition, it is
deemed included. Exceptio firmat regulam in casibus non exceptis. An exception confirms the rule
in cases not excepted; that is, a thing not being excepted must be regarded as coming within the
purview of the general rule.
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still be
passed on, therefore, indirectly imposed on the same entity — a patent circumvention of the law.
That no VAT shall be imposed directly upon business establishments operating within the ecozone
under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando aliquid
prohibetur ex directo prohibetur et per obliquum. When anything is prohibited directly, it is also
prohibited indirectly." (BIR Ruling No. DA-ITAD 115-06 dated September 27, 2006)
the herein parties are concerned. Further, for the purpose of giving due course to the refund of alleged
overpaid income taxes on royalties withheld by Panasonic Philippines on behalf of Ericsson Sweden, a
copy of this ruling and a copy of the docket thereof will be furnished to the Revenue District Office which
has jurisdiction over Panasonic Philippines, who will act on such request for refund.
Very truly yours,
By:

Legal Service
Footnotes
1. Formerly, Matsushita Communication Industrial Corporation of the Philippines.
2. Affiliate shall mean a company or other legal entity which is under control by Panasonic Japan, but any
such company or other legal entity shall be deemed to be an affiliate only as long as such control exists, and
for the purposes of this definition, "control" shall mean direct or indirect ownership of more than fifty
percent (50%) of the voting power, capital or other securities of controlled entity. For the purpose of the
Agreement, Affiliate shall include the joint venture Sony Ericsson Mobile Communications AB and any of
its Affiliates (hereinafter collectively referred to as "Sony Ericsson"), Ericsson India Ltd., Beijing Ericsson
Mobile Communication Co., Kuwait Ericsson Telecommunication Equipment and Services, Panasonic
Mobile & Automotive Systems Czech, (PMACZ), Panasonic Mobile Communications Corporation of the
Philippines (PMCP) and Panasonic Putian Communications Beijing Company, Ltd. (PMCB) for as long as
Ericsson Sweden, Panasonic Japan and/or Matsushita Electric Industrial Company Ltd. (the parent
company of Panasonic Japan) (as applicable) owns at least 40% of the shares of such company. Should,
due to domestic legal requirements within the home country of such mentioned companies, it would not be
possible for Ericsson Sweden, Panasonic Japan and/or Matsushita Electric Industrial Company Ltd. to
own as much as 40% of the shares of such mentioned corporations, such are irrespective included in the
definition of Affiliates if the ownership of such shares are remaining as of the maximum extent possible
under such local law and regulation.
3. Ericsson Licensed Patents shall mean (i) all Patents owned by Ericsson Sweden and its Affiliates (Affiliates
shall be for the purpose of this definition be exclusive of Sony Ericsson), and (ii) the Ericsson patents listed
in Appendix 1 of the Agreement, including its patent families worldwide, (existing and future patents,
existing and future licensable patent applications, such as existing and future divisions, continuations,
continuations in part, reissues, renewals and extensions thereof).
4. Panasonic Products shall mean: (i) Panasonic Japan (and/or its Affiliates) branded or operator branded
End-User Terminals, and (ii) Modems and Modules, which are infringing upon any Ericsson Licensed
Patents and which are compliant with any or more of the Standards.
5. License Period shall mean the period commencing on September 25, 2003, and having a duration through
the expiration of the last one of the Ericsson Licensed Patents/Panasonic Licensed Patents, however, only
for as long as there are any Panasonic Products and Ericsson Products sold or otherwise disposed of by an
applicable Party (and/or its Affiliates).
6. In BIR Ruling No. DA-ITAD 12-02 dated January 29, 2002, this Bureau ruled that the phrase "enterprise
registered and engaged in preferred areas of activities" as used in the old Philippines-Sweden tax treaty and
other Philippine tax treaties refers only to an enterprise registered with the Board of Investments and does
not include an enterprise registered with the Philippine Economic Zone Authority (PEZA) like Panasonic
Philippines. The ruling took into account the nonexistence of Republic Act No. 7916 (An Act Providing for
the Legal Framework and Mechanism for the Creation, Operation, Administration, and Coordination of
Special Economic Zones in the Philippines, Creating for this Purpose, the Philippine Economic Zone
Authority (PEZA), and for Other Purposes) at the time of signature of these treaties.
1997, As Amended, And For Other Purposes), which was signed into law on May 24, 2005 and became
effective on November 1, 2005, amended Section 108 (A), thus:
or exchanged, such tax to be paid by the seller or transferor: Provided, that the President, upon the
year exceeds one and one-half percent (1-1/2%); or
one-half percent (1-1/2%).
Philippines for others for a fee, remuneration or consideration. . . . "
8. Republic Act No. 9337 renumbered and amended Section 109 (q) to read as:
"SEC. 109. Exempt Transactions. — (1) Subject to the provisions of Subsection (2) hereof the
following transaction shall be exempt from the value-added tax:
xxx xxx xxx
(K) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree No. 529;"
9. When a transaction is exempt, Ericsson Sweden will not subject to VAT (output tax) the royalties for the
Ericsson Licensed Patents to be paid to it by Panasonic Philippines, and Ericsson Sweden is not allowed
any tax credit on VAT (input tax) on purchases it previously paid, if any. (Section 4.109-1, Revenue
Regulations 16-2005 [Consolidated Value-Added Tax Regulations of 2005]).
May 23, 2007
Articles 5 (Permanent Establishment), 8 (Business Profits),

13 (Royalties) and 23 (Relief from Double Taxation);
Philippines-United States of America tax treaty;
BIR Ruling Nos. DA-ITAD 42-06 and 76-06
Rodrigo Berenguer & Guno

4th Floor, Philippine First Building
6764 Ayala Avenue
Makati City
Attention: Atty. Tomas M. Guno

Atty. Cliburn Anthony A. Orbe
Gentlemen :
This refers to your letter dated December 14, 2004 requesting confirmation that license fees to be
paid by The Insular Life Assurance Co., Ltd. (Insular Life) to L.I.D.P. Consulting Services, Inc. (L.I.D.P.)
under a Renewal of License Agreement are subject to 10% income tax rate pursuant to the Convention
between the Government of the Republic of the Philippines and the Government of the United States of
America with Respect to Taxes on Income (Philippines-United States tax treaty).
Basic facts
It is represented that L.I.D.P. is a corporation organized and existing under the laws of the United
States of America, with address at 3590 Hobson Road, Woodridge, Illinois 60517, United States of
America; that L.I.D.P. is engaged primarily in the provision of data processing services and in acting as
consultants for data processing clients, as stated in its Articles of Incorporation filed at the Office of the
Secretary of the State of Illinois on April 23, 1981; that L.I.D.P. is not registered as a corporation or as a
partnership in the Philippines, as confirmed by the Certification of Non-Registration of
Corporation/Partnership dated December 22, 2004 issued by the Securities and Exchange Commission;
and that, on the other hand, Insular Life is a corporation organized and existing under the laws of the
Philippines, with address at 18th Floor, Insular Life Corporate Center, Filinvest Corporate City, Alabang
1770, Muntinlupa City, Philippines.
It is also represented that on July 11, 1995, L.I.D.P. and Insular Life entered into a License
Agreement, whereby L.I.D.P. granted Insular Life a non-assignable, non-transferable and non-exclusive
license to use the proprietary software systems therein referred to as the Program Product; that the
License Agreement has a term of five (5) years from July 11, 1995 to July 10, 2000; that on December 20,
2001, L.I.D.P. and Insular Life entered into a Renewal of License Agreement, whereby L.I.D.P. renewed
the license it previously granted to Insular Life to use the Program Product (including programs, source
code, 1(57) options, documentation, data and information of said software system) for another six (6) years,
retroactive from July 11, 2000 until June 30, 2006; that the Program Product means the proprietary and
confidential software system owned by L.I.D.P. (LIDP Life Insurance Software) whether in print,
magnetic, electronic or video format and includes both source and object codes, 2(58) including programs,
options, programming techniques, flowcharts, all product lines 3(59) and data and information and any
modifications, 4(60) enhancements, additions, corrections, improvements, releases, 5(61) L.I.D.P.
enhancements, 6(62) and any other changes to the software system, and includes also the initial copy of the
Program Product (that was delivered to Insular Life in 1995) and any and all full or partial copies of
Program Product; that under the Renewal of License Agreement, Insular Life was and continues to be
permitted to use the Program Product and Documentation 7(63) as a Single Site/Single Company License,
which permits Insular Life and its employees to use the Program Product and Documentation to administer
and process at its premises the product lines solely for its own internal use and benefit; and that in
consideration for the license granted, Insular Life will pay L.I.D.P. license fees in accordance with the
following schedule:
a) The license fee for the period July 11, 2000 to June 30, 2001, amounting to US$148,298.04,
has been fully paid by Insular Life and L.I.D.P acknowledged receipt of the fee. HSCcTD
b) The license fee for the period July 1, 2001 to June 30, 2002, amounting to US$157,195.80, is
to be paid in equal monthly installments of US$13,099.66, on or before the first day of each
month. Insular Life will also pay license fees for the periods July 1, 2002 to June 30, 2003,
July 1, 2003 to June 30, 2004, July 1, 2004 to June 30, 2005, and July 1, 2005 to June 30,
2006, in equal monthly installments on or before the first day of each month.
c) Any increase in the license fee after the first year (July 1, 2001 to June 30, 2002) will not be
more than 6% of the immediately preceding license fee, and L.I.D.P. will notify Insular Life
of any such increase not later than the first day of June of the applicable year in which the
increase will be effective.
d) In the event that the Renewal of License Agreement is terminated before June 30, 2006 due
to nonpayment of license fees, Insular Life will not be liable for the monthly installments of
the license fees remaining after the date of such termination. Upon such termination, the
license for the Program Product will cease immediately and Insular Life will at its expense
return the Program Product and Documentation to L.I.D.P.
It is finally represented that the Renewal of License Agreement has complied with the provisions of
Sections 87 and 88, Chapter IX, Part II of the Intellectual Property Code (Republic Act No. 8293) on
Voluntary Licensing, as confirmed by Certificate of Compliance No. 5-2002-00071 dated February 20,
2004 issued by the Intellectual Property Office.
Ruling
A. On income tax
In reply, please be informed that the Bureau of Internal Revenue has issued two Revenue
Memorandum Circulars (RMCs) that govern the taxation of software payments: RMC 77-2003
(Classification of Payments for Software for Income Tax Purposes) dated November 18, 2003 and RMC
44-2005 (Taxation of Payments for Software) dated September 8, 2005. Under RMC 77-2003, which
provides characterization of software payments made or to be made before September 8, 2005, software
payments are generally treated as royalties, thus:
"Definition of Royalties Includes Payments for the Use of Software:
The term "royalties" as generally used means payment of any kind received as a consideration for
the use of, or the right to use, any copyright of literary, artistic or scientific work including
cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade
mark, design, or model, plan, secret formula or process, or for the use of, or the right to use,
industrial, commercial or scientific equipment, or for information concerning industrial, commercial
or scientific experience. The term "use" as contained herein shall include the reselling or
distribution of software.
Software is generally assimilated as a literary, artistic or scientific work protected by the copyright
laws of various countries including the Philippines; thus payments in consideration for the use of, or
the right to use, a copy or a copyrighted article relating to software are generally royalties."
On the other hand, under RMC 44-2005, which provides characterization of software payments
made or to be made on or after September 8, 2005, software payments are treated either as business
income, royalties, rental income, or capital gains, depending on the nature of the transaction out of which
such payments are made. Under this RMC, software payments are treated as royalties only if the
transaction does not constitute a sale or exchange and not all substantial rights in the software have been
transferred but merely the copyright rights in the software. However, if a person acquires a copy of a
software but does not acquire any of the copyright rights in the software (or only acquires a de minimis
grant of such rights), and the transaction does not involve the provision of services or of know-how, the
acquisition is treated as a transfer of a copyrighted article only and payments for it constitute as business
income and not as royalties, thus:
"Section 5. CHARACTERIZATION OF TRANSACTIONS. — The character of payments

received in a transaction involving the transfer of computer software depends on the nature of the
rights that the transferee acquires under the particular arrangement regarding the use and
exploitation of the program. ATcEDS
a. Transfer of copyright rights. A transfer of software is classified as a transfer of a copyright

right if, as a result of the transaction, a person acquires any one or more of the rights
described below:
i. The right to make copies of the software for purposes of distribution to the
public by sale or other transfer of ownership, or by rental, lease or lending;
ii. The right to prepare derivative computer programs based upon the
copyrighted software;
iii. The right to make a public performance of the software;
iv. The right to publicly display the computer program; or
v. any other rights of the copyright owner, the exercise of which by another
without his authority shall constitute infringement of said copyright.
The determination of whether a transfer of a copyright right in a software is a sale or

exchange of property is made on the basis of whether, taking into account all facts and
circumstances, there has been a transfer of all substantial rights in the copyright. A
transaction that does not constitute a sale or exchange because not all substantial rights have
been transferred will be classified as a license generating royalty income.
When only copyright rights are transferred, payments made in consideration therefor are
royalties. On the other hand, when copyright ownership is transferred, payments made in
consideration therefor are business income.
b. Transfer of copyrighted articles. A copyrighted article incorporating a software includes a

copy of the software from which the work can be perceived, reproduced, or otherwise
communicated, either directly or with the aid of a machine or device. The copy of the
software may be fixed in the magnetic medium of a floppy disk or a CD-ROM, or in the
main memory or hard drive of a computer, or in any other medium.
If a person acquires a copy of a software but does not acquire any of the rights described
above (or only acquires a de minimis grant of such rights), and the transaction does not
involve the provision of services or of know-how, the transfer of the copy of the software is
classified solely as a transfer of a copyrighted article and payments for which constitute
business income."
Taking into account the different tax treatment of software payments under the two RMCs and the
mode of payment of the license fees on a monthly basis, pursuant to the old RMC 77-2003, the license fees
to be paid by Insular Life to L.I.D.P. for the LIDP Life Insurance Software for the periods July 11, 2000 to
June 30, 2001, July 1, 2001 to June 30, 2002, July 1, 2002 to June 30, 2003, July 1, 2003 to June 30, 2004,
July 1, 2004 to June 30, 2005, and July 1 to August 31, 2005, are treated as royalties and subject to the
reduced income tax under Article 13 of the Philippines-United States tax treaty. On the other hand,
pursuant to the new RMC 44-2005, the license fees to be paid by Insular Life to L.I.D.P. for the period
September 1, 2005 to June 30, 2006 are treated as business income or business profits and subject to
income tax if attributable to a permanent establishment which L.I.D.P. has in the Philippines, under
Articles 5 and 8 of the Philippines-United States tax treaty.
(i) On license fees treated as royalties
Under paragraph 2(b)(iii), Article 13 of the Philippines-United States tax treaty, the license fees to
be paid for the periods July 11, 2000 to June 30, 2001, July 1, 2001 to June 30, 2002, July 1, 2002 to June
30, 2003, July 1, 2003 to June 30, 2004, July 1, 2004 to June 30, 2005, and July 1 to August 31, 2005, are
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 (commonly known as the most-favored-nation tax
treatment of royalties):
"Article 13
ROYALTIES
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:
State."
In relation to the most-favored-nation tax treatment, the Supreme Court, in Commissioner of
Internal Revenue vs. S.C. Johnson and Son, Inc. and Court of Appeals (G.R. No. 127105 dated June 25,
1999), has cited two conditions for royalties arising in the Philippines and derived by a resident of another
country (in this case, the United States) to be subject to a most-favored-nation tax treatment. First, the
royalties in question derived by a resident of the other country (the United States) must be of the same
kind as those derived by a resident of the third country which are subject to a most-favored-nation tax
treatment under the existing tax treaty between the Philippines and the third country. Secondly, the
mechanism employed by the other country (the United States) in mitigating the effects of double taxation
of foreign-sourced income derived by its residents must be the same with that employed by the third
country, which can be determined by taking into account and comparing the articles on Elimination of
Double Taxation of the other country (the United States) and the third country under their respective tax
treaties with the Philippines.
In looking for a third country that grants a most-favored-nation tax treatment, you have cited
Germany and, accordingly, the Agreement between the Republic of the Philippines and the Federal
Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital
(Philippines-Germany tax treaty), which was signed on July 22, 1983, and whose provisions on taxes
apply on income derived or which accrued on or after January 1, 1985. Paragraph 2, Article 12 of the
Philippines-Germany tax treaty provides:
"Article 12
ROYALTIES
according to the law of that State, but the tax so charged shall not exceed:
a) 15 per cent of the gross amount of royalties arising from the use of, or the
right to use, any copyright of literacy, artistic or scientific work including
b) 10 per cent of the gross amount of royalties arising from the use of, or the
scientific experience. TaSEHD
For as long as the transfer of technology, under Philippine law, is subject to approval, the
limitation of the tax rate mentioned under (b) shall, in the case of royalties arising in the
Republic of the Philippines, only apply if the contract giving rise to such royalties has been
approved by the Philippine competent authorities."
Under paragraph 2, royalties arising in the Philippines and derived by a resident of Germany are
subject to (a) 15% income tax for royalties from the use or the right to use of any copyright of literary,
artistic or scientific work including cinematograph films or tapes for television or broadcasting, and (b)
10% income tax for royalties from the use or the right to use of 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. Because
software payments are generally treated as royalties for the use or the right to use of a copyright of literary,
artistic or scientific work under RMC 77-2003, the license fees to be paid by Insular Life to L.I.D.P. for
the periods in question are subject to 15% income tax based on the gross amount thereof, and not to 10%
income tax as requested.
As to the second requirement for the most-favored-nation tax treatment that the United States and
Germany should employ the same mechanism in mitigating the effects of double taxation of
foreign-sourced income derived by their residents, a comparison of the articles on Elimination of Double
Taxation in their respective tax treaties with the Philippines reveal that they do not employ such a same
mechanism, to wit:
Philippines-United States tax treaty:
"Article 23
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. For the purpose of applying the United States credit in relation to
taxes paid or accrued to the Philippines, the rules set forth in Article 4 (Source of Income)
shall be applied to determine the source of income. For purposes of applying the United
States credit in relation to taxes paid or accrued to the Philippines, the taxes referred to in
paragraphs 1(b) and 2 of Article 1 (Taxes Covered) shall be considered to be income taxes."
Philippines-Germany tax treaty:
"Article 24
1. Tax shall be determined in the case of a resident of the Federal Republic of Germany as
follows:
a) Unless the provisions of subparagraph (b) apply, there shall be excluded from
the basis upon which German tax is imposed, any item of income arising in
the Republic of the Philippines and any item of capital situated within the
Republic of the Philippines which, according to this Agreement, may be taxed
in the Republic of the Philippines. The Federal Republic of Germany,
however, retains the right to take into account in the determination of its rate
of tax the items of income and capital so excluded.
In the case of income from dividends the foregoing provisions shall apply
only to such dividends as are paid to a company (not including partnerships)
being a resident of the Federal Republic of Germany by a company being a
resident of the Republic of the Philippines at least 25 per cent of the capital of
which is owned directly by the German company.
For the purposes of taxes on capital there shall also be excluded from the
basis upon which German tax is imposed any shareholding, the dividends
which are excluded or, if paid, would be excluded according to the
immediately foregoing sentence from the basis upon which German tax is
imposed.
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 and in
accordance with this Agreement on:
(aa) income to which Article 8 applies;
(bb) dividends, not dealt with in subparagraph (a);
(cc) interest, as defined in paragraph 5 of Article 11;
(dd) royalties, as defined in paragraph 3 of Article 12;
(ee) gains to which paragraph 3 of Article 13 applies;
(ff) remuneration to which Article 16 applies;
(gg) income to which Article 17 applies;
(hh) income to which the second sentence of paragraph 1 of Article 19

applies;
(ii) income to which Article 22 applies.
c) For the purpose of credit referred to in subparagraph (b) the Philippine tax
shall be deemed to be
(aa) in the case of dividends referred to in (bb) of subparagraph (b), 20 per

cent of the gross amount of the dividends;
(bb) in the case of interest referred to in (cc) of subparagraph (b), 15 per

cent of the gross amount of the interest;
(cc) in the case of royalties for which the tax is reduced to 10 or 15 per
cent according to paragraph 2 of Article 12, 20 per cent of the gross
amount of such royalties."
For the United States, it uses the ordinary credit method whereby the United States (as country of
residence) would limit a taxpayer's allowable tax credit to that portion of the taxpayer's tax liability in the
United States that is attributable to income that was taxed in the Philippines (the country of source or
situs). As a result of this limitation, if the Philippines has an effective tax rate that exceeds the effective
tax rate of the United States on a particular income, the taxpayer would not receive full credit for foreign
taxes paid. For Germany, it uses the exemption-with-progression method 8(64) for one group of income
(subparagraph (a), Article 24) and the ordinary credit method for another group of income including
royalties (subparagraph (b), Ibid.). However, for dividends, interest and royalties to which the ordinary tax
credit applies, Germany provides an additional tax credit or a tax sparing credit of 10% and 5% to these
types of income which are either subject to 10% or 15% income tax in the Philippines (subparagraph (c),
Ibid.). This tax sparing credit is not available to residents of the United States under the
Philippines-United States tax treaty as the United States would limit a taxpayer's allowable tax credit only
to that portion of the taxpayer's tax liability in the United States that is attributable to income that was
actually taxed in the Philippines. This being the case, the Philippines-Germany tax treaty cannot be used
as a basis for the grant of the most-favored-nation tax treatment.
Nonetheless, we are pleased to inform you that aside from the Philippines-Germany tax treaty, there
are other Philippine tax treaties that provide for a 15% income tax on royalties: for example, the
Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income
(Philippines-Netherlands tax treaty), which was signed on March 9, 1989, and whose provisions on taxes
apply on income derived or which accrued on or after January 1, 1992. The articles on Royalties and
Elimination of Double Taxation of the Philippines-Netherlands tax treaty provide:
"Article 12
ROYALTIES
1. Royalties arising in one of the States and paid to a resident of the other State may be taxed in
that other State.
2. However, such royalties may also be taxed in the State in which they arise, and according to
the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so
charged shall not exceed:
a) 10 per cent of the gross amount of the royalties where the royalties are paid
by an enterprise registered, and engaged in preferred areas of activities in that
State; and
b) 15 per cent of the gross amount of the royalties in all other cases.
3. The competent authorities of the States shall by mutual agreement settle the mode of
application of paragraph 2.
4. The term "royalties" as used in this Article means payments of any kind received as a
consideration for the use of, or the right to use, any copyright of literacy, 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
commercial or scientific experience."
"Article 22
ELIMINATION OF DOUBLE TAXATION
xxx xxx xxx
1. The Netherlands, when imposing tax on its residents, may include in the basis upon which
such taxes are imposed the items of income which, according to the provisions of this
Convention, may be taxed in the Philippines.
2. Without prejudice to the application of the provisions concerning the compensation of losses
in the unilateral regulations for the avoidance of double taxation, where a resident of the
Netherlands derives items of income which according to Article 6, Article 7, paragraph 6 of
Article 10, paragraph 6 of Article 11, paragraph 5 of Article 12, paragraphs 1 and 2 of
Article 13, Article 14, paragraph 1 of Article 15, paragraphs 1 and 3 of Article 16, paragraph
2 of Article 18 and Article 19 of this Convention may be taxed in the Philippines and are
included in the basis referred to in paragraph 1, the Netherlands shall exempt such items of
income by allowing a proportionate reduction of its tax. This reduction shall not, however,
exceed that part of the Netherlands tax as computed before the reduction is given, which is
otherwise due on the said items of income.
3. Further, the Netherlands shall allow a deduction from the Netherland tax so computed for
the items of income which according to paragraph 2 of Article 8, paragraph 2 of Article 10,
paragraph 2 of Article 11, paragraph 2 of Article 12 and Article 17 of this Convention may
be taxed in the Philippines to the extent that these items are included in the basis referred to
in paragraph 1. The amount of this deduction shall be equal to the tax paid in the Philippines
on these items of income, but shall not exceed that part of the Netherlands tax which is
4. For the purposes of paragraph 3, where the Philippine tax actually paid on interest and
royalties arising in the Philippines is lower than 15 per cent, then, the tax paid in the
Philippines on these items of income shall be deemed to be 15 per cent."
As to the first condition for the most-favored-nation tax treatment, under paragraph 2 (b), Article 12
of the Philippines-Netherlands tax treaty, royalties for the use or the right to use of any copyright of
literary, artistic or scientific work (to which the license fees to be paid by Insular Life to L.I.D.P. for the
LIDP Life Insurance Software are assimilated), among others, which are not paid by an enterprise
registered and engaged in preferred areas of activities in the Philippines, are subject to 15% income tax
based on the gross amount thereof.
As to the second condition for the most-favored-nation tax treatment, under paragraph 3, Article 22
of the tax treaty, the Netherlands applies the ordinary credit method to profits from the operation of ships
and aircraft in international traffic, and dividends, interest and royalties to the extent they are not
effectively connected to a permanent establishment or a fixed base, and income of artistes and athletes. In
addition, under paragraph 4 of Article 22, the Netherlands allows a 5% tax sparing credit for interest and
royalties subject to 10% income tax in the Philippines; for royalties, under paragraph 2 (a) of Article 12,
the 5% tax sparing credit is granted only to Netherlands residents who receive royalties from companies in
the Philippines who are registered and engaged in preferred areas of activities in the Philippines. In the
case of Insular Life, which is not a registered enterprise engaged in preferred areas of activities in the
Philippines (for example, with the Board of Investments), the 5% tax sparing credit could not apply
because the royalties to be paid by Insular Life is subject to 15% income tax and not to 10% income tax.
Finally, under paragraph 2 of Article 22, the Netherlands applies the exemption-with-progression method
to all other types of income. acCDSH
In fine, because the two conditions for the most-favored-nation tax treatment of royalties are both
present in the Philippines-Netherlands tax treaty, the 15% income tax under paragraph 2 (b), Article 12 of
this tax treaty can be availed of. Hence, this Office is of the opinion and so holds that the license fees to be
paid by Insular Life to L.I.D.P. for the LIDP Life Insurance Software for the periods July 11, 2000 to June
30, 2001, July 1, 2001 to June 30, 2002, July 1, 2002 to June 30, 2003, July 1, 2003 to June 30, 2004, July
1, 2004 to June 30, 2005, and July 1 to August 31, 2005 are subject to 15% income tax based on the gross
amount thereof, pursuant to paragraph 2 (b) (iii), Article 13 of the Philippines-United States tax treaty in
relation to Articles 12 and 22 of the Philippines-Netherlands tax treaty. (BIR Ruling Nos. DA-ITAD 76-06
dated June 23, 2006 and DA-ITAD 42-06 dated April 11, 2006)
(ii) On license fees treated as business income or business profits
On the other hand, with respect to the license fees to be paid by Insular Life to L.I.D.P. for the
period September 1, 2005 to June 30, 2006, as stated previously, pursuant to the new RMC 44-2005, such
license fees are treated as business income or business profits and subject to income tax if attributable to a
permanent establishment which L.I.D.P. has in the Philippines, under Articles 5 and 8 of the
Philippines-United States tax treaty. Under RMC 44-2005, when only a copy of a software is acquired but
not the copyright rights in the software (or acquired only a de minimis grant of such rights), and the
transaction does not involve the provision of services or of know-how, the transfer of the copy of the
software is classified solely as a transfer of a copyrighted article and payments for which constitute
business income or business profits. Under the Renewal of License Agreement, Insular Life and its
employees were merely granted by L.I.D.P. the right to use the LIDP Life Insurance Software as a Single
Site/Single Company License, which permits them to use the software to administer and process the
product lines solely for its own internal use and benefit at its premises. Under the Agreement, Insular Life
and its employees were not granted by L.I.D.P. the following copyright rights in the software mentioned in
RMC 44-2005 as:
1. The right to make copies of the software for purposes of distribution to the public by sale or
other transfer of ownership, or by rental, lease or lending;
2. The right to prepare derivative computer programs based upon the software;
3. The right to make a public performance of the software;
4. The right to publicly display the computer program; or
5. Any other rights of L.I.D.P., the exercise of which by Insular Life without the former's
authority constitutes infringement of the copyright in the software.
This being the case, under Articles 5 and 8 of the Philippines-United States tax treaty, the license
fees in question are subject to Philippine income tax only if they are attributable to a permanent
establishment which L.I.D.P. has in the Philippines, to wit:
"Article 8
BUSINESS PROFITS
1. Business profits of a resident of one of the Contracting States shall be taxable only in
that State unless the resident has a permanent establishment in the other Contracting State. If the
resident has a permanent establishment in that other Contracting State, tax may be imposed by that
other Contracting State on the business profits of the resident but only on so much of them as are
attributable to the permanent establishment." TcDaSI
"Article 5
1. For the purposes of this Convention, the term "permanent establishment" means a
fixed place of business through which a resident of one of the Contracting States engages in a trade
or business.
2. The term "fixed place of business" includes but is not limited to:
b) A branch;
c) An office;
e) A factory;
f) A workshop;
g) A warehouse;
i) A building site or construction or assembly project or supervisory

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

of one of the Contracting States through employees or other personnel, provided
activities of that nature continue (for the same or a connected project) within the
other Contracting State for a period or periods aggregating more than 183 days."
As defined, a permanent establishment is a fixed place of business through which L.I.D.P. engages
in a trade or business, and includes, for example, a branch or an office. Relative thereto, taking into
account the Certification of Non-Registration of Corporation/Partnership dated December 22, 2004 issued
by the Securities and Exchange Commission which confirmed that L.I.D.P. is not registered either as a
corporation or as a partnership licensed to engage in business in the Philippines, this Office is of the
opinion and so holds that L.I.D.P. does not have a permanent establishment or a fixed place of business in
the Philippines. In such absence, the license fees to be paid by Insular Life to L.I.D.P. for the period,
September 2005 to June 2006, are therefore not subject to Philippine income tax. (BIR Ruling No.
DA-ITAD 42-06 dated April 11, 2006) cCESTA
B. On value-added tax (VAT)
Finally, under Section 106 (A) of the National Internal Revenue Code of 1997 (Tax Code), the
license fees to be paid by Insular Life to L.I.D.P. for the LIDP Life Insurance Software for all the periods,
July 11, 2000 to June 30, 2001, July 1, 2001 to June 30, 2002, July 1, 2002 to June 30, 2003, July 1, 2003
to June 30, 2004, July 1, 2004 to June 30, 2005, and July 1, 2005 to June 30, 2006, are subject to VAT:
(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the
gross selling price or gross value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor.
xxx xxx xxx" 9(65)
With the increase of the VAT rate to 12% on February 1, 2006, consequently, the license fees to be paid in
February, March, April, May and June 2006, are subject to the 12% VAT rate.
With regard to the procedures for withholding and paying the VAT, Sections 4 and 6 of Revenue
Regulations No. 4-2000, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue
Regulations No. 14-2002, provide that Insular Life shall be responsible for the withholding of the VAT on
the license fees before remitting them to L.I.D.P. In remitting to the Bureau of Internal Revenue the VAT
withheld on the fees, Insular Life shall use BIR Form No. 1600 (Monthly Remittance Return of VAT and
Other Percentage Taxes Withheld). If a VAT-registered taxpayer, Insular Life may use as documentary
substantiation for its claim of input VAT the duly filed BIR Form No. 1600 and the proof of payment
accompanying it. If a non-VAT-registered taxpayer, Insular Life may include as part of the cost of the
LIDP Life Insurance Software licensed to it by L.I.D.P. the VAT consequently shifted or passed on to it
and may treat the VAT either as an expense or an asset, whichever is applicable. In addition, Insular Life
is required to issue the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate,
the first three copies for L.I.D.P. and the fourth copy for Insular Life as its file copy.
Very truly yours,
By:

Legal Service
Footnotes
1. Source Code means the set of instructions used to direct computer functions written in computer
programming language.
2. Object Code means computer programs in machine-readable form.
3. Product Lines means the different insurance Products Lines that Program Product is designed to administer,
consisting of: (1) life insurance products — universal life, variable universal life, interest sensitive whole
life, ordinary life, term life, first and second to die, (2) annuity products — variable annuities, fixed
annuities, single premium, flexible premium, guaranteed investment, and (3) health insurance products —
disability income, long term care, Medicare supplement insurance, hospital expense, major medical.
4. Modifications means any modification, enhancement, addition, correction, improvement, Release or other
change to Program Product
5. Release means a release of the Program Product licensed under the Renewal of License Agreement which is
released subsequent to the delivery of the Initial Copy of Program Product to Insular Life and which may
include error corrections, improvements and/or enhancements made to the Program Product, but does not
necessarily include any modifications specific to Insular Life and does not include new subsystems or
capabilities which may be developed by L.I.D.P.
6. L.I.D.P. Enhancements means any and all Modifications, whether in print, magnetic, electronic, video or
visual format, to the Program Product and Documentation, including the ideas, processes, formulas, and
methods relating thereto.
7. Documentation means the proprietary and confidential user/functional documentation, installation
procedures, training materials, and any other materials owned by L.I.D.P. which relate to the use,
programming, functioning, and maintenance of Program Product that is supplied by L.I.D.P. to Insular Life
whether in print, magnetic, electronic, or video format.
8. Under the principle of exemption, Germany does not tax the income, which according to the tax treaty, may
be taxed in the Philippines. The principle of exemption may be applied by two main methods:
a) the income which may be taxed in the Philippines is not taken into account at all by Germany
for purposes of its tax; Germany is not entitled to take the income so exempted into consideration when
determining the tax to be imposed on the rest of the income (full exemption method);
b) the income which may be taxed in the Philippines is not taxed by Germany, but Germany
retains the right to take that income into consideration when determining the tax to be imposed on the rest
of the income (exemption-with-progression method).
To illustrate the two methods, suppose a German taxpayer has an income of 150,000, 100,000 of which is
derived in Germany and 50,000 in the Philippines. The effective tax rate in Germany is 10% for an income
of 100,000 and below, and 20% for an income of more than 100,000. Where Germany applies the full
exemption method, the taxpayer is taxed only on income derived in Germany and not on that derived in the
Philippines. Germany does not take into consideration the exempted income when determining the tax to be
imposed on the rest of the income (100,000) so that the tax to be imposed on such income is 10% only, the
applicable rate to an income of 100,000. Where Germany applies the exemption with progression method,
the taxpayer is taxed only on income derived in Germany and not on that derived in the Philippines.
However, Germany takes into consideration the exempted income when determining the tax to be imposed
on the rest of the income (100,000) so that the tax to be imposed on such income is 20%, the rate applicable
to an income of 150,000.
effective on November 1, 2005, amended Section 106 (A) to read as:
(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by
the seller or transferor: Provided, that the President, upon the recommendation of the Secretary of finance,
shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
xxx xxx xxx"
May 22, 2007
Article 11, Philippines-Netherlands Tax Treaty;

S. C. Johnson & Son, Inc.

6371 Estrella St., Guadalupe Viejo
Makati City 1200
Attention: Ms. Teresita B. Latorre

Finance/IS Director
Gentlemen :
This refers to your letter dated June 28, 2005 requesting confirmation that the interest payments of
S. C. Johnson & Son, Inc. (SCJSI) to S. C. Johnson Europe B.V. (SCJEBV) are subject to the preferential
tax rate of fifteen percent (15%) pursuant to Article 11 of the Philippines-Netherlands tax treaty. DHTECc
It is represented that SCJEBV is a nonresident foreign corporation with registered office at P.O.
Box 38, 3640 AA Mijdrecht, Netherlands and is a resident of The Netherlands according to the
Philippines-Netherlands tax treaty, as certified by the Tax Authority of The Netherlands on July 14, 2005;
that SCJEBV is not registered either as a corporation or as a partnership in the Philippines as confirmed by
the Certification of Non-Registration issued by the Securities and Exchange Commission on June 2, 2003;
that SCJSI, on the other hand, is a domestic company organized and existing under the laws of the
Philippines with principal office at 6371 Estrella Street, Guadalupe Viejo, Makati City 1200; that in a
Loan Agreement dated December 7, 2004, SCJEBV agreed to lend SCJSI an amount not to exceed
JPY2,500,000,000.00 (Two Billion Five Hundred Million Japanese Yen) for the acquisition of certain
assets; that the loan shall be due and payable by SCJSI on a date, which shall be the earlier of December 7,
2007, or at the election of SCJEBV, upon the occurrence of an Event of Default as defined in Article 4 of
the Loan Agreement; that the loan shall bear interest which shall be computed on the basis of the actual
number of days lapsed in a 365 day calendar year and shall accrue on the outstanding Principal Amount
from the Effective Date at a rate not to exceed 1.5% per annum; and that on December 8, 2004, SCJSI
received an inward remittance from Citybank Tokyo by order of SCJEBV the amount of Japanese Yen:
One Billion Nine Hundred Twenty Six Million Nine Hundred Nine Thousand Eight Hundred Ninety Five
only (JPY 1,926,909,895.00).
follows:
"Article 11
INTEREST
1. Interest arising in one of the States and paid to a resident on the other State may be taxed in
that other State.
2. However, such interest may also be taxed in the State in which it arises and according to the
laws of that State, but if the recipient is the beneficial owner of the interest the tax so
(a) 10 per cent of the gross amount if such interest is paid:
(i) in connection with the sale on credit of any industrial, commercial or

scientific equipment, or
(ii) on any loan of whatever kind granted by a bank, or any other financial
institution,
(iii) in respect of public issues of bonds, debentures or similar obligations.
(b) 15 per cent of the gross amount of the interest in all other cases.
xxx xxx xxx
5. The term 'interest' as used in this Article means income from Government securities, bonds
or debentures, whether or not secured by mortgage but not carrying a right to participate in
profits, and debt-claims of every kind as well as 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.
xxx xxx xxx"
As can be gleaned from the foregoing, SCJSI's interest payments to SCJEBV do not fall under the
instances enumerated in Article 11 paragraph 2(a) which are subject to the withholding tax rate of 10%
since the interests to be paid by SCJSI are not in connection with any sale on credit of any industrial,
commercial or scientific equipment or paid on any loan of whatever kind granted by a bank, or any other
financial institution, or paid in respect of public issues of bonds, debentures or similar obligations.
Therefore, interest payments by SCJSI to SCJEBV are subject to the withholding tax rate of 15%, based
on the gross amount thereof, pursuant to paragraph 2(b) of the said Article. (BIR Ruling No. DA-ITAD
32-05 dated April 13, 2005)
Moreover, the Loan Agreement executed by and between them shall be subject to the documentary
stamp tax imposed under Section 179 of the National Internal Revenue Code of 1997 (Tax Code), as
amended. The same Tax Code also 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 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 for the tax.
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 SCJSI or SCJEBV
in accordance with the aforementioned provision of the Tax Code and Revenue Regulations No. 9-2000
(Mode of Payment and/or Remittance of the Documentary Stamp Tax (DST) under Certain Conditions).
SAcaDE
Very truly yours,
By:

Legal Service
May 16, 2007
Arts. 5 & 7, Philippines-Japan Tax Treaty;

Punongbayan & Araullo

20th Floor, Tower 1 The Enterprise Center
1200 Makati City
Attention: Maria Victoria C. Espano

Tax Partner
Gentlemen :
This refers to your letter dated January 8, 2007 filed on behalf of your client, Sekisui Jushi
Corporation (Sekisui-Japan), seeking for confirmation of your opinion that the respective consulting fees
paid by Sekisui Jushi Philippines, Inc. (Sekisui-Philippines), Sekisui Jushi Swanson Plastics Corporation
(Swanson-Philippines) and Summit Strapping Corporation (Summit-Philippines), (also collectively
referred herein as the Companies-Philippines) under their respective Management Consulting Agreement
(Agreements) are not subject to Philippine income tax and value-added tax pursuant to the provision of the
Philippines-Japan tax treaty and the National Internal Revenue Code (Tax Code of 1997).
It is represented that Sekisui-Japan is a taxable person in Japan with business address at Dohjima
Kanden Bldg. 6/F, 2-4-4, Nishitenma, Kita-ku, Osaka, Japan and with Tax Reference Number 00260215 as
shown in the Certificate of Status of Taxable Person issued by the District Director of Kita Tax Office
dated September 21, 2006; that Sekisui-Japan is not registered either as a corporation or as a partnership in
the Philippines as shown in the Certificate of Corporate Filing/Information issued by the Securities and
Exchange Commission on August 24, 2006; that Sekisui-Philippines is a domestic corporation with
principal address located at Lot 11 Phase II Carmelray Industrial Park I, Special Economic Zone (CIP-I
SEZ), Canlubang, Calamba, Laguna; that Sekisui-Philippines is registered with Philippine Economic Zone
Authority (PEZA) to manufacture photovoltaic (PC)/solar modules and applied/PV products (new linear
product) per Registration Certificate No. 00-002, dated January 11, 2000, under the Original Agreement,
and rendering computer aided-designs for manufactured products or component parts per Board
Resolution No. 00-361, dated November 7, 2000, under the Supplemental Agreement; that
Swanson-Philippines is a domestic corporation with principal address at Lot 11 Phase II Carmelray
Industrial Park I, Special Economic Zone (CIP-I SEZ), Canlubang, Calamba, Laguna; that
Swanson-Philippines is registered with PEZA to manufacture the polyethylene stretch film wrappers at
CIP I-SEZ under Certificate of Registration No. 99-156 dated August 18, 1999; that Summit-Philippines is
a domestic corporation with principal office at Lot 11 Phase II Calmeray Industrial Park I, Special
Economic Zone (CIP-I SEZ), Canlubang, Calamba, Laguna; that Summit-Philippines is registered with
PEZA to manufacture polypropylene strapping materials under Certificate of Registration No. 96-105
dated September 22, 1999. CHDTIS
It is further represented that on June 1, 2000, April 1, 2002 and April 1, 2001, Sekisui-Japan
entered into separate Management Consulting Agreements with Sekisui-Philippines, Swanson-Philippines
and Summit-Philippines, respectively; that under the Agreements, Sekisui-Japan will provide the services
in the form of advice, assistance and services to the Companies-Philippines; that the services that would be
rendered by Sekisui-Japan to the Companies-Philippines throughout the respective terms of the
Agreements are the following:
1. Assistance in the general management;
2. Advice and assistance in the establishment and operation of the company;
3. Advice and assistance in construction and operation of the factory and
4. Support and assistance in strengthening the business relation with Sekisui-Japan.
That the above services shall, in general, be carried out by Sekisui-Japan in Japan and in cases
where it would be necessary for Sekisui-Japan to send its employees in the Philippines, the stay of these
individuals in the Philippines shall not, in any case, exceed six (6) months within any taxable year; that as
a consideration for the said services, the Companies-Philippines will pay Sekisui-Japan consulting fees as
indicated in the respective Agreements; and that the issue or transaction subject of the above application is
not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit
certificate, collection proceedings, or a judicial appeal.
In reply, please be informed of Article 7 of the Philippines-Japan tax treaty quoted as follows:
"Article 7
1. The profits of an enterprise of a Contracting State shall be taxable only in that Contracting
State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as aforesaid,
the profits of the enterprise may be taxed in that other Contracting State but only so much of
xxx xxx xxx"
Based on the above, 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 that is attributable to
that permanent establishment. Applying this to the instant case, the consulting fees received by
Sekisui-Japan for services rendered in the Philippines under the Agreements shall be taxable in the
Philippines only if Sekisui-Japan has a permanent establishment in the Philippines in connection with the
activities giving rise to such income.
In relation thereto, Article 5 of the same tax treaty defines a "permanent establishment", as follows:
"Article 5
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."
Inasmuch as it has been represented that the services will generally be performed by Sekisui-Japan
outside the Philippines and that in cases where it would be necessary to send its employees in the
Philippines, said employees will not stay in the Philippines for a period or periods aggregating more than
six months within any taxable year in the course of their rendition of services to the
Companies-Philippines, Sekisui-Japan may be considered as not having a permanent establishment in the
Philippines. In other words, Sekisui-Japan is deemed not to have a permanent establishment for as long as
its employees do not stay in the Philippines for a period or periods aggregating more than six months
within any taxable year in the course of their rendition of services to the Companies. (BIR Ruling No.
DA-ITAD 164-06 dated December 18, 2006) In such a case, the income derived by Sekisui-Japan from
services rendered to the Companies-Philippines shall not be subject to Philippine income tax and, as such,
shall likewise be exempt from withholding tax. IDSaAH
As regards the imposition of the VAT on the rendition of services of Sekisui-Japan, please be
informed further that Section 108 of the Tax Code of 1997 1(66) provides as follows:
equivalent to ten percent (10%) 2(67) of gross receipts derived from the sale or exchange of services,
Philippines for others for a fee, remuneration or consideration, . . . . " (Emphasis supplied).
Thus, in general, the VAT is imposed on services rendered by Sekisui-Japan in the Philippines. On
every payment of service fees, the Companies are required to withhold such VAT and treat the same as a
"passed on" VAT, pursuant to Section 4.110-3 (b) of Revenue Regulations No. 7-95 as amended [now
Section 4.114-2 (b) of Revenue Regulations No. 4-2007].
However, in Commissioner of Internal Revenue vs. Seagate Technology (Philippines) (G.R. No.
153866, February 11, 2005), the Supreme Court held, viz:
"Special laws may certainly exempt transactions from the VAT. 3(68) However, the Tax Code
provides that those falling under PD 66 are not. PD 66 is the precursor of RA 7916 — the special
law under which respondent was registered. The purchase transactions it entered into are, therefore,
not VAT-exempt. These are subject to the VAT; respondent is required to register.
xxx xxx xxx
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is
zero. Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero
rate, because the ecozone within which it is registered is managed and operated by the PEZA as a
separate customs territory. This means that in such zone is created the legal fiction of foreign
territory. Under the cross-border principle of the VAT system being enforced by the Bureau of
Internal Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority. If exports of goods and services
from the Philippines to a foreign country are free of the VAT, then the same rule holds for such
exports from the national territory — except specifically declared areas — to an ecozone.
xxx xxx xxx
Applying the special laws we have earlier discussed, respondent as an entity is exempt from
This exemption covers both direct and indirect taxes, stemming from the very nature of the
VAT as a tax on consumption, for which the direct liability is imposed on one person but the
indirect burden is passed on to another. Respondent, as an exempt entity, can neither be directly
charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales, the
equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the
law does not distinguish, we ought not to distinguish.
. . . , RA 7916 states that 'no taxes, local and national, shall be imposed on business
establishments operating within the ecozone.' Since this law does not exclude the VAT from the
prohibition, it is deemed included. Exceptio firmat regulam in casibus non exceptis. An exception
confirms the rule in cases not excepted; that is, a thing not being excepted must be regarded as
coming within the purview of the general rule. DcHaET
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may
still be passed on and, therefore, indirectly imposed on the same entity — a patent circumvention of
the law. That no VAT shall be imposed directly upon business establishments operating within the
ecozone under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando
aliquid prohibetur ex directo prohibetur et per obliquum. When anything is prohibited directly, it is
also prohibited indirectly.
xxx xxx xxx"
Based on the foregoing, transactions exempt from VAT by reason of PD 66 and RA 7916 are
effectively zero-rated. However, instead of zero-rating which is not available to non-resident suppliers, the
provision for exempt transactions under Section 109 (q) [now Section 109 (K)] of the Tax Code of 1997
which provides VAT exemption for transactions that are exempt under specials laws, e.g., Republic Act
No. 7916 or PEZA Law, is particularly applicable to the instant case.
Such being the case, the payment of consulting fees by the Companies-Philippines, being
PEZA-registered enterprises, to Sekisui-Japan under their respective Agreements should be, as it is hereby
confirmed to be, exempt from VAT.
Very truly yours,
By:

Legal Service
Footnotes
1. Please note that this cited provision has been retained by Republic Act (RA) No. 9337, although with the
modification as to the applicable rate when the circumstances so warrant.
2. Effective February 1, 2006, the rate shall be 12%.
3. Referring to the old Section 109 (q) of the Tax Code of 1997 [now Section 109 (K), as amended by R.A.
No. 9337].
May 16, 2007
Section 23 (F) in relation to Section 42 (A) (3)

of the National Internal Revenue Code, as Amended;

20th Floor, Tower 1
The Enterprise Center
6766 Ayala Avenue
1200 Makati City
Attention: Atty. Fulvio D. Dawilan

Partner, Tax Advisory and Compliance
Gentlemen :
This refers to your letter dated July 11, 2006 requesting confirmation that the marketing fees paid
by KMP Engineering, Inc. (KMP) to T-Net Japan Co., Ltd. (T-Net) are exempt from Philippine income tax
and from value-added tax (VAT) pursuant to the pertinent sections of the National Internal Revenue Code
of 1997 (Tax Code of 1997) and the Philippines-Japan tax treaty. tax2007
It is represented that T-Net is a nonresident foreign corporation taxable under the laws of Japan
with business address at 930-10, Nariai-Cho, Takamatsu-Shi, Kagawa-Ken, 761-8081 Japan and Tax
Reference Number 00230286, as certified by the District Director of Takamatsu Tax Office in Japan on
April 6, 2006; that T-Net is not registered either as a corporation or as a partnership in the Philippines as
confirmed by the Certificate of Corporate Filing/Information issued by the Securities and Exchange
Commission Cebu Extension Office on June 28, 2006; that KMP, on the other hand, is a domestic
corporation with principal office at Salvage Road, Looc, Lapu-Lapu City, Cebu; that KMP is engaged in
the manufacture of pre-fabricated steel structure.
It is further represented that on April 1, 2006, KMP entered into a Marketing Agreement
(Agreement) with T-Net; that under the said Agreement, T-Net shall provide the following services to
KMP:
1. Promotion or marketing of the products of KMP in Japan and other neighboring countries;
2. Assistance to KMP in developing marketing strategies and specific marketing activities

outside the Philippines;
3. Representation of KMP in various marketing activities outside the Philippines; and
4. Undertaking of such other incidental marketing activities as may be requested by KMP to

promote the latter's product in other countries.
That the foregoing services shall in no case involve the transfer of T-Net's technology, know-how
or other intellectual property rights; that the employees and personnel of T-Net shall exclusively perform
the services for KMP in Japan or in other countries outside the Philippines; that as compensation for the
service performed by T-Net, KMP shall pay Japanese Yen: Seven Hundred Fifty Thousand
(JPN750,000.00) per month to T-Net; and that the issue or transaction subject of the above application is
certificate, collection proceedings, or a judicial appeal.
In reply, please be informed that Section 23 (F) of the Tax Code of 1997, as amended, provides:
xxx xxx xxx
xxx xxx xxx"
According to Section 23 (F), a foreign corporation like T-Net is taxable only on income derived
from sources within the Philippines. In the case of income from the provision of services, such income is
considered derived from sources within the Philippines if the services are performed in the Philippines, as
stated in Section 42 (A) (3) of the Tax Code of 1997, as amended, below:
A. Gross Income From Sources Within the Philippines. — The following items of gross income
xxx xxx xxx

Philippines;
xxx xxx xxx"
Such being the case and since the subject services will be carried out entirely in Japan and other
countries, the marketing fees to be paid by KMP to T-Net, being income not derived from sources within
the Philippines by a foreign corporation, are exempt from Philippine income tax. (BIR Ruling No.
DA-ITAD 105-05 dated August 24, 2005)
Lastly, since it is represented that the said services will be rendered in Japan and other countries,
the marketing fees to be paid by KMP to T-Net will not be subject to VAT pursuant to Sec. 4.108-2 of the
Revenue Regulations (RR) No. 16-2005, 1(69) as amended which states that:
"Sec. 4.108-2. Meaning of 'Sale or Exchange of Services'. The term 'sale or exchange of
services' means the performance of all kind of services in the Philippines for others for a fee,
remuneration or consideration, whether in kind or in cash, including those performed or rendered by
the following; . . ." cSIADH
Very truly yours,
By:

Legal Service
Footnotes
1. Consolidated Value-Added Tax Regulations of 2005.
May 16, 2007
Art. 12, Philippines-Malaysia Tax Treaty;


20th Flr., Tower 1 The Enterprise Center
6766 Ayala Avenue, 1200 Makati City
Attention: Maria Victoria C. Españo

Tax Partner
Gentlemen :
This refers to your letter dated October 4, 2006, requesting confirmation of your opinion that the
license fees paid by ISC Consolsys Corporation (Consolsys-Philippines) to Consolsys Sdn Bhd
(Consolsys-Malaysia) are subject to the 25% preferential tax rate provided under the Philippines-Malaysia
tax treaty.
It is represented that Consolsys-Malaysia is a nonresident foreign corporation and a resident of

Malaysia under tax number C 1876318-09 as shown in the Certificate of Status of Tax Residence For the
Year of Assessment 2005 dated June 12, 2006 issued by the International Tax Department, Policy Division
of the Inland Revenue Board, Malaysia; that its principal office is located at the 9th Floor, Menara Getah
Asli, 148, Jalan Ampang, 50450 Kuala Lumpur, Malaysia; that Consolsys is not registered either as a
corporation or as a partnership in the Philippines as confirmed by the Certification of Non-Registration
dated May 31, 2006 issued by the Securities and Exchange Commission; that Consolsys-Philippines is a
domestic company with principal office address located at 5th Floor, Century Tower Bldg., Tordesillas
corner H.V. dela Costa Streets, Salcedo Village, Makati City.
It is further represented that on January 1, 2005, Consolsys-Malaysia and Consolsys-Philippines

entered into a Terms of Relationship (Agreement) which outlines the relationship between the two parties
regarding the licensing of the products (referred to in the Agreement as CS Products) as listed below:
1. Signature Verification System (SVS)
2. Fingerprint Authentication System (FAS)
3. Controlled Document Inventory System (CDIS)
4. CS-IP Concentrator (CS-IPC)
5. CS-Java IP Concentrator (CS-JIPC)
6. Consolsys Software Distribution System (CSDS)
7. Business Performance Analysis System (BPAS)
8. Tezauri Data Warehousing & Business Intelligence System
9. Cheque Processing Solutions (CPS)
— Outward ChequeClearing System (OCCS)
— Inward ChequeClearing System (ICCS)
10. Open Systems Financial Architecture (OSFA)
11. Conventional Core Banking Systems
12. Islamic Core Banking Systems
13. Consolsys Middleware
14. Other new products as end when release by Consolsys R & D Department
That Consolsys-Philippines is authorized to sell, deliver and support Consolsys' CS Products software
products in the Philippines; that Consolsys-Malaysia grants Consolsys-Philippines the right to sublicense
CS Products to end-users; that Consolsys-Philippines is granted a non-exclusive, non-transferable,
non-assignable license to sublicense the software listed as CS Products only to Consolsys-Philippines
customers; that Consolsys-Philippines shall not provide the Software in any form to third parties other
than properly sublicensed customers of Consolsys-Philippines; that in consideration of
Consolsys-Philippines' payment of the required annual license and support fee, it will receive the Software
Support consisting in:
1. The right to permit to use its customers the Software during the period covered by the annual
licensee fee and the right to distribute to its customers any applicable Software version
upgrades subsequently developed by Consolsys-Malaysia for applicable release level of
Software. Any new release of Software must be separately licensed and are not included as
part of the annual license fee. CTAIDE
2. The right to have Consolsys-Malaysia correct or replace any programming errors in the
Software. Consolsys-Philippines must notify Consolsys-Malaysia of the problem and
provide reasonably detailed description of the problem
• Provide CS Products development environment.
• Provide technical support to Consolsys-Philippines technical staff.
• Provide marketing and sales support including:
Periodic on-site sales support
RFP response support
Product Literature/Sales Brochures
Arrange and support customer visits
Maintain customer Information List
• Provide CS Products Demonstration Software and Script
• Offer and conduct regularly scheduled technical training courses at discounted rates.
Courses are offered at the Kuala Lumpur Training Center.
• Offer periodic sales training
That the Agreement is effective as of January 2005; that an Addendum Agreement was also executed
providing that the Philippine taxes on all payments relating to the technology transfer arrangement shall be
borne by Consolsys-Malaysia; and that the issue or transaction subject of above application is not under
investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate,
collection proceedings, or a judicial appeal.
In reply, please be informed that the license fees paid by Consolsys-Philippines to

Consolsys-Malaysia for the use of the software products are royalties for the use or the right to use of a
copyright under Article 12, paragraph (4) (a) of the Philippines-Malaysia tax treaty and in Revenue
Memorandum Circular No. 77-2003 dated November 18, 2003, to wit:
Philippines-Malaysia tax treaty:
"4.a) The term 'royalties' as used in this Article means payments of any kind received as
consideration for:
(i) the use of, or the right to use, any patent, trade mark, design or model, plan,
secret formula or process, any copyright of literary, artistic or scientific work,
or for the use of, or the right to use, industrial, commercial, or scientific
equipment, or for information concerning industrial, commercial or scientific
experience;
(ii) the use of, or the right to use, cinematograph films, or tapes for radio or
television broadcasting."
Revenue Memorandum Circular No. 77-2003:
"Software is generally assimilated as a literary, artistic or scientific work protected by the copyright
laws of various countries including the Philippines; thus, payments in consideration for the use of,
or the right to use, a copyright or a copyrighted article relating to software are generally royalties."
Being royalties, the subject license fees are subject to the preferential income tax rate under
paragraph (2) (b) (ii) of the Philippines-Malaysia tax treaty, to wit:
"Article 12
ROYALTIES
may be taxed in that other State, if such resident is the beneficial owner of the royalties. cDCaTS
2. Such royalties may also be taxed in the Contracting State in which they arise, and according
to the laws of that State. However, if the recipient is the beneficial owner of the royalties:
a) in the case of Malaysia:
(i) the tax so charged shall not exceed 15 per cent of the gross amount of
the royalties; and
(ii) approved industrial royalties derived from Malaysia by a resident of

the Philippines shall be exempt from tax.
b) in the case of the Philippines:
the tax so charged shall not exceed:
(i) 15 per cent of the gross amount of the royalties where the royalties are
paid by a registered enterprise as well as royalties defined in
paragraph 4(a)(ii); and
(ii) 25 per cent of the gross amount of the royalties in all other cases.
xxx xxx xxx"
Based on the aforequoted provisions, such royalties may be taxed in the Philippines at the rate of 15
percent if paid by a registered enterprise or if such consideration is for the use of, or the right to use,
cinematograph films, or tapes for radio or television broadcasting; or 25 percent in all other cases.
Since Consolsys-Philippines is not a registered enterprise and since the payment of the license fees
is not for the use of, or the right to use, cinematograph films, or tapes for radio or television broadcasting,
this Office is of the opinion and so holds that said license fees paid by Consolsys-Philippines to
Consolsys-Malaysia under the subject Agreement are subject to 25 percent of the gross amount of the
royalties pursuant to Article 12, paragraph 2 (b) (ii) of the Philippines-Malaysia tax treaty. (BIR Ruling
No. DA-ITAD 28-04 dated March 29, 2004)
Finally, as regards value-added tax (VAT), the royalties for the right to sublicense the Consolsys'
CS Products to be paid by Consolsys-Philippines to Consolsys-Malaysia are subject to VAT under Section
108 (A) (1) of the National Internal Revenue Code of 1997 (Tax Code), as amended, to wit:
brand or other like property or right;
xxx xxx xxx" 1(70)
Regulations No. 14-2002, provide that Consolsys-Philippines shall be responsible for the withholding of
the VAT on the royalties before remitting them to Consolsys-Malaysia. In remitting to the Bureau of
Internal Revenue the VAT withheld on the royalties, Consolsys-Philippines shall use BIR Form No. 1600
(Monthly Remittance Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered
taxpayer, Consolsys-Philippines may use as documentary substantiation for its claim of input VAT the
duly filed BIR Form No. 1600 and the proof of payment accompanying it. If a non-VAT-registered
taxpayer, Consolsys-Philippines may include as part of the cost of the software products licensed to it by
Consolsys-Malaysia the VAT consequently shifted or passed on to it and may treat such VAT either as an
expense or as an asset, whichever is applicable. In addition, Consolsys-Philippines is required to issue in
quadruplicate the Certificate of Final Tax Withheld at Source (BIR Form No. 2306), the first three copies
for Consolsys-Malaysia and the fourth copy for Consolsys-Philippines as its file copy.
Very truly yours,
By:

Legal Service
Footnotes
exchanged, such tax to be paid by the seller or transferor: Provided that the President, upon the
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 1/2%).
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;
xxx xxx xxx"
May 15, 2007
Arts. 5 & 7, Philippines-Singapore tax treaty;

Heinz UFC Philippines, Inc.

12F Centerpoint Condominium
Garnet Road Cor. Julia Vargas Avenue
Ortigas Center, Pasig City 1600
Attention: Salvador B. Viray

Tax Manager
Gentlemen :
This refers to your letter dated December 14, 2005, 1(71) applying for a ruling that the service fees
paid by Heinz UFC Philippines, Inc. (Heinz-Philippines) to Heinz Singapore PTE Ltd. (Heinz-Singapore)
are exempt from Philippine income tax and from value-added tax (VAT) pursuant to the pertinent
provisions of the Philippines-Singapore tax treaty.
It is represented that Heinz-Singapore is a nonresident foreign corporation taxable under the laws of
Singapore with office address at 501 Orchard Rd., # 13-01, Wheelock Place, Singapore 238880 as
confirmed by the Certificate issued by Sabina H B Cheong (Mrs), Assistant Commissioner, Corporate Tax
Division for Comptroller of Income Tax of the Authority of Singapore; that Heinz-Singapore is not
registered either as a corporation or as a partnership licensed to engage in business in the Philippines as
confirmed by the Certificate of Non-Registration of Corporation/Partnership issued by the Securities and
Exchange Commission on September 15, 2005; that Heinz-Philippines, on the other hand, is a company
organized and existing under the laws of the Philippines with principal office at 9F Centerpoint Bldg.,
Garnet Road Cor. Julia Vargas Ave., Ortigas Center, Pasig City; that its primary purpose is to engage in,
operate, conduct and maintain the business of manufacturing, importing, buying, selling, distributing or
otherwise dealing in, at wholesale, food products, such as but not limited to sauces and condiments which
are banana-based, tomato-based or chili-based, infant feeding products (excluding infant milk formula),
pet food, tuna products, frozen foods, corned beef, convenience meals and food service products, and
brewed soy sauce. SCEHaD
It is further represented that in 2002, Heinz Singapore and Heinz Philippines entered into a Services
Agreement with a commencement date on April 1, 2002 (clause 3) and termination date (clause 6),
whereby Heinz-Singapore shall provide the following services to Heinz-Philippines:
I. Business Advice
• Analysis of market and business opportunities
• Development of budget and review of performance against budget targets
• Assistance with business growth through acquisition
• Development of strategic plans to build brand awareness
• Supporting due diligence and commercial assessment of prospective JVs or

acquisitions
• Development and training associated with business continuity plans and crisis
management
II. Finance/Legal
• Assistance with budgeting and planning
• Assistance with major capital expenditure
• Business development (e.g. financial analysis, forecasting, assessment)
• Special project (e.g. taxation planning, incorporation, reporting)
• Development and maintenance of reporting IT infrastructure
• Provision of general legal advice, insurance management, contract drafting
III. Treasury
• Monitoring of cash requirements
• Monitoring of regional funding requirements
• Transactional banking and corporate debt services
• Monitoring of working capital and controllable assets
• Accounting, budgeting and forecasting of FX, debt and structured finance solutions
• FX risk management
• Business process reviews and due diligence processes
IV. Human Resources
• Administration of personnel related issues of affiliates
• Recruiting and staffing
• Administration of salaries and benefits
• Monitoring of WHQ benefits programs
• Administration of expatriate assignments, organizational structure, career and

leadership development process
• Performance management
V. Marketing
• Assistance with the development, administration and implementation of marketing

plans and strategies
• Coordination of transfer across the region of new products, knowledge, best practice,
etc.
• Representation of local entities on the Global Category Management terms
VI. Food Services
• Monitoring of sales to quick service restaurants such as McDonalds, Tricon and

Burger King
• Development of food service marketing and sales strategies
• Support of development of affiliate foodservice plans and programs
• Coordination of regional quick service restaurants pricing
• Training of regional foodservice sales and marketing personnel
• Assistance with acquisitions related to foodservices
VII. Manufacturing
• Identification and justification of key manufacturing projects
• Strategic administration of manufacturing projects
• Development of operation and manufacturing plans
• Establishment of manufacturing strategies
• Administrative assistance with implementation of operational improvements
• Assistance with manufacturing issues in respect of due diligence process with

potential acquisitions
• Assistance with implementation of safety process and environmental monitoring

systems
• Provision of training for environment, health and safety (EHS) managers
• Provision of advice on business and regulatory risk related to EHS issues
VIII. IT
• Provision of computer and network infrastructure support and related services
• Development of regional guidelines
• Development of local and regional IT initiatives for business development
IX. Research and Development
• Assistance, review and implementation of quality and compliance systems and

policies
• Assistance with the development and implementation of products/process

development or cost reduction projects
• Assistance with handling of quality assurance, quality control, R&D, engineering and
external affairs issues (e.g. consumer complaints)
• Investigation and technical assistance with new business opportunities
• Technical support and coordination of technical activities
X. Procurement
• Development of Asia Pacific purchasing strategy
• Identification of Asia Pacific partners for sourcing of key components
• Advice/assistance on make/buy decisions
• Negotiation of pricing and terms on supply contracts
• Provision of Asia Pacific commodity hedging recommendations
• Recommendations and maintenance on vendor supply base
That the nature of the Services required by Heinz-Philippines may, from time to time, require employees
of Heinz-Singapore to be present in the Philippines for short periods of time; that the said Services
Agreement shall continue without limitation as to time unless and until terminated by the parties; that no
technical services were rendered by Heinz-Singapore for the Philippine operations from April 1, 2003 to
March 31, 2004 per certification dated November 12, 2005 issued by Ms. Lana B. Parungao, HR & OD
Griuo Head of Heinz-Philippines; and that the Services provided will be invoiced to Heinz-Philippines at a
fee calculated at Cost plus an arm's length mark-up.
In reply, please be informed of that Article 7 of the Philippines-Singapore tax treaty provides as
follows:
"Article 7
BUSINESS PROFITS
xxx xxx xxx."
taxed in the Philippines but only so much of them as is attributable to that permanent establishment.
Applying this to the instant case, the service fees received by Heinz-Singapore for the services rendered in
the Philippines shall be taxable in the Philippines only if it has a permanent establishment in the
Philippines to which said fees may be attributed.
In relation thereto, Article 5 of the Philippines-Singapore tax treaty provides:
"Article 5
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

days.
xxx xxx xxx."
Inasmuch as it is represented that the Services Agreement shall continue until terminated by either
party, the whole of such Agreement, including its continuance, upon its automatic renewal, shall be
regarded as being the "same or connected project" for the purpose of counting the aggregate period of 183
days. In other words, the 183 day period shall be counted based on the total number of days the services
are rendered in the Philippines upon effectivity of the subject Services Agreement on its commencement
date, April 1, 2002, including all periods resulting from its automatic renewal and not only within any
12-month period or a taxable year. Accordingly, for as long as the employees or agents of Heinz-Singapore
do not stay in the Philippines for a period or periods aggregating more than 183 days in the course of their
rendition of services to Heinz-Philippines for the "same or connected project" starting April 1, 2002 until
terminated, then Heinz-Singapore is deemed not to have a permanent establishment in the Philippines to
which payment of the service fees may be attributed to and therefore, exempt from Philippine income tax.
(BIR Ruling No. DA-ITAD 231-02 dated December 27, 2002)
Moreover, while the compensation for services rendered outside the Philippines is not subject to
VAT, the fees paid for that portion of the services of Heinz-Philippines which are rendered in the
Philippines are, however, subject to value-added tax (VAT) pursuant to Section 108 2(72) of the Tax Code
of 1997, as amended by Republic Act No. 9337. Accordingly, Heinz-Philippines, being the resident
withholding agent and payor in control of payment shall be responsible for the withholding of the 10%
final VAT on such fees before making any payment to Heinz-Singapore. In remitting the VAT withheld,
Heinz-Singapore shall use the BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax &
Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment thereof shall
serve as documentary substantiation for the claim of input tax to be applied against the output tax that may
be due from Heinz-Philippines if it is a VAT-registered taxpayer. In case Heinz-Philippines is a non-VAT
registered taxpayer, the passed-on VAT withheld shall form part of the cost of the service purchased or
treated as an "expense" or as an "asset", whichever is applicable. In addition, Heinz-Philippines is required
to issue in quadruplicate the relevant Certificate of Creditable Tax Withheld at Source (BIR Form No.
2307) in quadruplicate, the first three copies for Heinz-Singapore and the fourth copy for
Heinz-Philippines as its file copy. (Sections 4 & 6, Revenue Regulations (RR) No. 4-2002; Section 3 of
RR 8-2002; Section 7 of RR 14-2002)
This ruling shall apply to payments for services for the period starting April 1, 2002 onwards and is
issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the
facts are different, then this ruling shall be without force and effect insofar as the herein parties are
concerned.
Very truly yours,
By:

Legal Service
Footnotes
1. Received by this Office on January 2, 2006.
2. Effective February 1, 2006, the rate is 12% pursuant to Revenue Memorandum Circular No. 7-2006 —
[Publishing the full text of the memorandum issued by Executive Secretary Eduardo R. Ermita informing
the Secretary of Finance that his recommendation to increase the Value-Added Tax rate from 10% to 12%
effective February 1, 2006 has been approved by the President].
May 10, 2007
Sections 109 and 108, NIRC of 1997;

Sections 8 and 13, R.A. 6395;
Section 24, R.A. 9337
National Power Corporation

Corner Quezon Avenue and BIR Road
Diliman, Quezon City
Attention: Cyril C. Del Callar

President
Gentlemen :
This refers to your letter dated 27 October 2005, requesting for a ruling on the following issues:
1. Whether the contract between the National Power Corporation (NPC) and Marubeni
Corporation (Marubeni) for the Supply and Rehabilitation Works of Units 1, 2, 5 and 6 of
Tiwi Geothermal Power Plants, fully funded by foreign loans from the Japan Bank for
International Cooperation (JBIC), may appropriately be classified as VAT zero-rated and/or
exempt from the payment of value-added tax (VAT); and
2. That in case NPC is subject to VAT under the aforementioned contract, whether the opinion
of Marubeni that the additional 10% VAT being billed to NPC for each progress billing
"should not be subject to the 8.5% withholding VAT" pursuant to the provisions of Revenue
Memorandum Circular No. (RMC) 42-99, is correct.
It is represented that the Government of the Republic of the Philippines (GRP) and the Overseas
Economic Cooperation Fund, Japan (now the JBIC) entered into a Loan Agreement (No. PH-P139) for the
Tiwi Geothermal Power Plant Complex Rehabilitation Project dated 7 December 1994; that under the
Loan Agreement, the Borrower (i.e., the GRP) shall authorize the NPC, as the Executing Agency, to
implement the said Project, and shall cause NPC to employ consultants for the implementation of the
same; that on 5 December 2001, NPC and Marubeni entered into a Contract for the Supply and
Rehabilitation Works of Units 1, 2, 5 and 6 of the Tiwi Geothermal Power Plants located in Albay,
Philippines; that under Article II of the said Contract, Marubeni shall furnish all labor, plant, equipment,
materials, supplies for the rehabilitation of the power stations, design, manufacture, supply, and install the
new equipment/materials for replacement, and commission four (4) geothermal generating units, namely
Units 1, 2, 5 and 6 of the said Tiwi Geothermal Power Plant; that under Article VIII of the same Contract,
NPC assumed the payment of certain taxes, to wit:
"ARTICLE VIII
TAXES
1. For Onshore Portion
CORPORATION (i.e., NPC) shall, pay any and all forms of taxes (including VAT), which
may be imposed by the Philippine Government, or any of its agencies and political
subdivisions under this Contract, CORPORATION shall be also responsible for municipal
business taxes, Customs duties/tariffs and etc., if any under this Contract. cSTHaE
2. For Offshore Portion
2.1 CONTRACTOR shall assume payment of all taxes, duties, tariffs, fees,
imports, excise and other taxes assessed and charged by the taxing authority
of the country of origin upon the production, manufacture, sale or shipment
of the materials, equipment supplies to be furnished to CORPORATION
under the Contract.
2.2 CORPORATION shall assume payment of all taxes (including VAT) duties,
tariffs, fees, imposts, excise, and other taxes that may be imposed by the
Philippine Government, or any of its agencies and political subdivisions on
the imported materials, equipment and supplies (Offshore Portion) to be
supplied to CORPORATION under the Contract, except corporate income
tax, income tax of CONTRACTOR's personnel, license, permits, etc., as well
as that of CONTRACTOR's Subcontractor, if any.
2.3 CONTRACTOR shall assume payment of all taxes, duties, tariffs, fees,
imposts, excise, and other taxes assessed and charged by the taxing authority
of the country of origin on CONTRACTOR's construction equipment which
CONTRACTOR may bring into the country for use in connection with the
Contract.
2.4 CORPORATION shall also assume payment of all taxes (including VAT),
duties, tariffs, fees, imposts, excise and charges, except all fees, charges and
insurance relative to registration of construction equipment of motor vehicles
that the Philippine Government, or any of its agencies and political
subdivision may impose upon such construction equipment or motor vehicles
provided that these equipment or motor vehicles shall be transported back to
such country of origin. Should CONTRACTOR decide to dispose of the
same, CONTRACTOR shall reimburse all duties and taxes paid by the
CORPORATION thereof. Custom's charges and insurance will be for the
CORPORATION's account only if title of ownership for these equipment and
motor vehicles shall have already been transferred to CORPORATION.
that NPC's assumption of the payment of any other tax (including VAT), duty, tariff, fee and impost, of
any kind, that may be imposed on or chargeable to the Contractor was made pursuant to Sections 8(b) and
13 of Republic Act No.(RA) 6395, as amended, otherwise known as the "Revised NPC Charter"; that the
project under the said Contract with the original amount of JP¥ 4,141,826,000, including a contingency
sum of JP¥ 376,500,000 was already completed, provisionally accepted and fully paid as of September
2004, except the unutilized portion of the contingency sum amounting to JP¥ 347,410,000; that Marubeni
also filed separate VAT billings on top of all its progress billings for onshore portion in the total amount
of JP¥ 48,340,699.86 or approximately PHP 26,394,022.12; that NPC's processing and payment of these
VAT billings were held in abeyance pending resolution of the cited issues; that on May 31, 2004, NPC and
Marubeni signed a Supplemental Agreement (SA) to the original contract; that activities under this SA are
ongoing, with only JP¥ 473,406,000 of the offshore portion actually paid as of July 31, 2005; and that the
offshore portion of the contract and its supplemental agreement were similarly declared duty and tax free
by the Department of Finance in its various endorsements to the Bureau of Customs pursuant to
Presidential Decree No. (PD) 380, as restored by FIRB Resolution No. 17-87 dated June 24, 1987.
In reply, please be informed as follows:
I.
Value-added tax treatment of the subject or similar transaction

BEFORE the effectivity of RA 9337
VAT Exemption and VAT Zero-rating, distinguished
In general, VAT exemption means that the sale of goods or properties and/or services and the use or
lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT
(input tax) previously paid. The person making the exempt sale of goods, properties or services shall not
bill any output tax to his customers because the said transaction is not subject to VAT. [Section 4.103-1
(A), Revenue Regulations No. 7-95; now, Section 4-109-1, Revenue Regulations No. 16-2005]
On the other hand, a zero-rated sale by a VAT-registered person, which is a taxable transaction for
VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale shall be available as tax credit or refund. [Section
4.102-2 (a), Revenue Regulations No. 7-95; now, Section 4-108-5, Revenue Regulations No. 16-2005]
Thus, in terms of the VAT computation, zero rating and exemption are the same, but the extent of
relief that results from either one of them is not. In zero rating, there is total relief for the purchaser from
the burden of the tax. But in an exemption there is only partial relief, because the purchaser is not allowed
any tax refund of or credit for input taxes paid. [Commissioner of Internal Revenue vs. Seagate
Technology (Philippines), G.R. No. 153866, February 11, 2005]
To the foregoing distinction, this should be added: In zero-rating, since there is an imposition of
tax, albeit zero percent (0%), such imposition is construed strictly against the government and liberally in
favor of the taxpayer; while in an exemption, the granting thereof is construed strictly against the taxpayer
and liberally in favor of the taxing power.
Section 109 (q) [now, Section 109 (1) (K), as amended by Republic Act No. 9337] of the National
Internal Revenue Code (Tax Code) of 1997 provides as follows, to wit:
xxx xxx xxx
signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590;" 1(73)
Thus, a transaction may be exempt from the VAT if there is an international agreement to which the
Philippines is a signatory, or if there is a special law (except PDs 66, 529 and 1590), exempting that
particular transaction from VAT.
On the other hand, Section 108 (B) (3) of the Tax Code of 1997 provides as follows, to wit:
xxx xxx xxx
(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;"
Based on the foregoing, the following are the requisites to be entitled to a zero rated VAT on the
sale of services, viz:
1. The service must be performed in the Philippines;
2. The service must be performed by a VAT-registered person
3. The service must be rendered to persons or entities enjoying VAT exemption under a special
law or an international agreement to which the Philippines is a signatory; and
4. Such special law or international agreement effectively subjects the supply of such services
to zero percent (0%) rate.
NAPOCOR's tax exemption
It is noteworthy that a common phrase is found in the VAT law in order to be entitled to VAT
exemption or zero rating, i.e., the existence of a "special law". But the use of such phrase differs. In a zero
rated transaction, the "special law" must not only give tax exemption to the person or entity to whom the
service was rendered, but also that such tax exemption "effectively subjects the supply of such services to
zero percent (0%) rate". In a VAT exemption, however, it simply requires that the "special law" grants a
VAT exemption to a particular transaction.
In this particular case, that special law is Republic Act No. (RA) 6395, as amended by Presidential
Decree Nos. 380 and 938, otherwise known as the Revised NPC Charter. Sections 8(b) and 13 thereof,
respectively, provides as follows, viz:
"Section 8. Authority to Incur Indebtedness and Issue Bonds, Their Conditions, Privileges
and Exemptions, Sinking Fund Guarantee.
xxx xxx xxx
(b) Foreign Loans — The Corporation is hereby authorized to contract loans,

credits, in any convertible foreign currency, or capital goods, and indebtedness from
time to time from foreign governments, or any international financial institutions or
funds source, or to issue bonds, the total outstanding amount of which, exclusive of
interests, shall not exceed one billion United States dollars or the equivalent thereof
in other currencies, on such terms and conditions as it shall deem appropriate for the
accomplishment of its purposes and to enter into and execute agreements and other
documents specifying such terms and conditions. TcDAHS
xxx xxx xxx
The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or indebtedness incurred
under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions previously and presently
imposed, and to be imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions." (Emphasis supplied)
"Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties,
Fees, Imposts and Other Charges by the Government and Government Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment as well as
excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness
and obligations and in furtherance and effective implementation of the policy enunciated in Section
One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the
payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing
fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings." (Emphasis
supplied)
A reading of the foregoing provisions will reveal that the tax exemption under Section 8 is on "(t)he
loans, credits and indebtedness contracted . . . and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery, equipment, materials, supplies and services, by
the Corporation (NPC), paid from the proceeds of any loan, credit or indebtedness incurred", while, the
tax exemption under Section 13 refers to the exemption from direct and indirect taxes of NPC itself.
Value-added tax treatment of the subject transaction
An analysis of the pertinent provision of law will reveal that the subject transaction (i.e., the
furnishing by Marubeni of "all labor, plant, equipment, materials, supplies for the rehabilitation of the
power stations, design, manufacture, supply, and install the new equipment/materials for replacement,
and commission four (4) geothermal generating units") may be considered exempt from VAT, pursuant to
the above-quoted Section 109 (q) of the Tax Code of 1997 in relation to Section 8 (b) of RA 6395, as
amended. This is so because, as represented, the proceeds of the loan granted by JBIC to NPC are being
utilized in paying billings from Marubeni in connection with the Tiwi Geothermal Power Plant Complex
Rehabilitation Project.
Such VAT exemption may also be based on the same Section 109 (q) but already in relation to
Section 13 of RA 6395, as amended, because NPC is exempted from the payment of all forms of taxes.
The furnishing of the said services by Marubeni to NPC may also be subject to the zero percent
(0%) VAT rate because it complies with the above-stated requisites of Section 108 (B) (3) of the Tax
Code of 1997.
Firstly, the service is being performed in the Philippines, i.e., in Albay, Philippines.
Secondly, the service is being performed by a VAT-registered person, Marubeni. 2(74)
Thirdly, the service is being rendered to NPC, an entity which enjoys VAT exemption under
Section 13 of RA 6395, as amended.
Lastly, such law effectively subjects the supply of such services to zero percent (0%) rate, since as
held in Ernesto M. Maceda vs. Hon. Catalino Macaraig, Jr., et al. (G.R. No. 88291, June 8, 1993), the
NPC is exempt from ALL FORMS of taxes. Thus, NPC is not only exempt from direct taxes, but also
from indirect taxes such as the VAT. Such being the case, the burden of paying the VAT may not be
shifted or passed on the NPC, the buyer of the services.
In addition, for purposes effective zero-rating, Section 4.107-1 (d) of Revenue Regulations No. 7-95
should be considered, to wit:
"(d) Application for effective zero-rating. — Except for actual export sale, other cases of
zero-rated sales in Sec. 4.100-3 and Sec. 4.102-2(c) 3(75) shall require prior application with the
Revenue District Office for effective zero-rating. Without an approved application for effective
zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt." TaSEHC
Based on the foregoing, the subject transaction should be treated as an exempt transaction because
there is no showing that Marubeni filed an application for zero-rating and has obtained a prior approval
from this Bureau.
Nevertheless, in Commissioner of Internal Revenue vs. Seagate Technology (Philippines) (G.R. No.
153866, February 11, 2005), the Supreme Court held:
"The BIR Regulations additionally requiring an approved application for effective

zero-rating cannot prevail over the clear VAT nature of respondent's transaction. The scope of such
regulation is not 'within the statutory authority . . . granted by the legislature.'
. . . a mere administrative issuance, like a BIR regulation, cannot amend the law; the former
cannot purport to do any more than interpret the latter. The courts will not countenance one that
overrides the statute it seeks to apply and implement.
Other than the general registration of a taxpayer the VAT status of which is aptly
determined, no provision under our VAT law requires additional application to be made for such
taxpayer's transactions to be considered effectively zero-rated. An effectively zero-rated transaction
does not and cannot become exempt simply because an application therefor was not made or, if
made, was denied. To allow the additional requirement is to give unfettered discretion to those
officials or agents who, without fluid consideration, are bent on denying a valid application.
Moreover, the State can never be estopped by the omissions, mistakes or errors of its officials or
agents.
A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient

for the effective zero rating of the transactions of a taxpayer. The nature of its business and
transactions can easily be perused from, as already clearly indicated in, its VAT registration papers
and photocopied documents attached thereto. Hence, its transactions cannot be exempted by its
mere failure to apply for their effective zero rating. Otherwise, their VAT exemption would be
determined, not by their nature, but by the taxpayer's negligence — a result not at all contemplated.
Administrative convenience cannot thwart legislative mandate."
Thus, by reason of all the foregoing, the transaction entered into by NPC and Marubeni in the
specific Tiwi Geothermal Power Plant Complex Rehabilitation Project in Albay, Philippines may be
treated as exempt from the payment of VAT arising out of the subject contract, pursuant to the
above-quoted Section 109 (q) of the Tax Code of 1997, in relation to Sections 8 (b) and 13 of RA 6395, as
amended, OR may be treated as zero-rated, even without an approved application for zero-rating by
Marubeni, pursuant to Section 108 (B) (3) of the Tax Code of 1997 and the above-quoted pronouncement
of the Supreme Court.
However, to allow the concerned taxpayers to choose between the two treatments will create an
absurdity in law where, in one hand, a transaction is subject to tax, and in the other, the same is exempt
from tax. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be
adopted [Commissioner of Internal Revenue vs. TMX Sales, Inc., 205 SCRA 184 (1992)]. For Congress
could not have intended absurd interpretation of the law [Darangani vs. Republic, 106 Phil. 735 (1959)].
In view thereof, since tax exemptions are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power, this Office is of the opinion as it hereby holds that the subject
transaction between NPC and Marubeni shall be treated only as zero-rated, with or without an approved
application.
As a consequence, the input tax to be credited against the output tax by Marubeni at zero percent
(0%) shall be fixed at one and one-half percent (1 1/2%) of their contract price, pursuant to Section 111
(B) (2) of the Tax Code of 1997, to wit:
"SEC. 111. Transitional/Presumptive Input Tax Credits. —

xxx xxx xxx
(B) Presumptive Input Tax Credits. —
xxx xxx xxx
(2) Public works contractors shall be allowed a presumptive input tax equivalent to one and
one-half percent (1 1/2%) of the contract price with respect to government contracts only in lieu of
actual input taxes therefrom." (Emphasis supplied)
Moreover, according to Section 110 of the same Code, the above input tax shall be creditable
against the output tax of Marubeni and should there be any excess, the same shall be carried over to the
succeeding quarter or quarters, and may, at the option of Marubeni, be refunded or credited against other
internal revenue taxes, subject to the provisions of Section 112 (A), which provides as follows:
"SEC. 112. Refund or Tax Credits of Input Tax. —
"(A) Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent
that such input tax has not been applied against output tax: . . ."
II.
Value-added tax treatment of the subject or similar transaction

upon the effectivity of RA 9337
Section 24 of R.A. 9337 provides as follows, viz:
"SEC. 24. Repealing Clause. — The following laws or provisions of laws are hereby
repealed and the persons and/or transactions affected herein are made subject to the value-added tax
subject to the provisions of Title IV of the National Internal Revenue Code of 1997, as amended:
(A) Section 13 of R.A. No. 6395 on the. exemption from value-added tax of the National
Power Corporation (NPC);
xxx xxx xxx" (Emphasis supplied)
Based on the foregoing, it is crystal clear that the legislature intended to diminish the tax exemption
privileges of the NPC upon the effectivity of RA 9337, i.e., on November 1, 2005. CaSHAc
Thus, the ruling of the Supreme Court in Ernesto M. Maceda vs. Hon. Catalino Macaraig, Jr., et al.
(supra) that the NPC "to be exempt from ALL FORMS of taxes — direct and indirect" is modified
accordingly.
As a consequence, the sale of services by Marubeni to NPC may no longer be treated as a

transaction subject to the zero percent (0%) VAT rate under Section 108 (B) (3) of the Tax Code of 1997,
since it no longer enjoys exemption from the payment of the VAT. More specifically, it fails to comply
with the third and last requisites, as above-stated, namely: (1) that the service must be rendered to persons
or entities enjoying VAT exemption under a special law; and (2) that such special law or international
agreement effectively subjects the supply of such services to zero percent (0%) rate.
It must be emphasized, however, that the tax exemption under Section 8 (b) of RA 6395, as
amended, on "(t)he loans, credits and indebtedness contracted . . . and the payment of the principal,
interest and other charges thereon, as well as the importation of machinery, equipment, materials,
supplies and services, by the Corporation (NPC), paid from the proceeds of any loan, credit or
indebtedness incurred under this Act" remains true and unaltered. Such being the case, so long as the
proceeds of the loan granted by JBIC to NPC was used in paying for the specific project for which the loan
was granted, such proceeds are exempt from the payment of the VAT.
In this instance, there is no more absurdity in law to speak of because the transaction may no longer
be treated, simultaneously, as subject to the zero percent (0%) VAT rate or as an exempt transaction.
III.
Non-applicability of Revenue Memorandum Circular No. 42-99
The guidelines enunciated in RMC 42-99, for VAT purposes, may not be squarely applied for the
following reasons:
1. There is no showing that the loan is covered by an appropriate Exchange of Notes between
Japan and the Philippines containing similar provisions quoted under RMC 42-99;
2. Even when the loan is covered by an appropriate Exchange of Notes, the ruling herein stated
is not entirely consistent with RMC 42-99, since the latter is to the effect that "the suppliers
and sub-contractors of the Japanese contractors shall bill and pass on the 10% VAT to the
said Japanese contractors", thereby presupposing that the subject transaction is subject to
VAT at the rate of 10% (now 12%), not at the rate of 0%, nor is it treated as VAT exempt;
and
3. RMC 42-99 affects, in general, the concerned executing government agencies, which do not
have any respective charter of their own that contains provisions which affect our tax laws,
unlike that of NPC, which enjoys certain tax privileges and given different tax treatments
under RA 6395, as amended.
IV.
Comment on the undertaking of NPC to assume

payment of taxes which are due Marubeni
On a last note, the Supreme Court, in a recent case entitled Fels Energy, Inc. vs. The Province of
Batangas, et al. (G.R. Nos. 168557 and 170628, February 16, 2007), made, among others, the following
pronouncement:
"The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall
be responsible for the payment of all real estate taxes and assessments, does not justify the
exemption. The privilege granted to petitioner NPC cannot be extended to FELS (the contractor).
The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this
case, the Province of Batangas (the taxing authority)."
It has been observed that the NPC has in its contract with Marubeni the assumption of NPC of the
payment of taxes due on the transaction. It must be pointed out that such assumption does not entitle
Marubeni to any tax exemption. Nor will the tax exemption granted to the NPC be extended to Marubeni.
This is so because the power to give tax exemption is not lodged on NPC but on Congress alone.
Thus, even when NPC fails in its contractual obligation to pay the taxes of Marubeni which NPC
assumed, Marubeni cannot justify the non-payment of taxes due it to the Government within the
prescribed period by simply raising such failure of NPC. In such case, Marubeni will be assessed of all
deficiency taxes plus surcharges, interest, and compromise penalties, when appropriate.
Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly
against the grantee and liberally in favor of the government. Otherwise stated, any exemption from the
payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.
(Davao Gulf Lumber Corp. vs. Commissioner of Internal Revenue, et al., G.R. No. 117359, July 23, 1998)
V.
Summary
To recapitulate, this Office is of the opinion as it hereby holds that:
1. Prior to the effectivity of RA 9337, the subject transaction should be treated as zero-rated,
even without an approved application for zero-rating by Marubeni, pursuant to Section 108
(B) (3) of the Tax Code of 1997 and the pronouncement of the Supreme Court in the case of
Commissioner of Internal Revenue vs. Seagate Technology (Philippines) (supra).
2. Upon the effectivity of RA 9337 on November 1, 2005, the subject transaction shall be
treated already as VAT exempt, since the requisites of Section 108 (B) (3) of the Tax Code
of 1997 can no longer be met by virtue of the withdrawal of the VAT exemption privilege of
NPC under Section 24 of RA 9337.
3. RMC 42-99 is not applicable in this particular case for the above-stated reasons.
4. The tax exemption privileges of NPC may not be extended to Marubeni.
be disclosed that the facts are different, then this ruling shall be considered to be without force and effect
insofar as the herein parties are concerned.
Very truly yours,

Commissioner
Footnotes
1. Republic Act No. 9337 has deleted Presidential Decree Nos. 66 and 1590.
2. Marubeni did not present a copy of its BIR Certificate of Registration. Upon verification, however, it
appears that Marubeni is a VAT-registered person.
3. Section 4.102-2 of Revenue Regulations No. 7-95 provides as follows:
"(c) Effectively zero-rated sale of services. — Effectively zero-rated sales of services shall refer to
the sale by a VAT-registered person or entity who was granted indirect tax exemption under special laws, or
international agreements. . . . "
May 10, 2007
Articles 5 (Permanent Establishment) and 8 (Business Profits),

Sections 105, 108 [(A) and (B) (3)] and 109 (q), 232 (A), 233, 235
and 236 [(A), (B) and (J)] National Internal Revenue Code of 1997;
Articles II and IV, Philippines-United States of America Economic
and Technical Cooperation Agreement
Laya Mananghaya & Co.

Certified Public Accountants and Management Consultants
22nd Floor, Philamlife Tower
8767 Paseo de Roxas Street
Makati City
Attention: Atty. Raymund S. Gallardo

Partner
Atty. Arni A. Perlas
Director
Tax and Corporate Services
Gentlemen :
This refers to your letters dated May 23, August 2, and September 14, 2005, requesting
confirmation that:
1. Chemonics International, Inc. (Chemonics) does not have a permanent establishment in the
Philippines;
2. the service fees to be paid to Chemonics by the United States Agency for International
Development (USAID) in connection with Philippine projects funded by the latter are not
subject to value-added tax (VAT); and
3. Chemonics, by reason that it authorized another person to act as a withholding agent on its
behalf, is not required to register itself and its books of accounts with the Bureau of Internal
Revenue.
BASIC FACTS
It is represented that Chemonics is a corporation, organized and existing under the laws of the
United States of America, with address at 1133 20th Street Northwest, Washington, District of Columbia,
20036, United States of America, as confirmed by its Certificate of Incorporation dated February 8, 1999,
and by the Awards/Contracts granted to it by the USAID; and that on September 27, 2002, and September
2, 2005, respectively, the USAID granted Chemonics the Awards/Contracts "to provide technical
assistance to strengthen private sector participation in the diagnosis and treatment for control of
tuberculosis (TB) in the Philippines (Philippine Tuberculosis Initiatives for the Private Sector or
Philippine TIPS Project)", and "to provide technical assistance in the implementation of the Private Sector
Mobilization for Family Planning (PRISM) Project" (collectively, the Projects).
a. The Philippine TIPS Project
That under the Philippine TIPS Project (Contract No. 492-C-00-02-00031-00), Chemonics will be
responsible in increasing the number of private practitioners who correctly treat TB using Direct
Observation Therapy — Short Course (DOTS) and in increasing the demand for DOTS-related services;
that Chemonics will perform the following tasks relating to the Project:
Task 1: Policies, guidelines and regulations revised and expanded to support appropriate,
complementary implementation by both public and private providers.
Task 2: Best strategies identified to improve and expand DOTS implementation in the private
sector.
Task 3: Private sector models developed, implemented and assessed at regional or local levels.
Task 4: Best approaches/models are implemented and adopted in at least twenty-five (25)
strategic urban cities/large municipalities nationwide with the potential for implementation beyond
these sites.
Task 5: Sustainability of all TB Programs strengthened through improved teaching and training
in medical professional schools, and improved health-seeking behaviors of the public.
Task 6: National health care financing schemes that strengthen private sector delivery of TB
control and cure service developed and implemented.
and that the service fee for the Philippine TIPS Project is US$8,924,461.00 (composed of project cost at
US$8,680,557.00 and fixed fee at US$243,904.00).
b. The PRISM Project
That under the PRISM Project (Contract No. 492-C-00-04-00036-00), Chemonics will be
responsible in making programming and policy recommendations to assure the strengthened and expanded
delivery of family planning services in and/or by the private sector; that Chemonics will perform the
following tasks relating to the Project:
Component 1: Increase support for family planning within the formal employment sector.
Task A: Increasing public discussions by business leaders of population and family planning
issues.
Task B: Increase support by firms for family planning counseling, motivation and service
delivery or referrals, as appropriate, for their workforces.
Task C: Increasing support by labor unions for family planning counseling, motivation and
service delivery or referrals in the workforce.
Task D: Develop cost-effective and sustainable models of family planning counseling, motivations
and service delivery or referrals, as appropriate, for the workplace.
Component 2: Establishment of viable mass market brands of oral and injectable

contraceptives in the commercial sector.
Task A: Increasing private sector suppliers recognizing the business opportunity in providing
affordable oral, injectable and other types of contraceptives.
Task B: Increasing readiness of the pharmaceutical industry to respond to market development and
commercial opportunities.
Component 3: Increasing business value of family planning in private providers' practice.
Task A: Increasing the number of midwives with self-sustaining private practices, while
incorporating family planning services.
Task B: Increasing support from medical profession for family planning as an essential part of
good provider practice.
and that the service fee for the PRISM Project is US$32,036,699.00 (composed of unspecified project cost
and fixed fee).
It is further represented that the Projects are pursuant to the Economic and Technical Cooperation
Agreement between the Government of the United States of America and the Government of the Republic
of the Philippines (Philippines-United States Economic and Technical Cooperation Agreement) (signed on
April 27, 1951, and entered into force on May 21, 1951) and the Memorandum of Understanding between
the United States of America and the Republic of the Philippines for Desired Family Size and Improved
Health Sustainably Achieved (Philippines-United States Desired Family Size and Improved Health
Memorandum of Understanding) (signed on May 30, 2002).
RULING
In reply please be informed as follows.
1. Whether Chemonics has a permanent establishment in the Philippines
Under Article 8, paragraph 1 of the Convention between the Government of the Republic of the
Philippines and the Government of the United States of America with Respect to Taxes on Income
(Philippines-United States tax treaty), the service fees to be paid by the USAID to Chemonics are subject
to Philippine income tax if the fees are attributable to a permanent establishment which Chemonics has in
the Philippines, thus:
"Article 8
BUSINESS PROFITS
1. Business profits of a resident of one of the Contracting States shall be taxable only in that
State unless the resident has a permanent establishment in the other Contracting State. If the
resident has a permanent establishment in that other Contracting State, tax may be imposed
by that other Contracting State on the business profits of the resident but only on so much of
them as are attributable to the permanent establishment."
Under Article 5, paragraphs 1 and 2 of the Philippines-United States tax treaty, Chemonics is
deemed to have a permanent establishment in the Philippines if it has a fixed place of business in the
Philippines through which it engages in trade or business (such as a seat of management, a branch, an
office, etc.) or if it furnishes services in the Philippines for a period or periods aggregating more than 183
days, thus:
"Article 5
place of business through which a resident of one of the Contracting States engages in a
trade or business.
2. The term 'fixed place of business' includes but is not limited to:
b) A branch;
c) An office;
e) A factory;
f) A workshop;
g) A warehouse;
i) A building site or construction or assembly project or supervisory activities in

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

days."
However, under paragraph 3 of the same article, Chemonics, even if it has a fixed place of business
or it furnishes services for more than 183 days, is not deemed to have a permanent establishment in the
Philippines if such place of business or furnishing of services falls among those exceptions described in
paragraph 3, thus:
"3. Notwithstanding paragraphs 1, 2, and 4, a permanent establishment shall be deemed not to

include any one or more of the following:
a) The use of facilities solely for the purpose of storage, display, or occasional
delivery of goods or merchandise belonging to the resident;
b) The maintenance of a stock of goods or merchandise belonging to the resident

solely for the purpose of storage, display, or occasional delivery;
c) The maintenance of a stock of goods or merchandise belonging to the resident

solely for the purpose of processing by another person;
d) The maintenance of a fixed place of business solely for the purpose of

purchasing goods or merchandise, or for collecting information, for the
resident;
e) The maintenance of a fixed place of business solely for the purpose of

advertising, for the supply of information, for scientific research, or for
similar activities which have a preparatory or auxiliary character, for the
resident; or
f) The furnishing of services, including the provision of equipment, in one of

the Contracting States by a resident of the other Contracting State, including
consultancy firms, in accordance with, or in the implementation of, an
agreement between the Contracting States regarding technical cooperation."
In subparagraphs (a) to (e), a fixed place of business of an enterprise does not constitute a
permanent establishment if the activity or activities performed therein are merely preparatory or auxiliary
in character. In subparagraph (f), the furnishing of services and the provision of equipment by an
enterprise does not constitute a permanent establishment if they are undertaken pursuant to an agreement
on technical cooperation between the Philippines and the United States.
Citing subparagraph (f) as basis and inasmuch as Chemonics will provide technical assistance in the
Philippines to implement the Projects, which are undertaken and financed by the United States government
for the Philippine government pursuant to the Philippines-United States Economic and Technical
Cooperation Agreement and the Philippines-United States Desired Family Size and Improved Health
Memorandum of Understanding, this Office is of the opinion and so holds that Chemonics will not be
deemed to have a permanent establishment in the Philippines with respect to services rendered in relation
to the Projects. This notwithstanding that Chemonics has or could eventually have a fixed place of
business in the Philippines for the purpose of providing the technical assistance or that Chemonics might
furnish the services for more than 183 days, where, generally speaking, such place of business or
furnishing of services would already constitute a permanent establishment for Chemonics under
paragraphs 1 and 2 of Article 5 (as quoted above). This being the case, pursuant to paragraph 1, Article 8
of the Philippines-United States tax treaty (as quoted above), the service fees to be paid by the USAID to
Chemonics for technical assistance rendered by Chemonics to implement the Projects are exempt from
Philippine income tax. (BIR Ruling No. DA-ITAD 16-05 dated February 24, 2005)
2. Whether the service fees to be paid by the USAID to Chemonics are exempt from VAT
Under Section 108 (A) of the National Internal Revenue Code of 1997 (Tax Code), the service fees
to be paid by the USAID to Chemonics, being payments for the performance of services in the Philippines,
are generally subject to VAT, thus:
the Philippines for others for a fee, remuneration or consideration. . . " 1(76)
Under Section 105 of the Tax Code, the VAT, being an indirect tax, may be shifted or passed on by
Chemonics to the USAID, thus:
"SEC. 105. Persons Liable. — Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall be
subject to value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. . . "
However, under Sections 109(q) and 108(B)(3) of the Tax Code, the transaction between
Chemonics and the USAID will not result in the payment of VAT by the USAID if the transaction is
considered an exempt transaction or as one subject to zero percent (0%) VAT rate, thus:
xxx xxx xxx
signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and
1590; 2(77)
xxx xxx xxx
(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption under special laws
or international agreements to which the Philippines is a signatory effectively
subjects the supply of such services to zero percent (0%) rate."
In an exempt transaction, Chemonics will not subject to VAT (output tax) the service fees paid to it
by the USAID and Chemonics is not allowed any tax credit on VAT (input tax) it previously paid.
Chemonics will not bill any output tax to the USAID because the said transaction is not subject to VAT.
On the other hand, Chemonics, if it is a VAT-registered purchaser of VAT-exempt goods/properties or
services, is not entitled to any input tax on its purchases despite the issuance of a VAT invoice or receipt.
(Section 4.103-1, Revenue Regulations 7-95) 3(78)
On the other hand, in a zero-rated transaction, which is a taxable transaction for VAT purposes, the
transaction which Chemonics has with the USAID, assuming Chemonics is a VAT registered person, will
not result in any output tax. However, the input tax on Chemonics' purchases of goods, properties or
services related to such zero-rated sale shall be available as tax credit or refund. (Section 4.102-2, Ibid.)
4(79)
On whether the transaction between Chemonics and the USAID will not result in the payment of
VAT by the USAID, Article IV, paragraph 1 of the Philippines-United States Economic and Technical
Cooperation Agreement (Agreement) provides that for purposes of according privileges and immunities to
the United States Special Technical and Economic Mission and its personnel of comparable diplomatic
rank, the Philippine government shall, upon appropriate notification by the United States Ambassador in
the Philippines, consider the Special Technical and Economic Mission and its personnel as part also of the
United States Diplomatic Mission in the Philippines, thus:
"Article IV
Missions
1. The Government of the Philippines agrees to receive a Special Technical and

Economic Mission which will discharge the responsibilities of the Government of the United States
of America in the Philippines under this Agreement and the Government of the Philippines will,
upon appropriate notification from the Ambassador of the United States of America in the
Philippines, consider this Mission and its personnel as part of the Diplomatic Mission of the United
States of America for the purpose of enjoying privileges and immunities accorded to that Mission
and its personnel of comparable rank. Such Mission shall include but not be limited to experts
whose services are made available to implement Article II of this Agreement."
With respect to privileges and immunities normally given by the Philippines to diplomatic missions
and their personnel, these include privileges and immunities described in the Vienna Convention on
Diplomatic Relations (signed on April 18, 1961), to which the Philippines is a signatory. As to taxation
privileges, Articles 23 and 34 of the Convention mention:
"Article 23
1. The sending State and the head of the mission shall be exempt from all national, regional or
other than such as represent payment for specific services rendered.
2. The exemption from taxation referred to in this Article shall not apply to such dues and taxes
payable under the law of the receiving State by persons contracting with the sending State or
the head of the mission."
"Article 34
(a) indirect taxes of a kind which are normally incorporated in the price of goods or services;
(b) dues and taxes on private immovable property situated in the territory of the receiving State,
unless he holds it on behalf of the sending State for the purposes of the mission;
(c) estate, succession or inheritance duties levied by the receiving State, subject to the
provisions of paragraph 4 of Article 39;
(d) dues and taxes on private income having its source in the receiving State and capital taxes on
investments made in commercial undertakings in the receiving State;
(e) charges levied for specific services rendered;
(f) registration, court or record fees, mortgage dues and stamp duty, with respect to immovable
property, subject to the provisions of Article 23."
On taxation privileges of the sending State and the head of the mission, Article 23 provides that the
sending State (as represented by its embassy in the receiving State) and the head of the mission are exempt
from all dues and taxes relating to their premises, which include, for example, VAT on rental of such
premises.
On taxation privileges of a diplomatic agent, Article 34 provides that a diplomatic agent is

generally exempt from all dues and taxes (personal or real, national, regional or municipal), except those
described in items (a) to (f) of Article 34 like indirect taxes of a kind which are normally incorporated in
the price of goods or services. By the nature of VAT as an indirect tax which may be shifted or passed on
to the buyer, transferee or lessee of the goods, properties, or services (Section 105, Tax Code), VAT is not
among those taxes which a diplomatic agent can be exempt from in the receiving State.
However, although selectively, the VAT exemption privilege of diplomatic missions in the
Philippines and their personnel is made to rest on the principle of reciprocity. In BIR Ruling No. 246-92
dated September 3, 1992, the precursor ruling that cited reciprocity as a basis for the grant of VAT
exemption to diplomatic missions in the Philippines and their personnel, this Bureau ruled that the French
Embassy's purchase of a motor vehicle is exempt from VAT and from ad valorem tax on the basis of
reciprocity. This was on the condition that the French Embassy could submit to the Commissioner of
Internal Revenue (or his duly authorized representative) a copy of a special legislation or an international
agreement that shows that the French government allows similar tax exemption to the Philippine Embassy
in France and its personnel on their purchase of goods and services in France. The same requirement was
invoked in the predecessor ruling, BIR Ruling No. 206-93 dated May 11, 1993, where this Bureau ruled
that the British Embassy's purchase of a motor vehicle is exempt from VAT and from ad valorem tax on
the basis of reciprocity. Based on the British Embassy's letter to the Commissioner of Internal Revenue
dated April 7, 1993, the British government allows similar tax exemption to the Philippine Embassy in the
United Kingdom and its personnel on their purchase of goods and services in the United Kingdom. From
then on, the determination of the existence of a special legislation or an international agreement that
allows similar tax exemption to Philippine Embassies abroad and their personnel now lies with the Office
of Protocol and State Visits of the Department of Foreign Affairs (DFA), which furnishes this Bureau
from time to time of an updated list of diplomatic missions in the Philippines that are entitled to VAT
exemption on the basis of reciprocity.
Inasmuch as the USAID discharges the responsibilities of the United States government to the
Philippine government under the Philippines-United States Economic and Technical Cooperation
Agreement by providing economic and technical assistance in the Philippines, the USAID constitutes as
part of the Special Technical and Economic Mission described in the Agreement. As it is, the USAID is an
agency of the United States government and is a part of and is working dependently with the United States
Embassy in the Philippines. Hence, in keeping with its obligations under Article IV of the Agreement, the
Philippine government will accord to the USAID and its personnel of comparable diplomatic rank those
privileges and immunities presently enjoyed by the United States Embassy in the Philippines and its
personnel, which includes VAT exemption on the purchase of goods and services in the Philippines.
Thus, on the basis of reciprocity, as always reiterated in all VAT exemption rulings, VECs and
VEICs issued by this Bureau to the United States Embassy and its personnel, this Office likewise extends
the same privilege of VAT exemption to the USAID and its personnel of comparable diplomatic rank in
the Philippines. This being the case, this Office is of the opinion and so holds that the service fees to be
paid by the USAID to Chemonics in connection with the Projects funded by the USAID are exempt from
VAT. (BIR Ruling No. DA-ITAD 98-06 dated August 25, 2006)
3. Whether Chemonics, by reason that it authorized another person to act as a withholding agent on
its behalf, is not required to register itself and its books of accounts with the Bureau of Internal
Revenue.
Under Section 236 (A) of the Tax Code, Chemonics is required to register with the Bureau of
Internal Revenue because it is subject to internal revenue tax, thus:
"SEC. 236. Registration Requirements. —
(A) Requirements. — Every person subject to any internal revenue tax shall register once
with the appropriate Revenue District Officer:
(1) Within ten (10) days) from date of employment, or
(2) On or before the commencement of business, or
(3) Before payment of any tax due, or
(4) Upon filing of a return, statement or declaration as required in this Code.
The registration shall contain the taxpayer's name, style, place of residence, business, and such
other information as may be required by the Commissioner in the form prescribed therefor.
A person maintaining a head office, branch or facility shall register with the Revenue District
Officer having jurisdiction over the head office, branch or facility. For purposes of this Section, the
term 'facility' may include but not be limited to sales outlets, places of production, warehouses or
storage places."
Generally speaking, a person (natural or juridical) is subject to internal revenue tax directly or
indirectly. In the first instance, a person who engages in trade or business and is subject to income tax and
VAT on his activities is directly subject to or liable for internal revenue tax and is required to register
pursuant to Section 236 (A). In the second instance, a person who has control over the payments to be
made to another person (like its employee or an independent contractor that supply goods and services to
it) and is deemed a withholding agent for tax purposes, is indirectly subject to or liable for internal
revenue tax and is also required to register pursuant to Section 236 (A).
In the case of Chemonics, where we ruled in Items 1 and 2 of this ruling that the service fees to be
paid to it by the USAID are exempt from income tax and from VAT, we believe that Chemonics will not
be directly subject to or liable for internal revenue tax in such a situation. However, inasmuch as
Chemonics has or will have control over the payments to be made by it to other persons including its
employees or independent contractors that supply goods and services to it and that it is deemed a
withholding agent for tax purposes in this situation, Chemonics will be indirectly subject to or liable for
internal revenue tax and, therefore, Chemonics is required to register pursuant to Section 236 (A) of the
Tax Code.
Given this, you inquired whether Chemonics is or will not be required to register by reason that it
already authorized another person to act as a withholding agent on its behalf. In reply, please be informed
that Chemonics cannot be exempt from the registration requirement in Section 236 (A) of the Tax Code
for the sole reason that it authorized another person to act as a withholding agent on its behalf for
payments to be made by it to other persons including its employees and independent contractors. Under an
arrangement, Chemonics must register itself as 'Chemonics (by the Authorized Withholding Agent), with
the Revenue District Office of this Bureau which has jurisdiction over it. When registering, Chemonics
should submit to the Revenue District Office concerned its Articles of Incorporation, its Contract of
Agency with the Authorized Withholding Agent, and its Registration with the Securities and Exchange
Commission (if any).
The registration of Chemonics (by the Authorized Withholding Agent) will be under the Taxpayer
Identification Number (TIN) of Chemonics, to be issued by the Bureau of Internal Revenue pursuant to
Section 236(J) of the Tax Code, to wit:
xxx xxx xxx
(J) Supply of Taxpayer Identification Number (TIN). — Any person required under the
authority of this Code to make, render or file a return, statement or other document shall be supplied
with or assigned a Taxpayer Identification Number (TIN) which he shall indicate in such return,
statement of document filed with the Bureau of Internal Revenue for his proper identification for
tax purposes, and which he shall indicate in certain documents. . . "
In addition, under Sections 236(B), 232, 233 and 235 of the Tax Code, Chemonics is required to
pay the annual registration fee of P500.00, and to keep its own book of accounts and subsidiary books and
preserve them for a certain period of time as necessary, thus:
xxx xxx xxx
(B) Annual Registration Fee. — An annual registration fee in the amount of five hundred pesos
(P500) for every separate or distinct establishment or place of business, including facility
types where sales transactions occur, shall be paid upon registration and every year thereafter
on or before the last day of January. . . "
"SEC. 232. Keeping of Books Accounts. —
(A) Corporations, Companies, Partnerships or Persons Required to Keep Books of Accounts. —

All corporations, companies, partnerships or persons required by law to pay internal revenue
taxes shall keep a journal and a ledger or their equivalents. . .
"SEC. 233. Subsidiary Books. — All corporations, companies, partnerships or persons keeping the
books of accounts mentioned in the preceding Section may, at their option, keep subsidiary books as
the needs of their business may require: Provided, That where such subsidiaries are kept, they shall
form part of the accounting system of the taxpayer and shall be subject to the same rules and
regulations as to their keeping, translation, production and inspection as are applicable to the journal
and the ledger."
"SEC. 235. Preservation of Books of Accounts and Other Accounting Records. — All the books of
accounts and other accounting records of corporations, companies, partnerships, or persons, shall be
preserved by them for a period beginning from the last entry in each book until the last day
prescribed by Section 203 within which the Commissioner is authorized to make an assessment.
The said books and records shall be subject to examination and inspection by internal revenue
officers. . . "
This ruling is issued on the basis of the actual facts as represented. However, if upon investigation
it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as
Very truly yours,

Commissioner
Footnotes
108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And 288 Of The National
May 24, 2005 and became effective on November 1, 2005, to read as:
tax to twelve percent (12%), after any of the following conditions has been satisfied.
The phrase 'sale of exchange of services' means the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration. . . "
2. Section 109 (q) was amended and renumbered by Republic Act 9337 to read as:
"SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following
shall be exempt from the value-added tax:
xxx xxx xxx
or under special laws, except those under Presidential Decree No. 529;"
3. Now Section 4.409-1 of Revenue Regulations 16-2005, the accompanying regulations of Republic Act
9337.
4. Now Section 4.108-5 of Revenue Regulations 16-2005.
May 11, 2007
Article 13 (Royalties), Philippines-United States of

America tax treaty;
Article 12 (Royalties), Philippines-Bahrain tax treaty;
Article 12 (Royalties), Philippines-Czech tax treaty;
Article 12 (Royalties), Philippines-Netherlands tax treaty;
BIR Ruling Nos. DA-ITAD 127-06 and 76-06

6760 Ayala Avenue
1226 Makati City
Attention: Atty. Mark Anthony P. Tamayo

Partner, Tax and Customs Services
Gentlemen :
This refers to your letter dated December 14, 2005, requesting confirmation that the royalty fee to
be paid by Cargill Philippines, Inc. (Cargill Philippines) to CAN Technologies, Inc. (CAN Technologies)
1(80) pursuant to an Intellectual Property License Agreement is subject to 10% income tax under Article 13
(Royalties) of the Convention between the Government of the Republic of the Philippines and the
Government of the United States of America with Respect to Taxes on Income (Philippines-United States
tax treaty). 2(81)
BASIC FACTS
It is represented that CAN Technologies is a corporation organized and existing under the laws of
the United States of America, with address at 300 Delaware Avenue, Suite 552, Wilmington, Delaware,
19801, United States of America, as evidenced by its Amended Certificate of Incorporation dated May 24,
2005; that CAN Technologies is not registered as a corporation or as a partnership in the Philippines, per
Certificate of Non-Registration of Corporation/Partnership dated October 13, 2005, issued by the
Securities and Exchange Commission; and that, on the other hand, Cargill Philippines is a corporation
organized and existing under the laws of the Philippines, with address at the 14th Floor, Citibank Tower,
Paseo de Roxas, Makati City, Philippines.
It is also represented that CAN Technologies has developed, owns, and has the right to use and
sublicense certain proprietary information and technology, and intellectual property relating thereto, for
formulating animal feed 3(82) compositions, for applying and using animal feeds, for processing animal
feeds, for determining the nutritional composition of components used in animal feeds, and for producing,
marketing, and selling animal feeds; that, on the other hand, Cargill Philippines is desirous in obtaining
access to CAN Technologies' information, technology and intellectual property in order to improve its
production, marketing, and sale of animal feeds; that on June 1, 2002, CAN Technologies and Cargill
Philippines entered into an Intellectual Property License Agreement (Agreement) whereby CAN
Technologies granted Cargill Philippines a non-exclusive, royalty-bearing, and non-transferable license to
use its Patents, 4(83) Technology 5(84) and Copyrights, 6(85) in the Philippines, in order for Cargill Philippines
to produce, market, distribute, sell, use and apply animal feeds in the Philippines; that in consideration for
the license, Cargill Philippines will pay CAN Technologies a royalty fee equal to 1.25% of Cargill
Philippines net sales 7(86) and 5.25% of its consulting revenues 8(87) resulting directly or indirectly from
its use of the Patents, Technology and Copyrights; that the royalty fee will be calculated each quarter
based on a fiscal year from June 1st to May 31st, and will be due and payable on the 15th day of the month
following the end of the quarter; that the royalty fee will be paid in United States dollars and will be
transmitted along with a report showing the manner in which the royalty fee was calculated; and that the
Agreement will remain in full force and effect unless and until it is terminated pursuant to Article 11
(Termination) thereof.
RULING
A. On income tax
In reply, please be informed that concerning income tax, the royalty fee to be paid by Cargill
Philippines to CAN Technologies for the Patents, Technology and Copyrights, is subject to the reduced
income tax rates under Article 13 of the Philippines-United States tax treaty, to wit:
"Article 13
ROYALTIES
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:
State.
xxx xxx xxx"
According to paragraph 2(b) above, royalties arising in the Philippines and derived by a resident of
the United States are subject to (a) 25% of the gross amount of the royalties for royalties in general, (b)
15% of the gross amount of the royalties if they are paid by a corporation registered with the Philippine
Board of Investments and engaged in preferred areas of activities, and (c) the lowest rate of Philippine tax
that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third
State.
Concerning (c) or commonly known as the most-favored-nation tax treatment of royalties, the
Supreme Court, in the case of the Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. and
the Court of Appeals (the S.C. Johnson case), 9(88) cited two conditions for royalties arising in the
Philippines and derived by a resident of another country (in this case, the United States) to be subject to a
most-favored-nation tax treatment. First, the royalties derived by the resident of the other country must be
of the same kind as those derived by a resident of the third country, which are subject of a
most-favored-nation tax treatment under the existing tax treaty between the Philippines and that third
country. Second, in mitigating the effects of double taxation of income derived by its residents from
foreign sources, the mechanism employed by the other country for this purpose must be the same with that
employed by the third country also, which can be determined by taking into account and comparing the
respective articles on Elimination of Double Taxation of the tax treaties with the Philippines of the other
country and of the third country. HSEIAT
In looking for a third country for this purpose, you cited Bahrain and, accordingly, the Convention
between the Republic of the Philippines and the State of Bahrain for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital
(Philippines-Bahrain tax treaty), which entered into force on October 14, 2003, and whose provisions on
taxes apply on income derived or which accrued beginning January 1, 2004. Article 12 of this tax treaty
provides as follows:
"Article 12
ROYALTIES
2. However, the royalties may also be taxed in the Contracting State in which they arise and
the other Contracting State, the tax so charged shall not exceed:
a) 15 per cent of the gross amount of royalties arising from the use of, or the
b) 10 per cent of the gross amount of royalties in all other cases.
The competent authorities of the Contracting States shall, by mutual agreement,

settle the mode of application of this limitation.
xxx xxx xxx"
According to paragraph 2 above, royalties arising in the Philippines and derived by a resident of
Bahrain may be subject to (a) 15% of the gross amount of the royalties for royalties arising from the use
of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or
tapes for television or broadcasting, or (b) 10% of the gross amount of the royalties in all other cases.
Applying the two-tier tax rates in the Philippines-Bahrain tax treaty, ideally, a part of the royalty fee to be
paid by Cargill Philippines to CAN Technologies for the use or the right to use of the Copyrights will be
subject to 15%, while the other part of the royalty fee for the use or the right to use of the Patents and the
Technology will be subject to 10%. However, this approach is not feasible in the case of the subject
royalty fee because the Agreement between Cargill Philippines to CAN Technologies does not indicate a
basis for making a reasonable apportionment for the use or the right to use of each type of intangible
properties. Based on the Agreement, the royalty fee is a lump-sum payment based on a certain percentage
of Cargill Philippines' net sales and consulting revenues resulting from its use of the subject intangible
properties. Since there is no accurate way of apportioning such portion of the royalty fee which pertains to
the use of the Copyrights and that which pertains to the use of the Patents and Technology, this Office is
of the opinion that, by applying the Philippines-Bahrain tax treaty in relation to the most-favored-nation
clause of the Philippines-United States tax treaty, the royalty fee to be paid by Cargill Philippines to CAN
Technologies under the Agreement is subject to the 15% preferential tax rate on royalties.
On the other hand, we are glad to inform you that your requested most-favored-nation tax rate of
10% can be granted based on the Convention between the Czech Republic and the Republic of the
Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income (Philippines-Czech tax treaty), which entered into force on September 23, 2003, and
whose provisions on taxes apply on income derived or which accrued beginning January 1, 2004. Article
12 of this tax treaty provides:
"Article 12
ROYALTIES
the other Contracting State, the tax so charged shall not exceed:
a) 10 per cent of the gross amount of the royalties arising from the use of, or the
right to use, any copyright of literary, artistic or scientific work, other than
that mentioned in sub-paragraph (b), 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;
b) 15 per cent of the gross amount of the royalties arising from the use of, or the
right to use, any copyright of cinematograph films, and films or tapes for
television or radio broadcasting.
The competent authorities of the Contracting States shall by mutual agreement settle
the mode of application of these limitations.
xxx xxx xxx"
According to paragraph 2, royalties arising in the Philippines and derived by a resident of Czech are
subject to income tax at the rate of (a) 10% of the gross amount of the royalties arising from the use of, or
the right to use, any copyright of literary, artistic or scientific work (except those for cinematograph films,
and films or tapes for television or radio broadcasting), 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, or (b) 15% of
the gross amount of the royalties for royalties arising from the use of, or the right to use, any copyright of
cinematograph films, and films or tapes for television or radio broadcasting.
Applying the Philippines-Czech tax treaty, the royalty fee to be paid by Cargill Philippines to CAN
Technologies for the use or the right to use of the Patents, Technology and Copyrights, may be subject to
10% based on the gross amount thereof, provided the two conditions for the most-favored-nation tax
treatment of` royalties (as described above) are both satisfied.
On whether the first condition is satisfied, we note that under paragraph 3, Article 13 of the
Philippines-United States tax treaty quoted below, payments received as a consideration for the use or the
right to use of patents, information concerning industrial, commercial or scientific experience
(know-how), and copyright of literary, artistic or scientific work (to which the royalty fee for the use or the
right to use of the Patents, Technology and Copyrights, are assimilated, respectively) are all considered
royalties, thus:
"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
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."
In the same manner, although lacking a separate paragraph for the definition of royalties in its
article, paragraph 2(a), Article 12 of the Philippines-Czech tax treaty, as quoted above, provides that
royalties arising from the use or the right to use of patents, information concerning industrial, commercial
or scientific experience (know-how), and copyright of literary, artistic or scientific work, among others,
are subject to income tax rate of 10% of the gross amount thereof. This being the case, the first condition
for the most-favored-nation tax treatment of royalties is satisfied, which requires that royalties derived by
a resident of the United States must be of the same kind as those derived by a resident of Czech. STADIH
As regards the second condition, under paragraph 1, Article 23 of the Philippines-United States tax
treaty below, the mechanism employed in mitigating the effects of double taxation of income derived from
foreign sources is the ordinary credit method. It provides:
"Article 23
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. For the purpose of applying the United States credit in relation to
taxes paid or accrued to the Philippines, the rules set forth in Article 4 (Source of Income)
shall be applied to determine the source of income. For purposes of applying the United
States credit in relation to taxes paid or accrued to the Philippines, the taxes referred to in
paragraphs 1(b) and 2 of Article 1 (Taxes Covered) shall be considered to be income taxes.
xxx xxx xxx"
Under the ordinary credit method, the United States (as country of residence) would limit a
taxpayer's allowable tax credit to that portion of the taxpayer's tax liability in the United States that is
attributable to the income that is taxed in the Philippines (the country of source or country of situs). As a
result of this limitation, if the Philippines has an effective tax rate that exceeds the effective tax rate of the
United States on a particular income, the United States would not grant the taxpayer a full credit for the
income tax imposed by the Philippines on such income.
In the same manner, under paragraph 2, Article 22 of the Philippines-Czech tax treaty below, it can
be seen that the mechanism employed by Czech in mitigating the effects of double taxation of income
derived by its residents from foreign sources is also the ordinary credit method, thus:
"Article 22
xxx xxx xxx
2. In the case of a resident of the Czech Republic, double taxation shall be eliminated as
follows:
a) The Czech Republic, when imposing taxes on its residents, may include in the
tax base upon which such taxes are imposed the items of income which
according to the provisions of this Convention may also be taxed in the
Philippines, but shall allow as a deduction from the amount of tax computed
on such a base an amount equal to the tax paid in the Philippines. Such
deduction shall not, however, exceed that part of the Czech tax, as computed
before the deduction is given, which is appropriate to the income which, in
accordance with the provisions of this Convention, may be taxed in the
Philippines.
b) Where in accordance with any provision of the Convention income derived

by a resident of the Czech Republic is exempt from tax in the Czech
Republic, the Czech Republic may nevertheless, in calculating the amount of
tax on the remaining income of such resident, take into account the exempted
income.
xxx xxx xxx"
This being the case, the second condition for the most-favored-nation tax treatment of royalties, which
requires that the mechanism employed by the United States in mitigating the effects of double taxation of
income derived by its residents from foreign sources must be the same with that employed by Czech, is
also satisfied.
In fine, by reason that the two conditions for the most-favored-nation tax treatment of royalties laid
down by the Supreme Court in the S.C. Johnson case are both satisfied, the royalty fee to be paid by
Cargill Philippines to CAN Technologies for the use or the right to use of the Patents, Technology and
Copyrights, beginning January 1, 2004, is subject to 10% income tax based on the gross amount thereof.
(BIR Ruling No. DA-ITAD 127-06 dated October 23, 2006)
On the other hand, the royalty fee paid by Cargill Philippines to CAN Technologies before January
1, 2004 is also subject to a most-favored-nation tax treatment but at the rate of 15%. For this purpose, we
use the Netherlands as the third country, and accordingly, the Convention between the Kingdom of the
Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with Respect to Taxes on Income (Philippines-Netherlands tax treaty), which entered
into force on September 20, 1991, and whose provisions on taxes apply on income derived or which
accrued beginning January 1, 1992. Articles 12 and 22 of the Philippines-Netherlands tax treaty provide as
follows:
"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
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 percent 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.
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
commercial or scientific experience.
xxx xxx xxx"
"Article 22
1. The Netherlands, when imposing tax on its residents, may include in the basis upon which
such taxes are imposed the items of income which, according to the provisions of this
Convention, may be taxed in the Philippines.
2. Without prejudice to the application of the provisions concerning the compensation of losses
in the unilateral regulations for the avoidance of double taxation, where a resident of the
Netherlands derives items of income which according to Article 6, Article 7, paragraph 6 of
Article 10, paragraph 6 of Article 11, paragraph 5 of Article 12, paragraphs 1 and 2 of
Article 13, Article 14, paragraph 1 of Article 15, paragraphs 1 and 3 of Article 16, paragraph
2 of Article 18 and Article 19 of this Convention may be taxed in the Philippines and are
included in the basis referred to in paragraph 1, the Netherlands shall exempt such items of
income by allowing a proportionate reduction of its tax. This reduction shall not, however,
exceed that part of the Netherlands tax as computed before the reduction is given, which is
3. Further, the Netherlands shall allow a deduction from the Netherland tax so computed for
the items of income which according to paragraph 2 of Article 8, paragraph 2 of Article 10,
paragraph 2 of Article 11, paragraph 2 of Article 12 and Article 17 of this Convention may
be taxed in the Philippines to the extent that these items are included in the basis referred to
in paragraph 1. The amount of this deduction shall be equal to the tax paid in the Philippines
on these items of income, but shall not exceed that part of the Netherlands tax which is
4. For the purposes of paragraph 3, where the Philippine tax actually paid on interest and
royalties arising in the Philippines is lower than 15 per cent, then, the tax paid in the
Philippines on these items of income shall be deemed to be 15 per cent.
xxx xxx xxx"
As to the first condition for the most-favored-nation tax treatment, we note that under Article 12 of
the Philippines-Netherlands tax treaty, payments received as a consideration for the use or the right to use
of patents, information concerning industrial, commercial or scientific experience (know-how), and
copyright of literary, artistic or scientific work (to which the royalty fee for the use or the right to use of
the Patents, Technology and Copyrights, are assimilated, respectively), among others, are all considered
royalties, same with the classification of such payments in Article 13 of the Philippines-United States tax
treaty. As such, the royalty fee to be paid by Cargill Philippines to CAN Technologies is subject to an
income tax rate of 15% based on the gross amount thereof. The royalty fee cannot be subject to the lower
rate of 10% because Cargill Philippines, the payer, is not an enterprise registered, and engaged in
preferred areas of activities in the Philippines (for example, with the Board of Investments).
As to the second condition for the most-favored-nation tax treatment, we note that under Article 22
of the Philippines-Netherlands tax treaty, the Netherlands, same with the United States, applies the
ordinary credit method, but only to profits from the operation of ships and aircraft in international traffic,
and dividends, interest and royalties to the extent they are not effectively connected to a permanent
establishment or a fixed base, and income of artistes and athletes. (In addition, if the Philippine income tax
on interest and royalties is lower than 15%, for example, 10% for interest and royalties paid under special
circumstances, the Netherlands shall deem that the income tax on such interest and royalties is paid at
15%, the difference between 15% and the lower rate being the allowable tax sparing credit. The tax
sparing credit provision does not apply to the royalty fee to be paid by Cargill Philippines to CAN
Technologies because such royalties are subject to the rate of 15% and not lower than that.) On the other
hand, the Netherlands applies the exemption method to all other types of income whereby the Netherlands
exempts such income from Netherlands income tax. TAcSCH
In fine, by reason that the two conditions for the most-favored-nation tax treatment of royalties laid
down by the Supreme Court in the S.C. Johnson case are both satisfied, the royalty fee to be paid by
Cargill Philippines to CAN Technologies for the use or the right to use of the Patents, Technology and
Copyrights, before January 1, 2004, is subject to 15% income tax based on the gross amount thereof. (BIR
Ruling No. DA-ITAD 76-06 dated June 23, 2006)
Concerning VAT, the royalty fee to be paid under the Agreement in question is subject to VAT
under Section 108 (A) of the National Internal Revenue Code of 1997 (Tax Code), to wit:
"Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
xxx xxx xxx
xxx xxx xxx
(3) The supply of scientific, technical, industrial or commercial knowledge or

information;
xxx xxx xxx" 10(89)
With regard to the procedures for withholding and paying the VAT, pursuant to Sections 4 and 6 of
Revenue Regulations No. 4-2002, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of
Revenue Regulations No. 14-2002, Cargill Philippines shall be responsible for the withholding of VAT on
the royalty fee before remitting it to CAN Technologies. In remitting to the Bureau of Internal Revenue the
VAT withheld on the royalty fee, Cargill Philippines shall use BIR Form No. 1600 (Monthly Remittance
Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer, Cargill Philippines
may use as documentary substantiation for its claim of input VAT the duly filed BIR Form No. 1600 and
the proof of payment accompanying it. If a non-VAT-registered taxpayer, Cargill Philippines may include
as part of the cost of the intangible properties licensed to it by CAN Technologies the VAT consequently
shifted or passed on to it and may treat such VAT either as expense or asset, whichever is applicable. In
addition, Cargill Philippines is required to issue in quadruplicate the Certificate of Final Tax Withheld at
Source (BIR Form No. 2306), the first three copies for CAN Technologies and the fourth copy for Cargill
Philippines as its file copy.
Very truly yours,
By:

Assistant Commissioner, Legal Service
Footnotes
1. Originally, AGX Services, Inc.
2. Signed on October 1, 1976, and became effective on January 1, 1983.
3. Animal Feeds means feed rations and/or supplements produced for dairy cows, beef cows, swine, poultry,
horses, domesticated animals, shrimp, fish, goats, sheep, and any other animal for which Cargill
Philippines is authorized to make or sell using the intellectual property licensed under the Agreement.
4. Patents means all original, provisional, CPA, utility, design, PCT, EP, divisional, continuation,
continuation-in-part, reissue, and extension patent applications relating to animal feed compositions,
processing, nutritional technology, and general business systems filed in the Philippines and all patents
issuing therefrom that CAN Technologies may own or otherwise possess sublicensible rights thereto now or
at any time during the term of the Agreement and may choose to make available thereunder.
5. Technology means all technical data, trade secrets, technical information, product standards, formulation
systems, computer modeling programs for animal and feeding simulations, laboratory standards and data,
new ingredient developments, manufacturing equipment advances, information which improves the
processes and procedures for the manufacture of animal feeds, sales/marketing programs, systems
developed for the delivery of proprietary technology and information, processes, techniques, compositions,
specifications, know-how, equipment or other information, as well as conferences, training and seminars
provided by or on behalf of CAN Technologies whether in tangible form or not, that are in the possession of
CAN Technologies pertaining to animal feed compositions, their nutritional components, and their
processing, production, use or sale that CAN Technologies may choose to make available under the
Agreement.
6. Copyrights means any original works of authorship fixed in a tangible medium of expression, including
without limitation any proprietary software, formulation, and operating manuals relating to the production
of any animal feed formulations, nutritional compositions and general business systems in the Philippines,
and any registration applications filed in the Philippines and registration certificates issuing therefrom that
CAN Technologies may own or otherwise possess sublicensible rights thereto now or at any time during the
duration of the Agreement and may choose to make available thereunder. For purpose of the Agreement,
copyright "use" does not include the right to make derivative works.
7. Net Sales means actual gross sales of animal feeds, including sales by Cargill Philippines' authorized
sublicensees of animal feeds (but only to the extent these sales are not already included in the definition of
Consulting Revenue) and sales to independent or related parties, if any; less certain deductions.
8. Consulting Revenue means gross revenue from consulting fees that accrued through Cargill Philippines'
use or application of CAN Technologies' information, technology and intellectual property where these uses
are allowed by the terms of the Agreement.
9. G.R. No. 127105 dated June 25, 1999, Commissioner of Internal Revenue, petitioner, vs. S.C. Johnson and
Son, Inc. and Court of Appeals, respondents.
exceeds one and one-half percent (1 1/2%); or
percent (1 1/2%).
xxx xxx xxx
xxx xxx xxx
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
xxx xxx xxx"
May 9, 2007
of 1997;
Level 23, Tower 2, RCBC Plaza
6819 Ayala Ave. cor. Sen. Gil Puyat Ave.
Makati City
Attention: Mr. Nicholas Garry Wong

Third Secretary
Gentlemen :
This has reference to your Note Verbale No. 078/07 dated February 9, 2007, referred to this Office
requesting for a tax-free purchase of a local motor vehicle for the personal use of Mr. Nicholas Garry
Wong, Third Secretary of the Embassy of Australia, specifically described as follows:
Make: Ford Escape XLT 2.3L 4X4 A/T
Model Year: 2007
Color: Platinum
Conduction No.: JB6539
VIN Number: PE23V66171GG00036
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
from the value-added tax (VAT) and ad valorem tax on its local purchases of goods and services. In other
words, purchases by that Embassy of goods and/or services shall, in general, be subject to the VAT
Internal Revenue Code of 1997. IDEScC
Embassy of Australia or its personnel on their local purchase of motor vehicles it appearing from the list
Hence, the herein local purchase of one (1) unit of 2007 Ford Escape XLT 2.31, 4X4 A/T for the
personal use of Mr. Nicholas Garry Wong, Third Secretary of the Embassy of Australia is exempt from
VAT and ad valorem tax. (BIR Ruling No. DA-ITAD-64-05 dated June 28, 2005)
Very truly yours,

Legal Service
May 9, 2007
Article 109 (K), National Internal Revenue Code of 1997,

as amended;
Article 3, Cooperation Agreement Between the Government
of the Republic of the Philippines and the International
Organization for Migration;
Article 3, Section 10, Convention on the Privileges and
Immunities of the Specialized Agencies of the United
Nations;
International Organization for Migration

25th Floor, Citibank Tower Condominium
8741 Paseo de Roxas
1226 Makati City
Attention: Mr. Bruce Reed
Regional Representative and
Director of Administration, Manila
Gentlemen :
This refers to your letter with Ref. No. C.O1.E.036 dated March 21, 2007, endorsed to this Office
by the Department of Finance, requesting exemption from the payment of ad valorem and value-added
taxes on the local purchase of one (1) motor vehicle, for the official use of the International Organization
for Migration (IOM), specifically described as follows:
Make: Toyota Innova G Gas 2.0 M/T
Model Year: 2006
Color: Xtreme Black
Chassis Number: TGN40-5009697
In reply, Section 109 (K) of the National Internal Revenue Code of 1997, as amended by Republic
Act No. 9337, provides:
"SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added
tax:
xxx xxx xxx
In connection thereto, Article 3 of the Cooperation Agreement Between the Government of the
Republic of the Philippines and the International Organization for Migration dated March 13, 2003, states
as follows:
"Article 3
1. The Organization shall enjoy in the Republic of the Philippines the same privileges and
immunities as those granted to specialized agencies of the United Nations by virtue of the
Convention on the privileges and immunities of the specialized agencies of 21 November
1947.
2. In particular, the Organization shall be exempt from all indirect taxes for purchases or
articles intended for official use. (Emphasis supplied)
xxx xxx xxx"
Relevant to the above, Section 10, Article III of the Convention On The Privileges And Immunities
Of The Specialized Agencies of the United Nations (UN Convention) provides as follows:
"Article III
PROPERTY, FUNDS AND ASSETS
Section 10
remission or return of the amount of duty or tax." IESDCH
The aforecited provision of the UN Convention clearly requires that to be entitled to a possible
remission or return of the amount of duty or tax, the subject purchase must be for official use of the
specialized agency. But in lieu of remission or return of the amount of duty or tax related to the purchase
for official use, a tax exemption privilege is instead granted. 1(90)
Such being the case, and since the above purchase of a motor vehicle is for the official use of IOM,
this Office is of the opinion and so holds that the herein purchase of one (1) unit 2006 Toyota Innova G
2.0 M/T is exempt from ad valorem and value-added taxes.
It is hereby understood that this exemption applies only to vehicles purchased under the name of the
International Organization for Migration for its official use.
Very truly yours,
By:

Legal Service
Footnotes
1. BIR Ruling No. ITAD-46-07 dated April 11, 2007 citing VAT Ruling No. 143-90 which revoked VAT
Ruling No. 176-89.
April 30, 2007
Secs. 106 & 108 of the National Internal Revenue Code of 1997;
Article 34 of the Vienna Convention;

(USAID-Millennium Challenge Account-Philippine
Threshold Program-MCA-PTP)
Unit 2302, 23rd Floor Corporate Center
141 Valero Street, Salcedo Village
1227 Makati City
Attention: Mr. James King

Chief of Party, Management System International
Millennium Challenge Account Philippine Threshold Plan Project
Gentlemen :
This has reference to your Note Verbale No. 0375 dated March 26, 2007 referred to this Office by
the Department of Foreign Affairs (DFA), requesting for a tax-free purchase of three (3) locally assembled
motor vehicles described hereunder for official use by the USAID of the Embassy of the United States of
America:
Make Model Year Color Chassis Engine

Number Number
Ford Escape XLS 2007 Panther PE2EV22171G L3018214
2.3L 4X2 A/T Black F00106
Ford Escape XLS 2007 Magnetic PE2EV22171G L3006036
2.3L 4X2 A/T Silver F00063
Ford Everest XLS 2007 Highlight MNCLS4D107 WLAT773650
2.5L 4X2 A/T Silver W200839
reads:
"Article 34
"Subsidiary arrangements
services;
"xxx xxx xxx"
purchases by that Embassy of goods and/or services shall, in general, be subject to the value-added tax
prescribed under Sections 106 and 108, both of the National Internal Revenue Code of 1997.
However, applying the principle of reciprocity, this Office may confirm exemptions to the Embassy
of the United States of America and/or its personnel on their local purchases of goods and/or services it
appearing from the list submitted by the Department of Foreign Affairs that your Government allows
similar exemption to Philippine Embassy and/or its personnel on their purchases of goods and services in
your Country. HacADE
Hence, the herein local purchases of two (2) units of 2007 Ford Escape and one (1) unit 2007 Ford
Everest for the official use of USAID of the Embassy of the United States of America are exempt from
VAT and ad valorem taxes. (BIR Ruling No. DA-ITAD-13-00 dated January 24, 2000)
the herein party is concerned.
Very truly yours,

Legal Service
April 27, 2007

Ogami Corporation
Bldg. A, Block 8, Lot 13A, Phase 2
FCIE Brgy. Langkaan, Dasmarinas,
Cavite
Attention: Mr. Yukiyoshi Otani
President
Gentlemen :
This refers to your tax treaty relief application received by this Office on March 21, 2007, for the
service fees that will be paid by Ogami Corporation (Ogami-Philippines) to Ogami Company Ltd.
(Ogami-Japan) pursuant to the Philippines-Japan tax treaty.
It is represented that Ogami-Japan is a nonresident foreign corporation organized and existing under
the laws of Japan with principal office address at No. 339 Fukushima Chiyoda Machi, Oura Gun, Gunma,
Japan; that Ogami-Japan is not registered either as a corporation or as a partnership in the Philippines as
shown in the Certification of Non-Registration issued by the Securities and Exchange Commission on
March 13, 2007; that Ogami-Philippines is a corporation duly organized and existing under the laws of the
Philippines with principal address located at Bldg A, Blk. 8, Lot 13A, Phase 2 FCIE Brgy. Langkaan,
Dasmarinas, Cavite; that Ogami-Philippines is a PEZA-registered enterprise under Certificate of
Registration No. 95-146 as an Ecozone Export Enterprise at the First Cavite Industrial Estate-Special
Economic Zone. cSaADC
It is further represented that on March 5, 2007, Ogami-Japan and Ogami-Philippines entered into a
Contract whereby Ogami-Japan shall, at any time and from time to time during the effectivity thereof,
provide the following services to Ogami-Philippines:
1. Advice and assistance on Ogami-Philippines current operations.
2. Develop global business strategies and provide strategic global leadership.
3. Advice on maintaining and administering proper accounting procedures, ledgers payroll

processing and other bookkeeping records.
4. Advice necessary to ensure that the manufacture, marketing and or sale of the products are of
standard quality.
That the foregoing services will be performed by Ogami-Japan outside the Philippines; that in cases where
it would be necessary for Ogami-Japan to send its personnel in the Philippines, the stay of these
individuals in the Philippines shall not exceed 183 days in any given year; that said services shall in no
case involve the transfer of Ogami-Japan of any know-how; that as a consideration for the said services,
Ogami-Philippines will pay Ogami-Japan a fee in the amount of One Million One Hundred Thousand
Japanese Yen (JPY1,100,000.00); that the Contract shall be valid and binding for a period of one (1) year
from the effectivity date, 1 May 2007, and, unless terminated in writing by either party at least thirty (30)
days prior to the date of expiration, shall be automatically renewed for successive periods of one (1) year;
and that the issue or transaction subject of the above application is not under investigation, on-going audit,
administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a
judicial appeal.
In reply, please be informed of Article 7 of the Philippines-Japan tax treaty, quoted as follows:
"Article 7
xxx xxx xxx"
that permanent establishment. Applying to the instant case, the service fees received by Ogami-Japan for
services rendered in the Philippines under the Contract shall be taxable in the Philippines only if it has a
permanent establishment in the Philippines in connection with the activities giving rise to such income.
HCEISc
In relation thereto, Article 5 of the same tax treaty defines a permanent establishment, as follows:
"Article 5
xxx xxx xxx

installation project through employees other personnel — other than an agent of an
Contracting State.
xxx xxx xxx."
Paragraph 6 of Article 5 provides that an enterprise of Japan shall be deemed to have a permanent
establishment in the Philippines if it furnishes in the Philippines 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.
Thus, Ogami-Japan is deemed not to have a permanent establishment for as long as its employees
do not stay in the Philippines for a period or periods aggregating more than six months within any taxable
year in the course of their rendition of services to Ogami-Japan. Such being the case, the income derived
by Ogami-Japan from services rendered to Ogami-Philippines shall not be subject to Philippine income tax
and, as such, shall likewise be exempt from withholding tax. (BIR Ruling No. DA-ITAD 164-06 dated
December 18, 2006)
As regards the imposition of the VAT on the rendition of services of Ogami-Japan, please be
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.—
Philippines for others for a fee, remuneration or consideration, . . . ." (Emphasis supplied). HcSaAD
Thus, in general, the VAT is imposed on services rendered by Ogami-Japan in the Philippines. On
every payment of service fees, Ogami-Philippines is required to withhold such VAT and treat the same as
a "passed on" VAT, pursuant, to Section 4.110-3 (b) of Revenue Regulations (RR) No. 7-95 as amended
[now Section 4.114-2 (b) of RR No. 4-2007].
xxx xxx xxx
xxx xxx xxx
coming within the purview of the general rule.
xxx xxx xxx"
No. 7916 or PEZA Law, is particularly applicable to the instant case. STDEcA
Such being the case, the payment of services fees by Ogami-Philippines, being a PEZA-registered
enterprise, to Ogami-Japan under the subject Contract should be, as it is hereby confirmed to be, exempt
from VAT.
Very truly yours,
By:

Legal Service
Footnotes
No. 9337]
April 25, 2007
Article 10, Philippines-Japan Tax Treaty;

Hayakawa Electronics (Phils.) Corp.

Main Avenue corner First Street
Cavite Economic Zone
Rosario, Cavite, Philippines
Attention: Mr. Mario Ponce de Leon

Treasurer
Gentlemen :
This refers to your letter dated January 16, 2006 requesting confirmation that the dividend
payments of Hayakawa Electronics (Phils.) Corp. (HEPC) to Hayakawa Electric Wire (Co., Ltd. (HEWC)
are subject to a 10% preferential tax rate pursuant to Article 10 of the Philippines-Japan tax treaty.
It is represented that HEWC is a nonresident foreign corporation duly organized and existing under
the laws of Japan with business address at 422 Nishi-Nobusue, Himeji City, Hyogo, Japan; that it is not
registered either as a corporation or as a partnership in the Philippines per certification issued by the
Securities and Exchange Commission dated September 12, 2005; that HEPC is a domestic corporation
with office address at Main Avenue corner First Street, Cavite Economic Zone, Rosario, Cavite,
Philippines; that since December 31, 2004, HEWC has Eight Hundred Ninety Two Thousand Nine
Hundred (892,900) shares with a par value of PhP100.00 per share and an aggregate value of Eighty Nine
Million Two Hundred Ninety Thousand Pesos (PhP89,290,000.00), representing 99.99% of the
outstanding shares of HEPC as shown in the certification issued by the Corporate Secretary of HEPC
dated July 28, 2006; that on July 4, 2005 the Board of Directors of HEPC declared cash dividends in the
amount of Fifty Six Million Six Hundred Seventy Two Thousand Six Hundred Eighty Pesos and Thirty
Five Centavos (PhP56,672,680.35) representing sixty three and forty seven tenths percent (63.47%) of
paid-up capital of HEPC to be declared out of the unrestricted retained earnings of HEPC to stockholders
as of June 30, 2005; and that the issue/s or transaction subject of the above request for ruling is not under
investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate,
collection proceedings, or a judicial appeal of the taxpayer/s involved.
In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides as follows:
"Article 10

the recipient is the beneficial owner of the dividends the tax so charged shall not exceed.
The provisions of this paragraph shall not affect the taxation of the company
in respect of the profits out of which the dividends are paid.
3. Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the
Philippines on the dividends paid by a company, being a resident of the Philippines,
registered with the Board of Investments and engaged in preferred pioneer areas of
investment under the investment incentives laws of the Philippines to a resident Japan, who
is the beneficial owner of the dividends, shall not exceed 10 per cent of the gross amount of
the dividends.
4. The term "dividends" as used in this Article means income from shares or other rights, not
being debt-claims, participating in profits, as well as income form other corporate rights
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 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 if the dividends are paid to by a company who is registered with the Philippine Board of
Investments and engaged in preferred pioneer areas of investment.
Such being the case, and considering that HEWC held 99.99% percent of the total shares of stock
of HEPC six months immediately preceding the payment of dividends, this Office is of the opinion and so
holds that the dividend payments by HEPC to HEWC shall be subject to the preferential tax rate of 10
percent, based on the gross amount thereof, pursuant to Article 10(2)(a) of the Philippines-Japan tax
treaty. (BIR Ruling No. DA-ITAD 034-05 dated April 18, 2005) aESIHT
Very truly yours,
By:

Legal Service
April 20, 2007
Articles 5 & 8, Philippines-United States Tax Treaty;

Sections 23 (F) & 42 (A) (3), NIRC;
Dulay Pagunsan & Ty

Law Offices
4F Bee Lu Building
103-113 Sen. J. Puyat Avenue
1306 Pasay City
Attention: Mr. Brigido J. Dulay
Gentlemen :
This refers to your letter dated August 28, 2006, and received by this Office January 18, 2007, on
behalf of your client, CYBER CITY TELESERVICES LIMITED (hereinafter referred to as "CCTL"),
requesting confirmation that service fees paid by CCTL to CCT MARKETING LLC (hereinafter referred
to as "CML") are not subject to Philippine income tax as business profits attributable to a permanent
establishment in the Philippines, pursuant to Article 8 (1) in relation to Article 5 of the Philippines-United
States tax treaty and Sections 23(F), 28(B)(1) and (42)(A)(3) of the National Internal Revenue Code of
1997 (NIRC).
It is represented that CML (formerly "Network Management Service LLC") is a nonresident foreign
corporation organized and existing under the laws of the State of Delaware, USA, with address at the
Continental Plaza, 401 Hackensack Avenue, Hackensack, New Jersey, 07601, USA, as evidenced by a
certification issued by the Secretary of the State of Delaware dated October 4, 2006; that it is not
registered either as a partnership or a corporation in the Philippines pursuant to a Certification of
Non-registration issued by the Securities and Exchange Commission dated September 19, 2006; that it is
engaged in the business of providing marketing and customer activation services for call centers and
business process outsourcing companies; that, on the other hand, CCTL is a corporation existing under the
laws of the Philippines and is duly registered with the Clark Special Economic Zone, Clark Development
Corporation, with office address at 2528 Corporate Office, Cyber City Park, Apo Court along Sergio
Osmeña Road, CSEZ, Clark Field Pampanga; that it is engaged in the operation of a Call Center,
Teleservices and other Information Technology related services to the foreign market.
It is further represented that on August 17, 2001, CML and CCTL entered into a Marketing
Services Agreement (Agreement) whereby CCTL appoints and engages the services of CML as its
exclusive marketing representative to solicit clients and customers located in the United States of America
who could utilize CCTL's call center and business process outsourcing services (hereinafter referred to as
"the Services"), to include, but not limited to, the following:
a) Hiring and retaining sales and marketing personnel in the United States (US), as employees,
agents or independent contractors, on a full time or part basis, to promote, market, and sell
the Services, upon such terms and conditions as CML may deem necessary and appropriate
to meet its obligations;
b) Attending and sponsoring marketing booths at US trade shows for the applicable industries
to promote the Services, subject to the approval of CCTL;
c) Developing and preparing necessary and appropriate marketing materials promote the
Services to US-based clients or customers;
d) Advising CCTL in connection with its compliance with applicable US legal requirements
under Federal and State laws. Rules and regulations in offering the Services to US-based
clients or customers;
e) Utilizing the form agreements approved by CCTL to memorialize contract arrangements

with US customers and to utilize the agreements of US customers, all subject to the
continuing review and comment thereon and final approval thereof by CCTL authorized
personnel;
f) Establishing a limited liaison staff in the US, with appropriate available technical equipment,
to initialize agreements and follow-on procedures between clients or customers in the United
States and CCTL's operations personnel in the Philippines who will be directing and
rendering e-Services, and to coordinate, when necessary and from time to time during the
term of any such agreement, actions between CCTL and said clients or customers to help
ensure the smooth and efficient commencement and ongoing performance of CCTL;
g) Paying any item to US vendors of products and services sold or rendered to CCTL or any of
its affiliates subject to receipt of copies of invoices from such vendors or CCTL; and
h) Contracting for and procuring insurance coverage for CCTL where applicable and necessary,
at the request of CCTL.
And that, in return for providing its services, CCTL shall pay CML one hundred percent (100%) of
all costs (Expenses) incurred by CML in performing its marketing and customer activation services and
other related and ancillary services stipulated in the Agreement, and, an amount of six percent (6%) of the
said Expenses; and that the Agreement shall have an initial term of ten (10) years and shall automatically
be renewed for additional five (5) year terms unless other party notifies the other at least thirty (30) days in
advance of its intention not to renew.
Finally, it is asserted that, as the Agreement does not provide for CML to render services in the
Philippines, CML will not be sending any of its personnel in the Philippines.
In reply, please be informed that Article 5, and in relation thereto, Article 8 of the
Philippines-United States tax treaty provide, viz:
"Article 8
BUSINESS PROFITS
them as are attributable to the permanent establishment.
Article 5
trade or business. acTDCI
2. The term "fixed place of business" includes but is not limited to:
b) A branch;
c) An office;
e) A factory;
f) A workshop;
g) A warehouse;


days.
xxx xxx xxx"
Based on the foregoing, the service fees of CCTL to CML shall not be subject to Philippine income
tax if CML, being a resident of the US, does not have a fixed place of business in the Philippines; or if it
has such a fixed place, said fee is not attributable to such fixed place. However, should employees of CML
be required to render services in the Philippines and such furnishing of services continue within the
Philippines for a period of more than 183 days within any twelve-month period, such shall be deemed to
constitute as a permanent establishment of CML in the Philippines. Accordingly, such service fees shall be
subject to Philippine income tax.
In addition thereto, Section 23 (F) and, in relation thereto, Section 42 (A) (3) of the NIRC provide,
viz:
"SEC. 23. General Principles of Income Taxation in the Philippines. — Except when
xxx xxx xxx
"SEC. 42. Income from Sources Within the Philippines. —
(A) Gross income From Sources Within the Philippines. —
xxx xxx xxx

Philippines;"
Based on the above provision, income from services of a foreign corporation is taxable in the
Philippines only if such services are performed within the Philippines.
From the herein representations, it can be ascertained that CML does not have a fixed place of
business in the Philippines to which its income may be attributed to, and that no personnel of CML will
come to the Philippines to render services. In view thereof, this Office is of the opinion and hereby rules
that income for services by CML to CCTL under the subject Agreement shall not be subject to Philippine
income tax pursuant to Article 8 in relation to Article 5 of the Philippines-United States tax treaty. (BIR
Ruling No. ITAD-63-06 dated June 1, 2006) HTCaAD
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation, it will be disclosed that the actual facts are different, then this ruling shall be without force
and effect insofar as the herein parties are concerned.
Very truly yours,
By:

Assistant Commissioner, Legal Service
April 20, 2007
Article 10, Philippines-Japan Tax Treaty;

BIR Ruling No. DA ITAD-024-06
AFC Fertilizer and Chemicals, Inc.

5/F P & L Building, 116 Legaspi Street
Legaspi Village, Makati City
Philippines
Attention: Rolando A. Basco, Jr.

Vice President — Chief Financial Officer
Gentlemen :
This refers to your application for relief from double taxation dated 12 April 2007, requesting
confirmation of your opinion that the dividends paid to SOJITZ Corporation (SOJITZ) by AFC Fertilizer
& Chemicals, Inc. (AFC) are subject to the 10% preferential tax rate, pursuant to Article 10 of the
Philippines-Japan tax treaty.
It is represented that SOJITZ is a corporation incorporated under the laws of Japan with office
address at 1-20 Akasaka, 6-Chome, Minato-ku, Tokyo 107-8655, Japan; that it is not registered either as a
corporation or a partnership in the Philippines per Certification issued by the Securities and Exchange
Commission dated 16 April 2007; that AFC is a corporation duly organized and existing under the laws of
the Philippines, with principal office and place of business at 5/F P & L Building, 116 Legaspi Street,
Legaspi Village, Makati City, Philippines. ASTcaE
It is further represented that from 22 August 2003, SOJITZ owns Four Hundred Sixty-Five Million
Thirty-Four Thousand Nine Hundred Forty-One (465,034,941) fully paid shares with a par value of
PhP1.00 per share out of Four Hundred Sixty-Five Million Thirty-Four Thousand Nine Hundred
Forty-Eight (465,034,948) subscribed shares or 99.99% of the total subscribed and paid-up capital of
AFC; that AFC shall pay cash dividends to all stockholders of record as of March 31, 2007 pursuant to the
adoption of the resolution by the Board of Directors; and that the issue/s or transaction subject of the
above request for ruling is not under investigation, on-going audit, administrative protest, claim for refund
or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s
involved.
In reply, please be informed that Article 10(2)(a) of the Philippines-Japan tax treaty provides as
follows, viz:
"Article 10
(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the
(2) However, such dividends may also be taxed in the Contracting State of which the company
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a
(b) 25 per cent of the gross amount of the dividends in all other cases.
xxx xxx xxx
(4) The term 'dividends' as used in this Article means income from shares or other rights, not
xxx xxx xxx"
Based on the aforequoted provisions, the Philippines may tax the dividends paid by 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 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 thereof and considering that SOJITZ is the registered owner of 99.99% of such shares, for a
period of six months immediately preceding the date of payment of dividends by AFC, such dividends are
subject to 10 percent preferential tax rate, pursuant to the Philippines-Japan tax treaty. (BIR Ruling No.
DA-ITAD-24-06 dated March 16, 2006)
This ruling is issued on the basis of the actual facts as represented. However, if upon investigation,
it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect
insofar as the herein parties are concerned. ACETIa
Very truly yours,
By:

Legal Service
April 18, 2007
Article 10 (2) (a), Philippines-Japan Tax Treaty;

Isla Lipana & Co.

29th Floor Philamlife Tower
8767 Paseo de Roxas
1226 Makati City, Philippines
Attention: George J. Lavadia

Principal
Tax Services
Gentlemen :
This refers to your application for relief from double taxation dated April 18, 2006, on behalf of
your client, Totoku Philippines, Inc. (Totoku Philippines), requesting confirmation of your opinion that the
dividends paid to Totoku Electric Company Ltd. (Totoku Japan) by Totoku Philippines are subject to the
10% preferential tax rate, pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty.
It is represented that Totoku Japan with office address at 3-21 Okubo, 1-Chome, Shinjuku-ku,
Tokyo, Japan 169-8543, is a resident of Japan for the purpose of Japan taxation and registered as a taxable
person under Tax Reference Number 382019, per Certification issued by the Chief of Shinjuku District
Taxation Office, dated November 16, 2005, and issued for application for tax privileges available under
the Philippines-Japan tax treaty; that it is not registered either as a corporation or a partnership in the
Philippines per Certification dated February 2, 2005 issued by the Securities and Exchange Commission;
that Totoku Philippines is a corporation duly organized and existing under the laws of the Philippines,
with principal office and place of business at Lot B1-3 Road 6, Carmelray Industrial Park II, Barangay
Tulo, Calamba City, Philippines.
It is further represented that out of the Two Million Two Hundred Thousand (2,200,000) common
shares of the total shares of Totoku Philippines, Two Million One Hundred Ninety Nine Thousand Nine
Hundred Ninety Five (2,199,995) shares or 99.99% and amounting to Two Hundred Nineteen Million
Nine Hundred Ninety Nine Thousand Five Hundred Pesos (PhP219,999,500.00), are registered in the
name of Totoku Japan while the remaining five (5) shares are held by the nominees of Totoku Japan; that
on March 25, 2002, the Board of Directors of Totoku Philippines approved the payment of dividends to
Totoku Japan in an amount equivalent to 28% of the total capital stocks of Two Hundred Twenty Million
Pesos (PhP220,000,000.00); that Totoku Philippines was authorized to release the funds necessary for the
payment of dividends to Totoku Japan by March 25, 2002 in accordance with the existing rules of Totoku
Philippines relating thereto; that dividends were paid on March 25, 2005 to Totoku Japan; that as of this
date of payment of dividends, Totoku Japan is the beneficial owner of One Hundred Percent (100%) of the
outstanding and issued shares of Totoku Philippines; and that the issue/s or transaction subject of the
above request for ruling is not under investigation, on-going audit, administrative protest, claim for refund
or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s
involved. CDaTAI
In reply, please be informed that Article 10(2)(a) of the Philippines-Japan treaty provides as
follows, viz:
"Article 10
(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the
(2) However, such dividends may also be taxed in the Contracting State of which the company
(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a
(b) 25 per cent of the gross amount of the dividends in all other cases.
xxx xxx xxx
(4) The term 'dividends' as used in this Article means income from shares or other rights, not
xxx xxx xxx"
Based on the aforequoted provisions, the Philippines may tax the dividends paid by 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 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 thereof and considering that Totoku Japan is the beneficial owner of 100% of the total
outstanding shares of stock of Totoku Philippines and the registered owner of 99.99% of such shares, for a
period of six months immediately preceding the date of payment of dividends by Totoku Philippines, such
dividends are subject to 10 percent preferential tax rate, pursuant to the Philippines-Japan tax treaty. (BIR
Ruling No. DA-ITAD-24-06 dated March 16, 2006)
Very truly yours,
By:

Legal Service
April 2, 2007
Philippines-Singapore tax treaty;

BIR Ruling No. DA-ITAD 119-04;
DA-ITAD-051-07
Roxas De Los Reyes Laurel & Rosario
Law Offices
19/F BDO Plaza, 8737 Paseo de Roxas
Makati City 1226, Philippines
Attention: Ms. Anna Melissa R. Lichaytoo

Ms. Carmine Eliza T. Serrano
Gentlemen :
This refers to your letter dated November 29, 2005 requesting confirmation that the dividend
payments of Micro-Mechanics Technology International, Inc. (Micro-International) to Micro-Mechanics
(Holdings) Pte. Ltd. (Micro-Holdings) are subject to a 15% preferential tax rate pursuant to Article 12 of
the Philippines-Singapore tax treaty.
It is represented that Micro-Holdings is a nonresident foreign corporation duly organized and

existing under the laws of Singapore with business address at 31 Kaki Bukit Place, Eunos Techpark,
Singapore 416209; that it is not registered either as a corporation or as a partnership in the Philippines per
certification issued by the Securities and Exchange Commission dated November 17, 2005; that
Micro-International is a domestic corporation with office address at Lot B2-1C Carmelray Industrial Park
II, Brgy. Tulo, Calamba, Laguna; that as of June 8, 2005 Micro-Holdings is the registered owner of shares
with par value of One Hundred Pesos (P100.00), in the total amount of Eight Million Five Hundred Thirty
Nine Thousand Five Hundred Pesos (P8,539,500.00), representing 99.9% ownership in
Micro-International as shown in the certification issued by the Corporate Secretary of Micro-International
dated November 25, 2005 and March 16, 2006; that from the date of acquisition of the shares upon
incorporation of Micro-International on August 1, 2000 until June 30, 2005, the date of payment of
dividends declared in the meeting of the Board of Directors on June 30, 2005, Micro-Holdings owned
99.9% of the subscribed capital stock of Micro-International; that on June 30, 2005 the Board of Directors
of Micro-International declared cash dividends in the amount of Forty Nine Million Pesos
(Php49,000,000.00) to be taken out from the company's unrestricted retained earnings as reflected in its
audited financial statements as of June 30, 2005, payable to all stockholders of record as of June 30, 2005;
and that subject of the above request for ruling is not under investigation, on-going audit, administrative
protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal
of the taxpayer/s involved.
follows:
"Article 10
DIVIDENDS

other Contracting State may be taxed in that other State.
2. However, such dividends may be taxed in the Contracting State of which the company
paying the dividends is a resident, and according to the law of that State, but if the recipient
is the beneficial owner of the dividends the tax so charged shall not exceed:
(including partnership) and during the part of the paying company's taxable
year which precedes the date of payment of the dividend and during the
whole of its prior taxable year (if any), at least 15 per cent of the outstanding
shares of the voting stock of the paying company was owned by the recipient
company; and
b) in all other cases, 25 per cent of the gross amount of the dividends.
3. The provisions of paragraphs 1 and 2 shall not affect the taxation of the company in respect
of the profits out of which the dividends are paid.
jouissance' rights, mining shares, founder's shares or other rights, not being debt-claims,
participating in profits, as well as income assimilated to income from shares by the taxation
law of the State of which the company making the distribution is a resident.
xxx xxx xxx"
Based on the aforequoted provision, the 15 percent preferential tax rate on dividends applies
whenever the beneficial owner/recipient of the dividends owns at least 15 percent of the outstanding
voting shares of the paying company and such shareholdings should have existed during the part of the
paying company's taxable year immediately preceding the date of payment of the dividends and during the
whole of its prior taxable year, if any.
Therefore, since Micro-Holdings holds 99.9% of the subscribed capital stock of Micro-International
during the part of the latter's taxable year immediately preceding the date of payment of the dividends and
during the whole of its prior taxable year, dividends received by Micro-Holdings shall be subject to the
preferential tax rate of 15 percent pursuant to Article 10(2)(a) of the Philippines-Singapore tax treaty.
(BIR Ruling DA-ITAD 119-04 dated October 27, 2004) DaTICE
disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the
Very truly yours,
By:

Legal Service
April 13, 2007

10F, Pacific Star Building
Makati Avenue, Makati City
Attention: Mr. Park Man Hwan

Country Director, Economic Development Cooperation Fund
Gentlemen :
This has reference to your Note No. KPH 2007-118 dated March 28, 2007 referred to this Office by
the Department of Finance and the Department of Foreign Affairs, requesting for the exemption from
payment of value-added tax (VAT) and ad valorem tax on the local purchase of one (1) motor vehicle, for
the personal use of Mr. Park Man Hwan, Country Director, Economic Development Cooperation Fund of
the Embassy of the Republic of Korea, specifically described as follows:
Model Year: 2007
Color: Bluish Silver
Engine Number: RNKD647103187
Chassis Number: PADFD16407V103210
reads:
"ARTICLE 34
services;
xxx xxx xxx"
words, purchases by that Embassy and its diplomatic agents of goods and/or services shall, in general, be
subject to the value-added tax prescribed under Sections 106 and 108, and ad valorem taxes under Section
149, all of the National Internal Revenue Code of 1997.
of the Republic of Korea and/or its personnel on their purchases of locally-assembled motor vehicles it
appearing from the list submitted by the Department of Foreign Affairs as of October 18, 2005, that your
Government allows similar exemption to Philippine Embassy and/or its personnel on their purchase of
Hence, the local purchase of one (1) unit of 2006 Honda CRV 4X4 2.4L A/T for the personal use of
Mr. Park Man Hwan, Country Director, Economic Development Cooperation Fund of the Embassy of the
Republic of Korea is exempt from value-added tax and ad valorem tax. (BIR Ruling No. ITAD 37-04
dated April 20, 2004) HTSaEC
Very truly yours,

Legal Service
April 13, 2007
Secs. 106 (A) (2) (c) & 108 (B) (3), Tax Code of 1997
Sec. 5, Revenue Regulations No. 4-2007;
VAT Ruling No. 33-2000
Asian Development Bank (ADB)

6 ADB Avenue
Mandaluyong City
1550 Metro Manila
Attention: Ms. Cecile L.H.F. Gregory

Director, Institutional Services Division
Gentlemen :
This refers to your letter dated January 18, 2007 requesting for the re-issuance and revalidation of
ADB's exemption from the payment of value-added tax (VAT) per certification issued by this Office on
November 29, 1989 and VAT Ruling No. 033-2000 dated September 8, 2000, due to difficulties
experienced by ADB in instances wherein the Bureau of Customs and other government agencies question
the validity of the aforementioned letters.
In reply, please be informed that Section 106 (A) (2) (c) of the National Internal Revenue Code
(Tax Code) of 1997 provides, viz:
xxx xxx xxx
(2) [Zero-rated Sales.] — The following sales by VAT-registered persons shall be subject
to zero percent (0%) rate:
xxx xxx xxx
(c) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate."
Moreover, Section 108 (B) (3) of the Tax Code of 1997 provides, viz:
xxx xxx xxx
(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed
in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the supply of
such services to zero percent (0%) rate;"
Relative thereto, Article IX, Section 34 (a) of the Agreement Between the Asian Development Bank
and the Government of the Republic of the Philippines Regarding the Headquarters of the Asian
Development Bank (Headquarters' Agreement) signed on December 22, 1966 provides, viz:
"ARTICLE IX
Property of the Bank and Taxation
xxx xxx xxx
Section 34
The Bank, its property and its operations and transactions shall be exempt from: —
(a) all taxation and any obligation for the payment, withholding or
collection of any tax or duty. The Bank will not claim exemption from taxes or
charges which are no more than payments for public utility services;" (Emphasis
supplied)
Based on the foregoing provisions of the Tax Code of 1997, and considering the clear stipulations
under the Headquarters' Agreement, this Office is of the opinion and so holds that ADB shall be exempt
from VAT in all its transactions. The said grant of exemption is interpreted to mean that the direct sale of
goods and services to ADB is effectively zero-rated under the aforementioned provisions of the Tax Code
of 1997. Thus, the pronouncement contained in the certification of this Bureau dated November 29, 1989
is still valid and effective. (VAT Ruling No. 033-2000 dated September 8, 2000). This is further confirmed
under Section 5 1(94) of Revenue Regulations No. 4-2007 dated February 7, 2007 (Amending Certain
Provisions of Revenue Regulations No. 16-2005, As Amended, Otherwise Known as the Consolidated
Value-Added Tax Regulations of 2005). EITcaD
It must be understood, however, that the tax privilege accorded to the Bank does not extend to its
personnel. Likewise, for proper documentation purposes, it is still required from the suppliers to clearly
stamp their VAT Invoice with the notation "zero-rated sale" and with reference to the number and date of
this revalidation ruling.
This ruling validates the certification of ADB's VAT exemption dated November 29, 1989.
Very truly yours,

Commissioner
Footnotes
1. "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. — . . . .
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(c) Sales to Persons or Entities Deemed Tax-exempt Under Special Law or International Agreement. —
Sale of goods or property to persons or entities who are tax-exempt under special laws or international
agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB), International
Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate." (Emphasis supplied)
April 13, 2007
Sec. 106 & 108, Sec. 149 of the National Internal Revenue
Code of 1997;
23RD Floor Yuchengco Tower
RCBC Plaza
6819 Ayala Ave. cor. Sen. Gil. Puyat Ave.
Makati City
Attention: Mr. Andrew Xavier Cumpston

First Secretary
Gentlemen :
This has reference to your Note Verbale No. 134/07 and File No. MN94/00109 dated March 16,
2007, referred to this Office by the Department of Finance (DOF) and the Office of Protocol, Department
of Foreign Affairs (DFA), requesting for the exemption from payment of ad valorem and value-added
taxes (VAT) on the local purchase on one (1) unit motor vehicle for the personal use of Mr. Andrew
Xavier Cumpston, First Secretary of the Embassy of Australia, specifically described as follows:
Model Year: 2007
Color: Night Hawk Black
Conduction No.: DE 1386
reads:
"ARTICLE 34
services;
"xxx xxx xxx"
of 1997.
Embassy of Australia or its personnel on their local purchase of motor vehicles it appearing from the list
motor vehicles thereat. THcEaS
Hence, the herein local purchase of one (1) unit of 2007 Honda Civic 1.8S A/T for the personal use
of Mr. Andrew Xavier Cumpston, First Secretary of the Embassy of Australia is exempt from VAT and ad
valorem tax. (BIR Ruling No. ITAD-19-04 dated February 23, 2004)
Very truly yours,

Legal Service
April 13, 2007

Precise Techno Inc.

Lot 12, Block 16, Phase IV
Cavite Export Processing Zone
Rosario, Cavite
Attention: Mr. Goro Yokoo

President
Gentlemen :
This refers to your tax treaty relief application received by this Office on March 28, 2007, for the
service fees paid by Precise Techno Corporation (Pretech-Philippines) to Yokoo Seimitsu Co., Ltd.
(YSCL-Japan) pursuant to the Philippines-Japan tax treaty.
It is represented that YSCL-Japan is a nonresident foreign corporation organized and existing under
the laws of Japan with principal office address at No. 171-1 Fukahodo, Kanuma-City Tochigi-ken,
322-0302, Japan; that YSCL-Japan is engaged in the business of (a) design production, import/export and
sale of component of machine such as electronic computer, communication device, medical device,
airplane and other precision machine device; (b) process, export/import and sale of machine parts material
such as metal, synthetic resin, ceramics and others; (c) development, design, improvement and
maintenance trustee of machine tool equipment; (d) consulting service regarding utilization and operation
of machine tool equipment and (e) all related business thereto; that YSCL-Japan is not registered either as
a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration
issued by the Securities and Exchange Commission on February 16, 2007; that Pretech-Philippines is a
corporation duly organized and existing under the laws of the Philippines with principal address located at
Lot 12, Block 16, Phase IV, Cavite Export Processing Zone, Rosario, Cavite; that Pretech-Philippines is an
enterprise registered with the Philippine Economic Zone Authority (PEZA) under Certificate of
Registration No. 94-57 as a Zone Export Enterprise at the Cavite Processing Zone.
It is further represented that on January 31, 2004, YSCL-Japan and Pretech-Philippines entered into
a Contract whereby YSCL-Japan shall, at any time and from time to time during the effectivity thereof,
provide the following services to Pretech-Philippines:
"1. Promotion or marketing the good (sic) in Japan and other foreign clients, which includes
making regular visits and representations with relevant corporate officers of such clients.
2. Advice and assistance in attracting new customers.
3. Advice on business plan for the succeeding years and marketing strategy.
4. Advice and assistance in maintaining and assuring product quality in accordance with the
specifications of Japanese customers.
5. Advice on the selection of suppliers from Japan for quality assurance and cost efficiency.
6. Assistance in the procurement of material needed for production."
That the foregoing services will be performed by YSCL-Japan outside the Philippines; that in cases where
it would be necessary for YSCL-Japan to send its personnel in the Philippines, the stay of these
individuals in the Philippines shall not exceed 183 days in any given year; that said services shall in no
case involve the transfer of YSCL-Japan of any know-how; that as a consideration for the said services,
Pretech-Philippines will pay YSCL-Japan a fee in the amount of One Million Three Hundred Sixteen
Thousand Nine Hundred and Eighty Five Pesos (P1,316,985.00); that the Contract shall be valid and
binding for a period of one (1) year from the effectivity date, January 31, 2004 and, unless terminated in
writing by either party at least thirty (30) days prior to the date of expiration, shall be automatically
renewed for successive periods of one (1) year; and that the issue or transaction subject of the above
application is not under investigation, on-going audit, administrative protest, claim for refund or issuance
of a tax credit certificate, collection proceedings, or a judicial appeal. THacES
In reply, please be informed of Article 7 of the Philippines-Japan tax treaty quoted as follows:
"Article 7
xxx xxx xxx"
that permanent establishment. Applying this to the instant case, the service fees received by YSCL-Japan
for services rendered in the Philippines under the Contract shall be taxable in the Philippines only if it has
a permanent establishment in the Philippines in connection with the activities giving rise to such income.
"Article 5
1. For the purposes of this Convention, the term permanent establishment' means a fixed place
xxx xxx xxx

Contracting State.
xxx xxx xxx."
Paragraph 6 of Article 5 provides that an enterprise of Japan shall be deemed to have a permanent
establishment in the Philippines if it furnishes in the Philippines 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.
Thus, YSCL-Japan is deemed not to have a permanent establishment for as long as its employees do
not stay in the Philippines for a period or periods aggregating more than six months within any taxable
year in the course of their rendition of services to YSCL-Japan. Such being the case, the income derived
by YSCL-Japan from services rendered to Pretech-Philippines shall not be subject to Philippine income
tax and, as such, shall likewise be exempt from withholding tax. (BIR Ruling No. DA-ITAD 164-06 dated
December 18, 2006)
As regards the imposition of the VAT on the rendition of services of YSCL-Japan, please be
including the use or lease of properties. ASDCaI
Philippines for others for a fee, remuneration or consideration, . . . . " (Emphasis supplied).
Thus, VAT is generally imposed on services rendered by YSCL-Japan in the Philippines. On every
payment of service fees, Pretech-Philippines is required to withhold such VAT and treat the same as a
"passed on" VAT, pursuant to Section 4.110-3 (b) of Revenue Regulations No. 7-95 as amended [now
Section 4.114-2 (b) of Revenue Regulations No. 16-05].
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx"
No. 7916 or PEZA Law, is particularly applicable to the instant case. DcCIAa
Such being the case, the payment of services fees by Pretech-Philippines, being a PEZA-registered
enterprise, to YSCL-Japan under the subject Contract should be, as it is hereby confirmed to be, exempt
from VAT.
Very truly yours,
By:

Legal Service
Footnotes
No. 9337]
April 11, 2007
Host Agreement between the Republic of the Philippines

and the World Health Organization
Rajah Travel Corporation

World Health Organization in-plant Office
WHO Building, United Nations corner Taft Avenue
Manila, Philippines
Attention: Ms. Badette Javier

Manager
Gentlemen :
This refers to your letter dated March 22, 2007 inquiring on the qualification of World Health
Organization (WHO) to avail of zero percent value-added tax (VAT) on the purchase of Philippine
Airlines (PAL) and Cebu Pacific domestic services. DcITaC
In reply, please be informed that Section 12, Article IV of the Host Agreement Between the
Republic of the Philippines and the World Health Organization dated September 29, 1952 (Host
Agreement) provides, viz:
"Article IV
PROPERTY, FUNDS AND ASSETS
xxx xxx xxx
Section 12
While the Organization will not, as a general rule, in the case of minor purchases, claim
exemption from excise duties and from taxes on the movable and immovable property which form
part of the price to be paid, nevertheless, when the Organization is making important purchases for
official use of property on which such duties and taxes have been charged or chargeable, the
Government of the Republic of the Philippines shall make appropriate administrative arrangements
for the remission or return of the amount of duty or tax.
xxx xxx xxx
This Bureau has taken the position that the aforecited provision on the imposition of taxes on the
important purchases for WHO's official use shall mean that, in lieu of the provision on the remission or
refund of amount of tax due, a tax exemption privilege can be granted. (VAT Ruling No. 143-90 revoking
VAT Ruling No. 176-89) Such being the case, the local purchases by WHO are exempt from VAT (and
not subject to VAT at zero percent) pursuant to Section 109 (K) 1(98) of the National Internal Revenue
Code (Tax Code) of 1997, as amended by Republic Act No. 9337. 2(99)
However, a closer examination of the Host Agreement provides that the exemption accorded to
WHO on its important purchases refers to property for its official use.
of an immovable;
(7) Fertilizer actually used on a piece of land;
remain at a fixed place on the river, lake, or coast;
5(102)
(3) Forces of nature which are brought under control by science;
real estate. 7(104)
If the answer to all the above questions is in the affirmative, then the object is movable.
Applying the above definitions and discussions on property, it is clear that the subject transaction
between WHO and the airline companies PAL and Cebu Pacific cannot be considered purchase of
property.
Moreover, it is worthy to note that the subject transaction involves a contract of carriage of
passengers whereby PAL and Cebu Pacific bind themselves to transport the passengers who availed of the
services from place of origin to place of destination and such is usually evidenced by an airline ticket.
Such undertaking is clearly a purchase of service and not a purchase of property (immovable/real or
movable/personal). TAaIDH
Such being the case, this Office is of the opinion and so holds that the purchase of domestic
services by WHO from PAL and Cebu Pacific, not being a purchase of property, is not exempt from VAT.
Very truly yours,

Commissioner
Footnotes
1. SEC. 109. Exempt Transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
or under special laws, except those under Presidential Decree No. 529;
Purposes.
4. Ibid.
April 4, 2007
Article 20, Philippines-Germany Tax Treaty;


Attention: Ludwig Etzel

Administrator
European International School-Germany
Gentlemen :
for Mr. ANDREAS DOMINIK PINDUR (Mr. Pindur), as a visiting teaching staff, pursuant to Article 20
of the Philippines-Germany tax treaty.
It is represented that Mr. PINDUR, immediately before her employment in the Philippines, was a
resident of Germany; that the European International School (Ecole Francaise de Manille) (hereinafter
referred to as EIS-EFM) and Mr. PINDUR entered into a Contract of Employment whereby Mr. PINDUR
is engaged to teach at EIS-EFM for the Deutsche Schule Manila for the school year 2006-2008, from
August 1, 2006 to July 31, 2008; that the employment ends on July 31, 2008 without requiring a
resignation or further notice from EIS-EFM; and that in consideration of Mr. PINDUR's services, he shall
receive a monthly salary and will receive a 13th month pay in December.
In reply, please be informed that Article 20 of the Philippines-Germany tax treaty provides as
follows:
"Article 20
1. Remuneration which a professor or teacher, who is or immediately before was a resident of a

Contracting State and who visits the other Contracting State for a period not exceeding two
years for the purpose of carrying out advanced study or research or for teaching at a
university, college, school or other educational institution, receives for such work shall not
be taxed in that Contracting State.
2. This Article shall not apply to income from research if such research is undertaken not in the
general interest but primarily for the private benefit of a specific person or persons.
Based on the aforequoted provision, it is clear that the remuneration paid to teachers who are or
immediately before their visit in the Philippines are residents of Germany and who stay in the Philippines
for the purpose of teaching for a period not exceeding two (2) years shall not be subject to Philippine
income tax. Such being the case, this Office is of the opinion and so holds that the subject remuneration of
Mr. PINDUR for teaching in EIS-EFM for a period not exceeding two (2) years, more particularly from
August 1, 2006 to July 31, 2008, shall not be subject to Philippine income tax pursuant to Article 20 of the
Philippines-Germany tax treaty. (BIR Ruling No. DA-ITAD-114-06 dated September 27, 2006) DAEICc
Very truly yours,
By:

Legal Service
April 4, 2007
Article 20, Philippines-Germany Tax Treaty;

BIR Ruling No. DA-ITAD-114-06;
DA-ITAD-44-07

Attention: Ludwig Etzel

Administrator
European International School-Germany
Gentlemen :
for Ms. MARA CONRAD (Ms. Conrad), as a visiting teaching staff in the Philippines, pursuant to Article
20 of the Philippines-Germany tax treaty.
It is represented that Ms. CONRAD was, immediately before her employment in the Philippines, a
resident of Germany; that the European International School (Ecole Francaise de Manille) (hereinafter
referred to as EIS-EFM) and Ms. CONRAD entered into a Contract of Employment whereby Ms.
CONRAD is engaged to teach at EIS-EFM for the Deutsche Schule Manila for the school year 2006-2008
from August 1, 2006 to July 31, 2008; that the employment ends on July 31, 2008 without requiring a
resignation or further notice from EIS-EFM; and that in consideration of Ms. CONRAD's services, she
shall receive a monthly salary and will receive a 13th month pay in December. TaCSAD
In reply, please be informed that Article 20 of the Philippines-Germany tax treaty provides as
follows:
"Article 20
1. Remuneration which a professor or teacher, who is or immediately before was a resident of a

Contracting State and who visits the other Contracting State for a period not exceeding two
years for the purpose of carrying out advanced study or research or for teaching at a
university, college, school or other educational institution, receives for such work shall not
be taxed in that Contracting State.
general interest but primarily for the private benefit of a specific person or persons."
residents of Germany and who stay in the Philippines for the purpose of teaching for a period not
exceeding two (2) years shall not be subject to Philippine income tax. Such being the case, this Office is of
the opinion and so holds that the subject remuneration of Ms. CONRAD for teaching in EIS-EFM for a
period not exceeding two (2) years, more particularly from August 1, 2006 to July 31, 2008, shall not be
subject to Philippine income tax pursuant to Article 20 of the Philippines-Germany tax treaty. (BIR Ruling
No. DA-ITAD-114-06 dated September 27, 2006) AEaSTC
Very truly yours,
By:

Legal Service
April 2, 2007
Article 21, Philippines-France tax treaty;


Attention: Odille Malay

Administrator
Gentlemen :
for Ms. NADINE HAMARD (Ms. Hamard), pursuant to Article 21 of the Philippines-France tax treaty.
It is represented that Ms. HAMARD, immediately before her employment in the Philippines, was a
resident of the French Republic with address at 17 AV Charles de Gaulle, 13122 Ventabren, France; that
the European International School (Ecole Francaise de Manille) (hereinafter referred to as EIS-EFM) and
Ms. HAMARD entered into a Contract of Employment whereby Ms. HAMARD is engaged to teach full
time English Language and Literature at EIS-EFM for the school year 2006-2007 and 2007-2008, from
September 1, 2006 to August 31, 2008; that the employment ends on August 31, 2008 without requiring a
resignation or further notice from EIS-EFM; and that in consideration of Ms. HAMARD's services, she
shall receive a monthly salary and will receive a 13th month pay in December pro rata to her months of
service with the school.
In reply, please be informed that Article 21 of the Philippines-France tax treaty provides as follows:
"Article 21
1. A teacher or a researcher who, resident of a Contracting State, visits the other Contracting
State for the purpose of teaching or engaging in research shall be exempt from tax in that
other Contracting State for a period not exceeding two years on remuneration in respect of
such activities.
general interest but primarily for the private benefit of a specific person or persons."
residents of France and who stay in the Philippines for the purpose of teaching for a period not exceeding
two (2) years shall not be subject to Philippine income tax. Such being the case, this Office is of the
opinion and so holds that the subject remuneration of Ms. HAMARD for teaching in EIS-EFM for a
period not exceeding two (2) years, more particularly from September 1, 2006 to August 31, 2008, shall
not be subject to Philippine income tax pursuant to Article 21 of the Philippines-France tax treaty. (BIR
Ruling No. DA-ITAD-29-06 dated March 16, 2006) aDHScI
Very truly yours,
By:

Legal Service
April 2, 2007
Arts. 5 & 7, Philippines-Singapore tax treaty;


20th Floor, Tower 1
6766 Ayala Avenue
1200 Makati City
Attention: Romeo H. Duran

Tax Principal
Gentlemen :
This refers to your letter dated March 22, 2006 requesting confirmation that the service fees paid by
Tokyo Byokane Philippines Corporation (Tokyo Byokane-Philippines) to Tokyo Byokane (S) PTE. LTD
(Tokyo Byokane-Singapore) are exempt from Philippine income tax and from value-added tax (VAT)
pursuant to the pertinent sections of the National Internal Revenue Code of 1997 (Tax Code) and the
Philippines-Singapore tax treaty.
It is represented that Tokyo Byokane-Singapore is a nonresident foreign corporation organized and

existing under the laws of Singapore with business address at 1, 5th Lok Yang Road, Jurong Town,
Singapore 629753 as evidenced by its Articles of Association; that Tokyo Byokane-Singapore's
withdrawal of its license to transact business in the Philippines was approved on August 31, 2001 per
Certificate of Withdrawal of License of a Foreign Corporation as confirmed by the Certificate of
Corporate Filing/Information issued by the Securities and Exchange Commission on February 15, 2006;
that Tokyo Byokane-Philippines, on the other hand, is a company organized and existing under the laws of
the Philippines with principal office at Lot C2-6B, Camelray Industrial Park II, Punta, Calamba City; that
it is primarily engaged in importing, warehousing and repacking of industrial fasteners for subsequent sale
and delivery to ecozone export enterprises; that Tokyo Byokane-Philippines is registered with the
Philippine Economic Zone Authority as an export enterprise per Certificate of Registration No. 00-03-F
issued on May 17, 2000. DTIaCS
It is further represented on December 31, 2003, Tokyo Byokane-Singapore and Tokyo
Byokane-Philippines entered into a Service Agreement wherein Tokyo Byokane-Singapore agreed to
provide to Tokyo-Byokane-Philippines the following services for a fee:
1. Procurement/sourcing qualified vendors residing overseas;
2. Marketing and sales promotion planning;
3. Customer relations and handling of product complaints, if any; and
4. Other related services.
That, in general, Tokyo Byokane-Singapore shall perform the aforementioned services outside the
Philippines; that in cases where it would be necessary for Tokyo Byokane-Singapore to send employees to
the Philippines, the stay of these individuals in the Philippines shall not, in any case, exceed 90 days in
any given 12-month period; that the rendition of the services shall in no case involve the transfer of Tokyo
Byokane-Singapore's technology, processes, know-how or other intellectual property rights which shall
remain exclusively with Tokyo Byokane-Singapore; that Tokyo Byokane-Philippines agrees that it shall
acquire no right, title or interest in any of said technology, processes, know-how or other intellectual
property rights by virtue of the rendition of the services; that in consideration for the services, Tokyo
Byokane-Philippines shall pay Tokyo Byokane-Singapore an annual fee in the amount of US dollar: One
Hundred Thousand (US$100,000) to Tokyo Byokane-Singapore for a completed year of service; and that
the Service Agreement shall be effective for a period of one (1) year commencing on January 1, 2004 and
ending December 31, 2004, subject to an automatic renewal for successive twelve-month period, unless
one party gives written notice to the other of its intent not to renew at least thirty (30) days prior to the
expiration of the initial or renewed term; and that the issue or transaction subject of the above application
is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax
credit certificate, collection proceedings, or a judicial appeal.
In reply, please be informed that paragraph 1 of Article 7 (Business Profits) of the

Philippines-Singapore tax treaty provides:
"Article 7
BUSINESS PROFITS
xxx xxx xxx"
Applying this to the instant case, the service fees received by Tokyo Byokane-Singapore for the services
rendered in the Philippines shall be taxable in the Philippines only if it has a permanent establishment in
the Philippines in connection with the activities giving rise to such income.
"Article 5
of business in which the business of the enterprise is wholly or partly carried on.
2. The term 'permanent establishment' includes especially but is not limited to:
b) A branch;
c) An office;
e) A factory;
f) A workshop;


days.
xxx xxx xxx."
It is clear from the aforequoted provisions that a corporation which is a resident of Singapore may
be deemed to have a permanent establishment in the Philippines if, among others, the furnishing of
services by such corporation, through its employees or other personnel, in the same or connected project,
continues within the Philippines for a period or periods aggregating more than 183 days. It shall be noted
that the 183-day period shall be counted based on the total number of days the service is rendered in the
Philippines for the entire duration of the same or a connected project. It is therefore reckoned from the
start of the project (same or connected project) and until its completion including all periods resulting
from its automatic renewal or extension. Thus, the counting of the days of service rendered in the
Philippines is not interrupted by the end of a taxable year or by any 12-month period as the case may be,
but continues until the completion of the same or a connected project.
Applying the same to the instant case, Tokyo Byokane-Singapore is deemed not to have a
permanent establishment for as long as its employees do not stay in the Philippines for a period or periods
aggregating more than 183 days in the same or connected project (and not in a given taxable year or in any
12-month period) in the course of rendition of their service to Tokyo Byokane-Philippines. As such, the
income derived by Tokyo Byokane-Singapore from services rendered to Tokyo Byokane-Philippines shall
not be subject to Philippine income tax and, consequently, to withholding tax. (BIR Ruling No. DA-ITAD
05-06 dated January 24, 2006) DHSCTI
As regards the imposition of the VAT on the rendition of services of Tokyo Byokane-Singapore,
please be informed further that Section 108 of the Tax Code of 1997 1(105) provides as follows:
"SEC 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
Philippines for others for a fee, remuneration or consideration, . . . ." (Emphasis supplied).
Thus, in general, the VAT is imposed on services rendered by Tokyo Byokane-Singapore in the
Philippines. On every payment of service fees, Tokyo Byokane-Philippines is required to withhold such
VAT and treat the same as a "passed on" VAT, pursuant to Section 4.110-3(b) of Revenue Regulations
No. 7-95 as amended [now Section 4.114-2(b) of Revenue Regulations No. 16-05].
"Special laws may certainly exempt transactions from the VAT. 3(107) However, the Tax
Code provides that those falling under PD 66 are not. PD 66 is the precursor of RA 7916 — the
special law under which respondent was registered. The purchase transactions it entered into are,
therefore, not VAT-exempt. These are subject to the VAT; respondent is required to register.
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx"
effectively zero-rated. However, instead of zero-rating which is not available to nonresident suppliers, the
provision for exempt transactions under Section 109(q) [now Section 109(K)] of the Tax Code which
provides VAT exemption for transactions that are exempt under specials laws, e.g., Republic Act No. 7916
or PEZA Law, is particularly applicable to the instant case.
Such being the case, the payment of service fees by Tokyo Byokane-Philippines, being a
PEZA-registered enterprise, to Tokyo Byokane-Singapore under the above Service Agreement should be,
as it is hereby confirmed to be, exempt from VAT.
Very truly yours,
By:

Legal Service
Footnotes
3. Referring to the old Section 109 (q) of the Tax Code of 1997 [now Section 09 (K), as amended by R.A. No.
9337]
April 3, 2007
DFA Indorsement dated March 14, 2007;

Embassy of the Hellenic Republic of Greece

12th Floor Sage House
110 V.A. Rufino Street
Legaspi Village
Makati City
Gentlemen :
This has reference to your Note Verbal No. 0001/07 dated March 13, 2007, 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.
reads:
"ARTICLE 34
goods and services;
"xxx xxx xxx"
from value-added tax (VAT) on their local purchases of goods and services. In other words, purchases by
However, applying the principle of reciprocity, this Office may confirm entitlement of VAT
exemption of an Embassy and/or its personnel on their local purchases of goods and/or services if it
appears from the list submitted by the DFA that the Government of and/or its personnel allows similar
exemption to the Philippine Embassy and/or personnel on their purchase of goods and services in its
country.
The list submitted by DFA dated March 14, 2007 indicates that the Embassy of the Hellenic
Republic of Greece is entitled to VAT exemption on local basic goods and services in the Philippines, on
the basis of reciprocity. Hence, the Embassy of the Hellenic Republic of Greece and its staff is exempt
from VAT on its purchases of basic goods and/or services in the Philippines.
On the other hand, the DFA provides the Bureau with a separate listing on diplomatic missions
entitled to VAT exemption on locally assembled motor vehicles. The most recent list submitted by the
DFA dated October 18, 2005, however does not yet include the Embassy of the Hellenic Republic of
Greece. TCHEDA
Very truly yours,

Commissioner
March 19, 2007
Articles 7 (Business Profits), 12 (Royalties) and 13 (Gains

from the Alienation of Property) Philippines-Switzerland
tax treaty
Salvador Guevara & Associates

Attorneys-at-Law
815-816, Tower One & Exchange Plaza
Ayala Triangle, Ayala Avenue
1226 Makati
Attention: Atty. Edmundo P. Guevara
Atty. Maria Rosario L. Bernardo
Atty. Philip Miguel I. Ranada
Gentlemen :
This refers to your letter dated March 6, 2007, requesting confirmation of the following:
1. That the proceeds from the sale of certain trademarks by Société des Produits Nestlé S.A.
(Nestlé Switzerland) to Alaska Milk Corporation (Alaska Philippines) are in the nature of
business profits and not royalties, pursuant to Articles 7 and 12 of the Convention between
the Republic of the Philippines and the Swiss Confederation for the Avoidance of Double
Taxation with Respect to Taxes on Income (Philippines-Switzerland tax treaty); 1(108)
2. That such proceeds are not subject to income tax and withholding tax in the Philippines
pursuant to Article 7 of the tax treaty; and
3. That the royalty payments to be made by Alaska Philippines to Nestlé Switzerland for the
use by Alaska Philippines of Nestlé Switzerland's other trademarks are subject to 15%
Philippine income tax.
BASIC FACTS
It is represented that Nestlé Switzerland is a corporation organized and existing under the laws of
Switzerland, with address at Entre-deux-ville, Switzerland, as confirmed by the Residence Certificate; that
Nestlé Switzerland is not registered as a corporation or as a partnership in the Philippines, as confirmed by
its Certificate of Non-Registration of Corporation/Partnership dated February 8, 2007, issued by the
Securities and Exchange Commission; and that, on the other hand, Alaska Philippines is a corporation
organized and existing under the laws of the Philippines, with address at the 6th Floor, Corinthian Plaza,
121 Paseo de Roxas, Makati City, Philippines.
It is also represented that Nestlé Switzerland agreed to sell certain trademarks to Alaska Philippines
(hereinafter referred to as the Purchased Trademarks); that in consideration, Alaska Philippines shall pay
Nestlé Switzerland a lump-sum amount which will be determined by the parties in the future; that the
Purchased Trademarks are as follows:
Country Class Mark Registration Specification of goods

Number
Philippines 29 ALPINE 1491 Evaporated milk as
from renewal in 1974
Philippines 29 KREM-TOP 25609 Nondairy creamer
Philippines 29 ALPINE 15619 Milk and milk products,
including sweetened
condensed milk
It is further represented that Nestlé Switzerland agreed to grant Alaska Philippines the right to use
its other trademarks and all rights and interest arising therefrom (hereinafter referred to as the Licensed
Trademarks), and the right to use the related recipes, formulae, technology, processes, production method
and know-how for the products covered by the Licensed Trademarks (hereinafter referred to as the
Technical Information); that in consideration, Alaska Philippines shall pay a license fee (royalties) to
Nestlé Switzerland equivalent to 5% of the net proceed of sales 2(109) of all the Licensed Products, provided
that the total or aggregate amount of the license fee for a year shall not be less than an amount to be agreed
upon by the parties; that the Licensed Trademarks are as follows:
Registered Trademarks

Number
Philippines 29 MILKMAID 302 Canned sweetened condensed
full cream milk
Philippines 29 CARNATION 17529 Canned evaporated filled milk
Canned evaporated creamer
Canned sweetened beverage
creamer
Canned sweetened condensed
filled milk
Philippines 29 CARNATION 34268 Canned evaporated filled milk
Canned evaporated creamer
Canned sweetened beverage
creamer
filled milk
Philippines 29 (Symbolized but R 002676 Canned evaporated filled milk
unnamed Canned evaporated creamer
trademark) Canned sweetened beverage
creamer
filled milk
Trademark Applications

Number
Philippines 29 (Symbolized but 4-2006- Canned evaporated filled milk
unnamed 002625 Canned evaporated creamer
creamer
filled milk
Philippines 29 (Symbolized but 4-2006- Canned evaporated filled milk
unnamed 013419 Canned evaporated creamer
creamer
filled milk
Philippines 29 MILKMAID 4-2006- Canned sweetened condensed
013418 full cream milk
RULING
In reply please be informed as follows. aESHDA
A. On whether the proceeds from the sale of the Purchased Trademarks are in the nature of business
profits and not royalties (Query No. 1), and whether such proceeds are not subject to Philippine income
tax (Query No. 2).
On whether the proceeds from the sale of the Purchased Trademarks to be paid by Alaska
Philippines to Nestlé Switzerland are in the nature of royalties, the term royalties is defined in Article 12,
paragraph 3 of the Philippines-Switzerland tax treaty as follows:
"Article 12
ROYALTIES
xxx xxx xxx
work including cinematographic films and films and tapes for television or radio
broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for
information concerning industrial, commercial or scientific experience."
On the meaning of royalties, the Organisation for Economic Co-operation and Development
(OECD) Model Tax Convention on Income and on Capital (Condensed Version, July 2005 Edition)
comments as follows:
"1. In principle, royalties in respect of licenses to use patents and similar property and similar
payments are income to the recipient from a letting. The letting may be granted in connection with
an enterprise (e.g., the use of literary copyright granted by a publisher or the use of a patent granted
by the inventor) or quite independently of any activity of the grantor (e.g., the use of a patent
granted by the inventor's heirs)." 3(110)
According to the commentaries, payments are in the nature of royalties if they are considered as
income from a letting or a leasing, particularly, involving intangible properties (e.g., any copyright of
literary, artistic or scientific work including cinematographic films and films and tapes for television or
radio broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for
information concerning industrial, commercial or scientific experience), as these types of property are
expressly defined as royalties in paragraph 3, Article 12 of the tax treaty.
When an arrangement is one of a letting or leasing, the person who lets or leases a property does
not extinguish or diminish his ownership and interest over the property when the same is let or leased to
another person. As it appears, the sale of the Purchased Trademarks does not constitute a letting or leasing
by Nestlé Switzerland as it will eventually extinguish its ownership and interest over the trademarks in
favor of Alaska Philippines, who will gain ownership and interest over the trademarks. As such, the
proceeds from the sale of the Purchased Trademarks cannot be in the nature of royalties.
Not being royalties, the question now is whether the proceeds in question are in the nature of
business profits, the taxation of which is governed by Article 7 of the Philippines-Switzerland tax treaty.
Paragraph 1 of Article 7 provides as follows:
"Article 7
BUSINESS PROFITS
the enterprise may be taxed in the other State but only so much of there as is attributable to
that permanent establishment."
Because business profits are income derived by an enterprise from performing an activity or
activities, the OECD Model Tax Convention comments as follows:
"4. The question whether an activity is performed within an enterprise is deemed to constitute in
itself an enterprise has always been interpreted according to the provisions of the domestic laws of
the Contracting States. No exhaustive definition of the term 'enterprise' has therefore been attempted
in this articles. However, it is provided that the term 'enterprise' applies to the carrying on of any
business . . . " 4(111)
According to the commentaries, the proceeds from the sale of the Purchased Trademarks are in the
nature of business profits (or more appropriately, profits of an enterprise) if they are derived by Nestlé
Switzerland from an activity or activities performed within an enterprise or is deemed to constitute in
itself an enterprise. Generally speaking, income from the supply of goods or merchandise, income from
the supply of services, and income from the lease of personal properties, are treated as business profits if
they are derived by Nestlé Switzerland from carrying on its primary and regular business activities. To
determine if such activities are primary and regular, it is important to consider those activities of Nestlé
Switzerland as expressly declared in its Articles of Incorporation and those other activities which,
although not expressly declared, are being undertaken by Nestlé Switzerland on a more or less regular or
habitual basis.
Inasmuch as the Purchased Trademarks are not the type of goods or merchandise normally sold by
Nestlé Switzerland to other parties, but are, in fact, part of the assets forming part of the business property
of Nestlé Switzerland, the proceeds from the sale of these assets are not normally treated as business
profits. Under paragraph 6, Article 7 of the Philippines-Switzerland tax treaty, when items of income are
separately dealt with in other articles of the tax treaty, the provisions of those articles, rather than those of
Article 7, shall primarily govern the taxation of such items of income, thus:
"Article 7
BUSINESS PROFITS
xxx xxx xxx
6. Where profits include items of income which are dealt with separately in other Articles of
this Convention, then the provisions of those Articles shall not be affected by the provisions
of this Article."
A transaction involving the sale or transfer of assets normally gives rise to income in the nature of
capital gains. A separate article on capital gains is included in the Philippines-Switzerland tax treaty,
which provides:
"Article 13
1. Gains from the alienation of immovable property referred to in Article 6 (Income from
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 independent
personal services, including such gains from the alienation of such permanent establishment
(alone or with the whole enterprise) or of such fixed base may be taxed in that other State.
3. Gains from the alienation of ships or aircraft operated in international traffic or movable
property pertaining to the operation of such ships or aircraft, shall be taxable only in the
Contracting State in which the place of effective management of the enterprise is situated.
4. Gains from the alienation of shares of a company the property of which consist directly
principally of immovable property situated in a Contracting State may be taxed in that State.
5. Gains from the alienation of any property, other than that mentioned in paragraphs 1, 2, 3
and 4 shall be taxable only in the Contracting State of which the alienator is a resident."
Article 13 applies to capital gains derived by a resident of a Contracting State from the alienation or
transfer of property situated in the other Contracting State. By this statement, the fact that payments for
the alienation or transfer of a property are derived in a State by reason, for example, that the person
making the payments is a resident of that State will not make that State the source of income of the capital
gains unless the property is situated also in that State. The abovementioned paragraphs of Article 13
confirm this point.
In paragraph 1, gains from the alienation of real property may be taxed in the State where the real
property is situated. In paragraph 2, gains from the alienation of movable property forming part of the
business property of a permanent establishment or a fixed base, or from the alienation of the permanent
establishment or the fixed base itself, may be taxed in the State where the movable property or the
permanent establishment or the fixed base is situated. In paragraph 3, gains from the alienation of ships or
aircraft operated in international traffic and of movable property pertaining thereto shall not be taxed in
the State where the operation of the ship or aircraft takes place or where the movable property pertaining
thereto is situated; paragraph 3 provides that such gains shall be taxable only in the other State where the
place of effective management of the enterprise operating the ships or aircraft is situated. In paragraph 4,
gains from the alienation of shares of a company the property of which consist directly principally of
immovable property may be taxed in the State where the immovable property is situated.
In paragraph 5, gains from the alienation of any property, other than that mentioned in paragraphs
1, 2, 3 and 4, shall be taxable only in the State where the alienator is a resident. An examination of the
provisions of paragraphs 1, 2, 3 and 4 reveal that the type of property covered by paragraph 5 must
necessarily be situated in the State concerned.
Applying the provisions of the abovementioned paragraphs of Article 13 to the proceeds from the
sale of the Purchased Trademarks to be paid by Alaska Milk to Nestlé Switzerland, such proceeds cannot
be covered by paragraphs 1, 2, 3 and 4 because the property in question is not in the nature of real
property (paragraph 1); nor of movable property forming part of the business property of a permanent
establishment because Nestlé Switzerland does not have a permanent establishment in the Philippines to
begin with, based on the Certificate of Non-Registration of Corporation/Partnership issued by the
Securities and Exchange Commission (paragraph 2); nor of ships or aircraft (paragraph 3); nor of shares of
a company (paragraph 4).
Where paragraphs 1 to 4 cannot cover the proceeds in question, the residual paragraph 5 of Article
13 provides that such proceeds shall be taxable only in the State of residence of Nestlé Switzerland (the
alienator) in Switzerland. However, as mentioned above, for paragraph 5 to apply, it must be shown first
that the Philippines is the State where the Purchased Trademarks is situated. For this purpose, because the
property involved is in the nature of an intangible property that normally gives rise to royalties, we take
into account the source of income rules set forth in Article 12, paragraph 5 of the Philippines-Switzerland
tax treaty and in Section 42 (A) (4) (a) of the National Internal Revenue Code of 1997 (Tax Code of
1997), which provide:
"Article 12
ROYALTIES
xxx xxx xxx
5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, a
political subdivision, a local authority or a resident of that State. Where, however, the person
paying the royalties, whether he is a resident of a Contracting State or not, has in a
Contracting State a permanent establishment or fixed base in connection with which the
obligation to pay the royalties was incurred, and such royalties are borne by such permanent
establishment, or fixed base then such royalties shall be deemed to arise in the Contracting
State in which the permanent establishment or fixed base is situated."
(A) Gross Income from Sources Within the Philippines. — The following items of gross income
xxx xxx xxx
(4) Rentals and Royalties. — Rentals and royalties from property located in the
Philippines or from any interest in such property, including rentals or
royalties for —
(a) The use of or the right or privilege to use in the Philippines, any
copyright, patent, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;"
In paragraph 5, royalties shall be deemed to arise when the payer is a resident of that State, or when
such royalties are borne by a permanent establishment or a fixed base situated in that State. Apparently,
this rule would not be sufficient to treat capital gains from the sale of intangible properties to be deemed to
arise in a State because it merely takes into account the residence of the payer of the capital gains without
looking further if the property giving rise to the capital gains is also situated in that State.
On the other hand, in Section 42 (A) (4) (a), rentals and royalties are considered derived from
sources within the Philippines if the property giving rise to the rentals and royalties are located in the
Philippines, and or in the case of an intangible properties (e.g., any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property or right) if the right
or privilege to use the intangible property is exercised in the Philippines. By the same token, capital gains
arising from the alienation of intangible properties are considered derived from sources within the
Philippines if the intangible properties are located in the Philippines, and or the right or privilege to use
the intangible properties, prior to its alienation or transfer, is being exercised in the Philippines.
In the case of the Purchased Trademarks, the fact that they are registered in the Philippines and the
right or privilege to use them, prior to their alienation, was exercised in the Philippines, Section 42 (A) (4)
(a) provides that the trademarks are situated also in the Philippines, even if Nestlé Switzerland might have
developed and originally/simultaneously registered them in country or countries other than the Philippines.
This being the case where the Philippines is considered also as the situs country of the trademarks, Article
13 of the Philippines-Switzerland tax treaty will apply. Pursuant to the residual paragraph 5 of this article,
the proceeds from the sale of the Purchased Trademarks to be paid by Alaska Philippines to Nestlé
Switzerland are exempt from Philippine income tax, as such proceeds shall be taxable only in Switzerland,
where Nestlé Switzerland (the alienator) is a resident. HEcSDa
B. On whether the license fee (royalties) for the use of the Licensed Trademarks and Technical
Information are subject to 15% Philippine income tax.
With respect to the license fee (royalties) to be paid by Alaska Milk to Nestlé Switzerland for the
use of by Alaska Philippines of Nestlé Switzerland Licensed Trademarks and Technical Information,
paragraphs 2 and 3, Article 12 of the Philippines-Switzerland tax treaty below provides:
"Article 12
ROYALTIES
2. However, the royalties may also be taxed in the Contracting State in which they arise and
according to the laws of that State, but the tax so charged shall not exceed 15 per cent of the
gross amount of the royalties.
work including cinematographic films and films and tapes for television or radio
broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for
information concerning industrial, commercial or scientific experience."
In paragraph 3, the license fee (royalties) are covered by the provisions of Article 12 as they are
"payments for the use of a trademark (the Licensed Trademarks) and for information concerning
industrial, commercial or scientific experience or know-how (the Technical Information)". Under
paragraph 2, the license fee (royalties) for the Licensed Trademarks and the Technical Information to be
paid by Alaska Philippines to Nestlé Switzerland are therefore subject to 15% Philippine income tax based
on the gross amount thereof. (BIR Ruling Nos. DA-ITAD 121-05 dated October 26, 2005, and DA-ITAD
15-06 dated February 28, 2006)
C. Value-added tax
In addition to income tax, the license fee (royalties) for the Licensed Trademarks and the Technical
Information are subject to value-added tax (VAT), under Section 108 (A) of the Tax Code of 1997, thus:
services, including the use or lease of properties
. . . The phrase 'sale or exchange of services shall likewise include:
xxx xxx xxx
(3) The supply of scientific, technical, industrial or commercial knowledge or

information; 5(112)
Regulations No. 14-2002, provide that Alaska Philippines shall be responsible for the withholding of the
VAT on the royalties before remitting them to Nestlé Switzerland. In remitting to the Bureau of Internal
Revenue the VAT withheld on the royalties, Alaska Philippines shall use BIR Form No. 1600 (Monthly
Remittance Return of VAT and Other Percentage Taxes Withheld). If it is a VAT-registered taxpayer,
Alaska Philippines may use as documentary substantiation for its claim of input VAT the duly filed BIR
Form No. 1600 and the proof of payment accompanying it. On the other hand, if it is a
non-VAT-registered taxpayer, Alaska Philippines may include as part of the cost of the licensed
trademarks and technical information granted to it by Nestlé Switzerland the VAT consequently shifted or
passed on to it and may treat such VAT either as expense or asset, whichever is applicable. In addition,
Alaska Philippines is required to issue in quadruplicate the Certificate of Final Tax Withheld at Source
(BIR Form No. 2306), the first three copies for Nestlé Switzerland and the fourth copy for Alaska
Philippines as its file copy.
Very truly yours,

Commissioner
Footnotes
1. Signed in Manila on June 24, 1998, and became effective on January 1, 2002.
2. Net proceed of sales means in respect of Licensed Products sold by or on behalf of Alaska Philippines (or
any member of its Group), sales of the products to unrelated parties valued at list prices less (1) pricing
allowances (but excluding, trade/consumer promotions, specific incentives, logistic and settlement
discounts, as well as expenses incurred with the aim of doing business with Alaska Philippines' customers),
(2) returns accepted by Alaska Philippines on account of spoilage, breakage or other damage rendering the
relevant Licensed Products unmarketable, and (3) any taxes on sales of the Products.
3. Ibid., Page 178.
4. Ibid., Page 72.
114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And 288 Of The National Internal Revenue Code of 1997,
As Amended, And For Other Purposes), which was signed into law on May 24, 2005 and became effective
on November 1, 2005, amended Section 108 (A) to read as:
year exceeds one and one-half percent (1 1/2 %); or
percent (1 1/2%).
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
xxx xxx xxx
(3) The supply of scientific, technical, industrial or commercial knowledge or information;"
March 9, 2007
Section 23 (F) in relation to Section 42 (C) (4) and
Section 108 (A) National Internal Revenue Code of 1997;
BIR ITAD No. DA-ITAD 105-05
Latitude Broadband, Inc.

U2101 21st Floor, Citibank Tower
Paseo de Roxas, Makati City 1226
Attention: Mr. Federico S. Payot, Jr.

Vice President Finance & Operations
Gentlemen :
This refers to your letter dated August 14, 2006 requesting exemption from payment of income tax
and value-added tax (VAT) on the rental payment made by Latitude Broadband, Inc.
(Latitude-Philippines) to International Telecommunications Union (ITU).
It is represented that ITU is a specialized agency of the United Nations with office address at Places
des Nations, CH-1211 Geneva 20, Switzerland; that Latitude-Philippines is a domestic corporation with
office address at U2101 21st Floor, Citibank Tower, Paseo de Roxas, Makati City 1226. TCaEIc
It is further represented that Latitude-Philippines, as exhibitor, rented an exhibition space located in

Hong Kong, from ITU, as organizer of ITU Telecom World 2006, in consideration of Swiss Francs
25,200.00 last April 6, 2006.
amended, (Tax Code of 1997) provides:
xxx xxx xxx
"(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
xxx xxx xxx"
According to the abovequoted provision, a foreign corporation like ITU is taxable only on income
derived from sources within the Philippines. With respect to income from the rental of property located
without the Philippines or from any interest in such property, specifically on rental for the exhibition space
located in HongKong, Section 42 (C) (4) of the Tax Code of 1997 states:
xxx xxx xxx
C. Gross Income From Sources Without the Philippines — The following items
of gross income shall be treated as income from sources without the
Philippines:
xxx xxx xxx
(4) Rentals or royalties from property located without the Philippines or from any
interest in such property including rentals or royalties for the use of or for the
privilege of using without the Philippines, patents, copyrights, secret processes and
formulas, goodwill, trademarks, trade brands, franchises and other like properties;
and
xxx xxx xxx"
Such being the case and since the subject international event will be held in Hong Kong, the rental
payment to be paid therefor by Latitude-Philippines to ITU, being income derived from sources without
the Philippines by a foreign corporation, is not subject to Philippine income tax. (BIR Ruling No.
Moreover, the rental payment by Latitude-Philippines to ITU is not subject to the twelve percent
(12%) VAT imposed under Section 108 (A) of the Tax Code of 1997, quoted as follows:
of value-added tax to twelve percent (12%), . . .
The phrase 'sale or exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; stock,
real estate, commercial, customs and immigration brokers; lessors of property,
whether personal or real; . . . "
xxx xxx xxx"
Section 108 (A) above clearly states that the sale or exchange of services, including the use or lease
of properties, subject to VAT includes only those services that are performed in the Philippines.
Accordingly, the said rental payment for the lease of an exhibition space in Hong Kong is therefore
exempt from VAT.
Very truly yours,
By:
Legal Service
Footnotes
March 8, 2007

1997;

4896 Pasay Road, Dasmariñas Village
Makati City
Gentlemen :
This has reference to your Note Verbale No. (07) PG-065 dated February 15, 2007, referred to this
(DFA), requesting for a tax-free purchase on a local motor vehicle for the personal use of Mr. Wu Di,
Attaché of the Embassy of the People's Republic of China, specifically described as follows:
Make: Mazda 3 1.6 L V
Model Year: 2007
Color: Techno Gray
Frame Number: PE3BVSV261ZF01595
reads:
"ARTICLE 34
services;
"xxx xxx xxx"
However, applying the principle of reciprocity, this Office may grant exemptions to the Embassy of
the People's Republic of China on their purchase of locally assembled motor vehicles it appearing from the
list submitted by the Department of Foreign Affairs as of October 18, 2005 that your Government allows
similar exemption to Philippine Embassy personnel on their purchases of motor vehicles in your country.
CAETcH
Hence, the herein local purchase of one (1) Mazda 3 1.6 L V for the personal use of Mr. Wu Di,
Attaché of the People's Republic of China is exempt from VAT. (BIR Ruling No. DA-ITAD-44-05 dated
May 19, 2005)
Very truly yours,

Legal Service
March 8, 2007
Articles 5 (Permanent Establishment), 7 (Business Profits),

12 (Royalties),
15 (Dependent Personal Services) and 22 (Other Income);
Philippines-Korea tax treaty;
BIR Ruling Nos. DA-ITAD 43-06, 122-05 and 177-02
Kepco Philippines Corporation
18th Floor, Citibank Tower
8741 Paseo de Roxas
Makati City
Attention: Mr. Jung-In Kim

Finance General Manager
Mr. Soo-Hwan Hwang
Finance Manager
Gentlemen :
This refers to your letter dated September 1, 2005, requesting confirmation that compensations to
be paid by Kepco Philippines Corporation (Kephilco) to Korea Electric Power Corporation (Kepco) under
a Technical Services Agreement are exempt from Philippine income tax pursuant to the pertinent
provisions of the Convention between the Republic of the Philippines and the Republic of Korea for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income
(Philippines-Korea tax treaty).
Basic Facts
It is represented that Kepco, with address at 167 Samseong-Dong, Gangnam-Gu, Seoul 135-791,
Republic of Korea, is a resident of the Republic of Korea, for the purpose of the Philippines-Korea tax
treaty, with Tax Identification No. 120-82-00052, as confirmed by a Certification of Residence dated
August 10, 2005, issued by the National Tax Administration of the Republic of Korea; that Kepco is
engaged primarily in the business of power generation; that Kepco is not registered either as a corporation
or as a partnership in the Philippines, as confirmed by a Certification of Non-Registration of
Corporation/Partnership dated September 1, 2005, issued by the Securities and Exchange Commission;
and that, on the other hand, Kephilco is a corporation organized and existing under the laws of the
Philippines, with address at the 18th Floor, Citibank Tower, 8741 Paseo de Roxas, Salcedo Village,
Makati City, Philippines.
It is further represented that on May 17, 1995, Kepco and the National Power Corporation
(Napocor) entered into a Project Agreement for the rehabilitation, operation, maintenance and
management of the Malaya Power Plant in Malaya, Pililia, Rizal, Philippines with a capacity of 650
megawatts (the Project); and that on July 3, 1995, Kepco, Napocor and Kephilco entered into an Accession
Undertaking whereby Kephilco became a party to the Project Agreement to perform Kepco's obligations
under the Project Agreement relating to activities to be performed by Kepco in the Philippines.
Moreover, it is represented that on September 3, 1996, Kepco and Kephilco entered into a
Technical Services Agreement whereby Kepco will provide Kephilco the following services:
1. Project management and administrative advisory services to be provided by the members of

the Philippine Project Team and those of other department of Kepco head office the member
of which will be decided later by mutual agreement.
2. Technical services to be provided by Kepco's experts for operation, maintenance and

rehabilitation of the Malaya Power Plant
2.1 Test, analysis and diagnosis of efficiency
2.2 On-the job training of plant operators
2.3 Progress control of rehabilitation
2.4 Inspection/quality control
2.5 Supply of technical data and information.
3. Guarantee of loans borrowed by Kephilco and Kepco International Hong Kong Limited for
the Project.
4. Training services for Kephilco employees in Korea and in the Philippines
4.1 Training at Kepco facilities
4.2 Supply of instruction manuals
4.3 Assignment of Kepco instructors to Kephilco.
5. Supply or rental of tools, equipment and materials.
6. Other services required for the implementation of the Project Agreement. SECATH
that in consideration for the foregoing, Kephilco will compensate Kepco as follows:
1. A lump-sum compensation amounting to US$400,000.00 a month for project management

and administrative advisory services and for guarantee of loans borrowed by Kephilco and
Kepco International Hong Kong Limited for the Project.
2. A reimbursable compensation for the following services:
a. Technical services
Expert Daily rate Overtime and

per man holiday rate
Grade 1 (General Manager) US$646/day US$121/hour

Grade 2 (Deputy General Manager) US$585/day US$110/hour
Grade 3 (Department Manager) US$509/day US$95/hour
Grade 4 (Manager) US$387/day US$73/hour
Grade 5 (Staff) US$264/day US$50/hour
b. Training services (actual cost including fee, labor, materials, etc.)
c. Supply or rental of tools, equipments and materials (actual cost).
d. Other services (actual cost).
3. Per diem and airfare for Kepco's experts (based on the amount mutually agreed upon by both
parties).
4. Compensation of overtime and holiday man-hours (based on number of man-hours).
and that the Technical Services Agreement became effective on September 3, 1996, and has a term of ten
years, and renewable for the same period unless terminated by the parties.
It is finally represented based on your letters dated September 28, 2005, and June 7, 2006, that the
number of days spent by Kepco personnel in the Philippines for the years 2002 to 2005 are as follows:
1. 2002 — 133 days (January - 5; February - 5; July - 9; September - 22; October - 31;
November - 30; December - 31).
2. 2003 — 17 days (April - 2; July - 3; September - 6; October - 6).
3. 2004 — 25 days (April - 2; May - 5; July - 10; October - 4; November - 4).
4. 2005 — 23 days (July - 8; August - 5; October 10);
and that based on your letter dated October 10, 2006, for the years 2003 and 2004, no supply or rental of
tools, equipment and materials nor importation of the foregoing were made pursuant to the Technical
Services Agreement.
RULING
A. On income tax
In reply, please be informed that the compensations to be paid by Kephilco to Kepco under the
Technical Services Agreement are taxed under the following articles of the Philippines-Korea tax treaty, to
wit:
1. The compensations for project management and administrative advisory services, technical
services, and training services, compensation for the supply of tools, equipment and
materials, and compensation for the rental of tools and materials (but not of equipment), are
treated as business profits and subject to the provisions of Articles 5 (Permanent
Establishment) and 7 (Business Profits).
2. The compensation for guarantee of loans is treated as other income and subject to the
provisions of Article 22 (Other Income).
3. The compensation for rental of equipment is treated as royalties and subject to the
provisions of Article 12 (Royalties).
1. Compensation for project management and administrative advisory services, technical

services, and training services, compensation for the supply of tools, equipment and materials, and
compensation for the rental of tools and materials
Generally speaking, business profits (or industrial and commercial profits) include payments for the
supply of goods, for the supply of services, and for the lease of personal properties. In this case, the
compensation for project management and administrative advisory services, technical services, and
training services, compensation for the supply of tools, equipment and materials, and compensation for the
rental of tools and materials (but not of equipment), being in the nature of business profits, are taxed under
Article 7 in relation to Article 5 of the Philippines-Korea tax treaty, thus:
"Article 7
BUSINESS PROFITS
xxx xxx xxx"
"Article 5
b) a branch;
c) an office;
d) a factory;
e) a workshop;
resources; STcADa
3. a) a building site or construction, installation or assembly project or supervisory activities

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

employee or other personnel constitutes a permanent establishment only if activities
of that nature continue within a Contracting State for a period or periods exceeding in
the aggregate 183 days within any twelve-month period; and
c) a place of exploration of natural resources constitutes a permanent establishment

only if it exists for more than six months.
xxx xxx xxx"
Under Article 7, the compensation for project management and administrative advisory services,
etc., is subject to Philippine income tax if it is attributable to a permanent establishment which Kepco has
in the Philippines; otherwise, the compensation is exempt from Philippine income tax. Under Article 5,
Kepco is considered to have a permanent establishment if it has in the Philippines a fixed place of business
through which it carries on its business (like a branch or an office) or if it furnishes services in the
Philippines for more than 183 days within any twelve-month period.
Accordingly, inasmuch as Kepco does not have a branch or an office or any other fixed place of
business in the Philippines, and it did not furnish services in the Philippines for more than 183 days within
any twelve-month period, Kepco is considered as not having a permanent establishment in the Philippines.
This is supported by the Certification of Non-Registration of Corporation/Partnership dated September 1,
2005, issued by the Securities and Exchange Commission confirming that Kepco is not registered as a
corporation or a partnership in the Philippines, which shows that it is unlikely that Kepco can have a
branch or an office or any other fixed place of business in the Philippines. Furthermore, your letters dated
June 7, 2006, and September 28, 2005, show that Kepco furnished services in the Philippines for only 133
days in 2002, 17 days in 2003, 25 days in 2004, and 23 days in 2005, and which do not amount to more
than 183 days within any twelve-month period. Thus, this Office is of the opinion and so holds that, in the
absence of a permanent establishment, the compensation for project management and administrative
advisory services, technical services, and training services, compensation for the supply of tools,
equipment and materials, and compensation for the rental of tools and materials (but not of equipment), to
be paid by Kephilco to Kepco under the Technical Services Agreement, are exempt from Philippine
income tax. The exemption covers the years 2002 to 2005 and possibly other succeeding years covered by
such Agreement provided Kepco will not have a permanent establishment in the Philippines. (BIR Ruling
No. DA-ITAD 43-06 dated April 11, 2006)
For purposes of filing a claim for refund in relation to tax erroneously paid in this regards, the
requirements of Section 204 (C) of the National Internal Revenue Code of 1997 (Tax Code) must be
strictly observed, specifically, the two-year period within which to file a written claim for refund after the
payment of the tax, thus:
"SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. —
The Commissioner may —
xxx xxx xxx
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for
use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall
be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund
within two (2) years after the payment of the tax or penalty; Provided, however, That a return filed
showing an overpayment shall be considered as a written claim for credit or refund.
xxx xxx xxx"
2. Compensation for guarantee of loans
Unlike the compensation discussed in Item 1, the compensation for guarantee of loans, which are
not derived directly by Kepco from its primary activity of power generation, are not in the nature of
business profits. Also, for apparent reasons, the compensation for guarantee of loans cannot be treated as
income from real property, shipping and air transport, dividends, interest, royalties, or capital gains, as the
object or activity that gives rise to the compensation in question is not the same with the object or activity
that gives rise to incomes in the nature of income from real property, shipping and air transport, dividends,
interest, royalties, and capital gains. Hence, because the Philippines-Korea tax treaty has a provision
dealing with other income (or income not specifically dealt with in the articles of the tax treaty), this
provision (Article 22) will govern the taxation of the compensation for guarantee of loans. It provides:
"Article 22
OTHER INCOME
1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the
foregoing Articles of this Convention shall be taxable only in that State.
2. The provisions of paragraph 1 shall not apply to income, other than income from immovable
property as defined in paragraph 2 of Article 6, if the recipient of such income, being a
resident of a Contracting State carries on business in the other Contracting State through a
permanent establishment situated therein, or performs in that other State independent
personal services from a fixed base situated therein, and the right or property in respect of
which the income is paid is effectively connected with such permanent establishment or
fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall
apply."
Under Article 22, compensation for guarantee of loans shall be taxed only in Korea where Kepco is
a resident, except if the compensation is effectively connected to a permanent establishment which Kepco
has in the Philippines. ETDHSa
Accordingly, and as previously established, inasmuch as Kepco does not have a permanent
establishment in the Philippines to begin with, the compensation for guarantee of loans to be paid by
Kephilco to Kepco under the Technical Services Agreement is exempt from Philippine income tax. The
exemption covers the years 2002 to 2005 and possibly other succeeding years provided Kepco will not
have a permanent establishment in the Philippines. (BIR Ruling No. DA-ITAD 122-05 dated October 27,
2005). Again, for purposes of filing a claim for refund in relation to tax erroneously paid in this regards,
the requirements of Section 204 (C) of the National Internal Revenue Code of 1997 (Tax Code) must be
strictly complied with.
3. Compensation for rental of equipment
Rather than business profits under paragraph 4, Article 12 of the Philippines-Korea tax treaty,
payments for the use or right to use of industrial, commercial or scientific equipment, are generally treated
as royalties, thus:
"Article 12
ROYALTIES
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." (emphasis supplied)
Under paragraphs 2 and 3, the compensation for rental of equipment is subject to Philippine income
tax at a rate not exceeding 10% if Kephilco is registered with the Board of Investments and engaged in
preferred pioneer areas of investment under the investment incentives laws of the Philippines, or at a rate
not exceeding 15% in all other cases. However, under Section 28 (B) (4) of the Tax Code quoted below,
the compensation for rental of equipment can be subject to an even lower tax rate of 7 1/2% of the gross
amount thereof.
"SEC. 28. Rates of Income Tax on Foreign Corporations. —
xxx xxx xxx
(B) Tax on Nonresident Foreign Corporation. —
(4) Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment.

— Rentals, charters and other fees derived by a nonresident lessor of aircraft,
machineries and other equipment shall be subject to a tax of seven and
one-half percent (7 1/2%) of gross rentals or fees."
Whether the subject equipment is within the definition of "other equipment" in Section 28 (B) (a)
can be determined by taking into account the discussion in BIR Ruling No. DA-ITAD 177-02 dated
October 10, 2002, which we attached herewith for your purpose.
Based on your letter dated October 10, 2006, we note that for the years 2003 and 2004, no supply or
rental of tools, equipment and materials nor importation of the foregoing were made pursuant to the
Technical Services Agreement.
4. Compensation for other services
Compensation for other services to be paid by Kephilco to Kepco under the Technical Services
Agreement will be the subject matter of another ruling when you shall have submitted a description of
such other services, which can give rise to different income characterization under the Philippines-Korea
tax treaty.
5. Remuneration of personnel
With respect to the remuneration of the personnel or employees of Kepco who will come to the
Philippines to provide the services, the remuneration is generally subject to Philippine income tax because
the services are performed in the Philippines. However, under paragraph 2, Article 15 of the
Philippines-Korea tax treaty, the remuneration will be exempt from income tax if (1) the personnel or
employees (taken individually) are present in the Philippines for less than 183 days within the calendar
year concerned, (2) the remuneration is paid by, or on behalf of an employer who is not a resident of the
Philippines, and (3) the remuneration is not borne by a permanent establishment or a fixed base which the
employer has in the Philippines, to wit:
"Article 15
DEPENDENT PERSONAL SERVICES
1. Subject to the provisions of Article 16 (Directors' Fees), 18 (Pensions and Annuities), 19

(Government Service), 20 (Students and Apprentices), and 21 (Professors and Teachers),
salaries, wages and other similar remuneration derived by a resident of a Contracting State in
respect of an employment shall be taxable only in that State unless the employment is
exercised in that other Contracting State. If the employment is so exercised, such
remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident a

Contracting State in respect of an employment exercised in the other Contracting State shall
be taxable only in the first-mentioned State if: STcEIC
a) the recipient is present in the other State for a period or periods not exceeding
in the aggregate 183 days in the calendar year concerned, and
b) the remuneration is paid by, or on behalf of an employer who is not a resident

of the other State, and
c) the remuneration is not borne by a permanent establishment or a fixed base

which the employer has in the other State."
As to the first condition, we note that Kepco did not furnish services in the Philippines for more
than 183 days within any twelve-month period from 2002 to 2005. Thus, logically, personnel or employees
of Kepco were likewise present in the Philippines only for less than 183 days in the calendar years 2002 to
2005. As to the second condition, Kepco, the employer, is not a resident of the Philippines but of Korea.
As to the third condition, it was previously established that Kepco does not have a permanent
establishment for the years 2002 to 2005.
Accordingly, inasmuch as the personnel or employees of Kepco were present in the Philippines for
less than 183 days within the calendar year concerned, and the remuneration is paid by, or on behalf of, an
employer (Kepco) who is not a resident of the Philippines, and that, moreover, the remuneration is not
borne by a permanent establishment which the employer (Kepco) has in the Philippines, this Office is of
the opinion and so holds that the remuneration paid to the personnel or employees of Kepco are exempt
from Philippine income tax. The exemption covers the years 2002 to 2005 and possibly other succeeding
years provided the three conditions set forth above remain valid. (BIR Ruling No. DA-ITAD 43-06 dated
April 11, 2006). Again, for purposes of filing a claim for refund in relation to tax erroneously paid in this
regards, the requirements of Section 204 (C) of the National Internal Revenue Code of 1997 (Tax Code)
must be strictly observed, as mentioned previously.
Finally, on VAT, Sections 107(A) and 108(A) and of the National Internal Revenue Code of 1997
(Tax Code) provide:
"SEC. 107. Value-added Tax on Importation of Goods. —
(A) In General. — There shall be levied, assessed and collected on every importation of goods a
value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau
of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if
any, and other charges, such tax to be paid by the importer prior to the release of such goods
from customs custody: Provided, That where the customs duties are determined on the basis
of the quantity or volume of the goods, the value-added tax shall be based on the landed cost
plus excise taxes, if any."
the Philippines for others for a fee, remuneration or consideration . . . " 1(114)
Accordingly, the compensation for the supply of tools, equipment and materials (being treated as
importation of goods under Section 107 (A), and the compensation for the project management and
administrative advisory services rendered in the Philippines, technical services rendered in the Philippines,
guarantee of loans, training services, rental of tools, equipment and materials, and other services (being
treated as sale of services and use or lease of properties under Section 108 (A), to be paid by Kephilco to
Kepco under the Technical Services Agreement are subject to VAT. (BIR Ruling No. DA-ITAD 43-06
dated April 11, 2006)
With regard to the procedures for withholding and paying the VAT on the compensations
mentioned, Sections 4 and 6 of Revenue Regulations No. 4-2000, Section 3 of Revenue Regulations No.
8-2002, and Section 7 of Revenue Regulations No. 14-2002, provide that Kephilco will be responsible for
the withholding of the VAT on the compensations before remitting them to Kepco. In remitting to the
Bureau of Internal Revenue the VAT withheld on the compensations, Kephilco will use BIR Form No.
1600 (Monthly Remittance Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered
taxpayer, Kephilco may use as documentary substantiation for its claim of input VAT the duly filed BIR
Form No. 1600 and the proof of payment accompanying it. If a non-VAT-registered taxpayer, Kephilco
may include as part of the cost of the goods and services provided to it by Kephilco the VAT consequently
shifted or passed on to it and may treat the VAT either as an expense or an asset, whichever is applicable.
In addition, Kephilco is required to issue the Certificate of Final Tax Withheld at Source (BIR Form No.
2306) in quadruplicate, the first three copies for Kepco and the fourth copy for Kephilco as its file copy.
the herein parties are concerned. HacADE
Very truly yours,
By:

Assistant Commissioner,
Legal Service
Footnotes
1997, As Amended, And For Other Purposes), which was signed into law on May 24, 2005, amended
Sections 107 (A) and 108 (A) to read as:
value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax
to be paid by the importer prior to the release of such goods from customs custody: Provided, That where
the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax
shall be based on the landed cost plus excise taxes, if any: Provided further, That the President, upon the
one-half percent (1 1/2%)."
the use or lease of properties: Provided, that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
Philippines for others for a fee, remuneration or consideration . . . ."
March 6, 2007
Article 13, Philippines-United States tax treaty;

BIR Ruling No. DA-101-03;
Isla Lipana & Co.

29th Floor Philamlife Tower
8767 Paseo de Roxas
1226 Makati City Philippines
Attention: Mary Assumption S. Bautista-Villareal

Principal, Tax Service
Gentlemen :
This refers to your letter dated 10 November 2006, on behalf of your clients Warner Bros. Pictures
Inc. (Warner Bros. US), and Warner Bros. (F.E.), Inc. (Warner Bros. Phil.), requesting confirmation of
your opinion that the royalty fees to be paid by Warner Bros. Phil. to Warner Bros. US under the License
Agreement are subject to the 15% preferential withholding tax pursuant to Article 13 (2) (b) (iii) of the
Philippines-United States of America tax treaty (Philippines-United States tax treaty), otherwise known as
the "most-favored-nation" clause, in relation to the Philippines-China tax treaty.
It is represented that Warner Bros. US is a nonresident foreign corporation daily organized and
existing under the laws of the State of Delaware, United States, with office address at 4000 Burbank
Boulevard, Burbank, California, USA 91522 and is a resident of the United States of America for purposes
of U.S. taxation per Certification issued by the Field Director, Philadelphia Accounts Management Center;
that is not registered either as a corporation or as a partnership in the Philippines per certification issued
by the Securities and Exchange Commission dated 27 September 2006; that Warner Bros. Phil. is a
domestic corporation with office address at Lot 1, Block 14, Phase II, First Cavite Industrial Estate, Brgy.
Langkaan, Dasmariñas Cavite 4126, Philippines.
It is further represented that on May 27, 2006, Warner Bros. US and Warner Bros. Phil. entered into
a License Agreement wherein Warner Bros. US grants to Warner Bros. Phil. the Theatrical Rights and
Homevideo Rights in respect to the theatrical pictures and home video pictures, respectively, within the
political borders of the Philippines; that Warner Bros. Phil. shall pay Warner Bros. US a royalty equal to
the percentage of total gross receipts accrued in each fiscal year of Warner Bros. Phil. during the term of
the agreement, less (a) 100% of the Combined Allowable Distribution Expenses and (b) the Royalties
Adjustment as set forth in Paragraph 5.2 of the License Agreement, if any; that the Theatrical Rights
include the right to distribute, advertise, promote and publicize the theatrical pictures and trailers thereof
on exclusive (theatrical distribution) and non-exclusive (non-theatrical distribution) basis, and in
connection therewith to use and perform simultaneously and in synchronization with the theatrical pictures
any and all music and lyrics contained in the theatrical pictures and/or recorded in the soundtrack thereof,
that the Homevideo Rights comprise of the right to manufacture and sell devices containing copies of the
homevideo pictures and to exploit the devices for the intended purpose of homevideo use by consumers in
their places of dwelling in such manner that viewing schedules and viewing frequency may be freely
controlled by the consumers; and that the issue/s or transaction subject of the above request for ruling is
certificate, collection proceedings, or a judicial appeal of the taxpayer/s involved. HTDCAS
In reply, please be informed that Article 13 of the Philippines-United States tax treaty provides, viz:
"Article 13
Royalties
1. Royalties derived by a resident of one of the Contracting State from sources within the other
Contracting State may be taxed by both Contracting States.
2. However, the tax imposed by that other Contracting State shall not exceed:
(a) In the case of the United States, 15 percent of the gross amount of the
royalties, and
(b) In the case of the Philippines, the least of:
the same kind paid under similar circumstances to a resident of a
third State. (Emphasis supplied)
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
scientific experience. The term 'royalties' also includes gains derived from the sale, exchange
or other disposition of any such right or property which are contingent on the productivity,
use, or disposition thereof.
xxx xxx xxx"
and, in relation thereto, Article 12 of the Philippines-China tax treaty provides, viz:
"Article 12
Royalties
according to the laws of that State, but if the recipient is the beneficial owner of the
royalties, the tax so charged shall not exceed:
(a) 15 per cent of the gross amount of royalties arising from the use of, or the
(b) 10 per cent of the gross amount of royalties arising from the use of, or the
scientific experience.
xxx xxx xxx"
Based on the above-mentioned provisions, the tax imposed on royalties derived by a resident of the
United States from sources within the Philippines shall be the lowest rate of Philippine tax that may be
imposed on royalties of the same kind and paid under similar circumstances to a resident of a third State.
Relative thereto, it is noteworthy that under Article 12 (2) (a) of the Philippines-China tax treaty, the tax
so charged shall not exceed 15 percent of the gross amount of royalties arising from the use of, or the right
to use, any copyright of literary, artistic or scientific work including cinematograph films or tapes for
television or broadcasting.
"most-favored-nation" clause, particularly the phrase "paid under similar circumstances" under the
Philippines-United States tax treaty, as referring to the manner of payment of taxes and not to the subject
matter of the tax which is royalties. (BIR Ruling No. DA-ITAD 142-03 dated September 23, 2003)
Article 23 of the Philippines-United States tax treaty reads:
"Article 23
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. . . . "
Article 23
1. In China, double taxation shall be eliminated as follows:
Where a resident of China derives income from the Philippines the amount of tax on that income
payable in the Philippines in accordance with the provisions of this Agreement, may be credited
against the Chinese tax imposed on that resident. The amount of the credit, however, shall not
exceed the amount of the Chinese tax on that income computed in accordance with the taxation
laws and regulations of China. IaHCAD
xxx xxx xxx"
treaty, though differently worded, plainly reveal a similarity in the provisions on relief from or avoidance
of double taxation to their respective residents. Thus, the tax on royalty payments to residents of the
United States and China are paid under similar circumstances, i.e., the amount of royalty income tax paid
or accrued to the Philippines under the respective tax treaties is available as tax credit against the income
tax payable in their respective countries. United States residents may, therefore, invoke the preferential tax
rate of 10% on royalties, accruing beginning January 1, 2002, arising in the Philippines "from the use of,
or the right to use, any patent, trade mark, design or model, plan, secret formula or process, . . . , or for
information concerning industrial, commercial or scientific experience" under the Philippines-China tax
treaty, pursuant to the "most-favored-nation" clause of the Philippines-United States tax treaty.
Such being the case, this Office is of the opinion and so holds that the royalty payments of Warner
Bros. Phil. to Warner Bros. US under the subject Agreement are subject to final withholding tax at the rate
of 15% pursuant to the "most-favored-nation" provision of the Philippines-United States tax treaty in
relation to the Philippines-China tax treaty. [Revenue Memorandum Circular (RMC) No. 46-2002 dated
September 2, 2002; BIR Ruling No. DA-ITAD 101-03 dated July 24, 2003; BIR Ruling No.
DA-ITAD-163-05 dated December 20, 2005] Accordingly, Warner Bros. Phil. shall deduct and withhold
the tax at the time the royalty payments are paid or payable, or the royalty payments accrued or recorded
as expense or as asset, whichever is applicable, and whichever comes first. The term "payable" refers to
the date the obligation becomes due, demandable, or legally enforceable. [Section 4 — Time of
Withholding, Revenue Regulations No. 12-2002]
Moreover, the said royalty payments by Warner Bros. Phil. to Warner Bros. US shall be subject to
the 12% value-added tax (VAT) under Section 108 of the Tax Code *(115) Accordingly, Warner Bros. Phil.,
being the resident withholding agent and payor in control of the payment, shall be responsible for the
withholding of the 12% final VAT on such royalty before making any payment to Warner Bros. US. In
remitting the VAT withheld, Warner Bros. Phil. shall use BIR Form No. 1600 (Monthly Remittance
Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600
and proof of payment thereof shall serve as documentary substantiation for the claim of input tax by
Warner Bros. Phil. upon filing its own VAT return, if it is a VAT-registered taxpayer. In case Warner
Bros. Phil. is a non-VAT registered taxpayer, the passed-on VAT withheld shall form part of the cost of
goods or properties purchased which may be treated as an "expense" or as an "asset", whichever is
applicable. In addition, Warner Bros. Phil. is required to issue the Certificate of Final Tax Withheld at
Source (BIR Form No. 2306) in quadruplicate, the first three copies thereof to be given to Warner Bros.
US upon its request and the fourth copy to be retained by Warner Bros. Phil. as its file copy. [Section
4.110.3 (b), Revenue Regulations No. (RR) 7-95, as amended by RR 08-02 (now Section 4.114-2, RR
16-05); Section 4.114 (d), as last amended by RR 2803]
Very truly yours,
By:

Legal Service
Footnotes
* Section 108 was amended by Republic Act No. 9337, which was signed into law on May 24, 2005 and
xxx xxx xxx
Increase the Value-Added Tax Rate from Ten Percent to Twelve percent) dated January 31, 2006.
March 6, 2007
Secs. 106, 108 & 149 of the National Internal Revenue

Code of 1997;
Makati City
Gentlemen :
requesting for a tax-free purchase on a local motor vehicle for the personal use of Mr. Nicholas Garry
Wong, Third Secretary of the Embassy of Australia, specifically described as follows:
Make: Ford Escape XLT 2.3L 4X4 A/T
Model Year: 2007
Color: Platinum
Conduction No.: JB6539
VIN Number: PE23V66171GG00036
reads:
"ARTICLE 34
services;
"xxx xxx xxx"
Australia on their purchase of locally assembled motor vehicles it appearing from the list submitted by the
Department of Foreign Affairs as of October 18, 2005 that your Government allows similar exemption to
Philippine Embassy personnel on their purchases of motor vehicles in your country. EcAISC
Hence, the herein local purchase of one (1) Ford Escape XLT 2.3L 4X4 A/T for the personal use of
Mr. Nicholas Garry Wong, Third Secretary of the Embassy of Australia is exempt from VAT and ad
valorem tax. (BIR Ruling No. DA-ITAD-64-05 dated June 28, 2005)
Very truly yours,

Legal Service
March 6, 2007

Code of 1997;
Makati City
Gentlemen :
requesting for a tax-free purchase on a local motor vehicle for the personal use of Mr. Stephen Bernard
Scott, Minister and Deputy Head of Mission of the Embassy of Australia, specifically described as
follows:
Make: Honda CR-V 2.0li 4x2 8P
Model Year: 2006
Conduction No.: DE 1386
Engine Number: PNKD77-6402106
Frame Number: PADRD48706V402121
reads:
"ARTICLE 34
services;
"xxx xxx xxx"
Philippine Embassy personnel on their purchases of motor vehicles in your country. cHCIDE
Hence, the herein local purchase of one (1) Honda CR-V 2.0li 4x2 8P for the personal use of Mr.
Stephen Bernard Scott, Minister and Deputy Head of Mission of the Embassy of Australia is exempt from
VAT and ad valorem tax. (BIR Ruling No. DA-ITAD-64-05 dated June 28, 2005)
Very truly yours,

Legal Service
March 2, 2007
Secs. 106 & 108, Sec. 149 of the Tax Code 1997;

4896 Pasay Road,
Dasmariñas Village
Makati City
Attention: Mr. Yu Lefan

Second Secretary
Gentlemen :
This has reference to your Note No. (07)PG-061 dated February 8, 2007 referred to this Office by
exemption from payment of value-added tax (VAT) and ad valorem tax on the local purchase of one (1)
motor vehicle, for the personal use of Mr. Yu Lefan, Second Secretary of the Embassy of the People's
Republic of China, specifically described as follows:
Model Year: 2007
Color: Titanium Silver
reads:
"ARTICLE 34
services;
xxx xxx xxx"
of locally-assembled motor vehicles in your country. cTSHaE
Hence, the local purchase of one (1) unit of 2007 Mazda3 1.6 L V for the personal use of Mr. Yu
Lefan, Second Secretary of the Embassy of the People's Republic of China is exempt from value-added tax
and ad valorem tax. (BIR Ruling No. DA-ITAD-54-06 dated May 11, 2006)
Very truly yours,

Legal Service
March 2, 2007
Secs. 106 & 108, Sec. 149 of the Tax Code 1997;

4896 Pasay Road,
Dasmariñas Village
Makati City
Attention: Mme. You Jia

Second Secretary
Gentlemen :
This has reference to your Note No. (07)PG-062 dated February 8, 2007 referred to this Office by
exemption from payment of value-added tax (VAT) and ad valorem tax on the local purchase of one (1)
motor vehicle, for the personal use of Mme. You Jia, Second Secretary of the Embassy of the People's
Republic of China, specifically described as follows:
Model Year: 2007
Color: Petrol Red
reads:
"ARTICLE 34
services;
xxx xxx xxx"
of locally-assembled motor vehicles in your country.
Hence, the local purchase of one (1) unit of 2007 Mazda3 1.6 L V for the personal use of Mme.
You Jia, Second Secretary of the Embassy of the People's Republic of China is exempt from value-added
tax and ad valorem tax. (BIR Ruling No. DA-ITAD-54-06 dated May 11, 2006) ECISAD
Very truly yours,

Legal Service
March 2, 2007

Royal Thai Embassy

107 Thailand Rada Street
Legaspi Village, Makati City
Attention: Ms. Panalee Choosri

Second Secretary
Gentlemen :
This has reference to your Note No. 40001/0120 dated February 5, 2007, referred to this Office by
the Department of Finance and the Department of Foreign Affairs, requesting for the exemption from
payment of taxes on the local purchase of a motor vehicle, for the personal use of Ms. Panalee Choosri,
Second Secretary of the Royal Thai Embassy, specifically described as follows:
Type of Use: Personal
Model Year: 2007
Chassis Number: PADFD16406V002528
reads:
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services;
"xxx xxx xxx"
Sections 106 and 108 of the National Internal Revenue Code of 1997. STIcaE
However, applying the principle of reciprocity, this Office may confirm exemption to the Royal
Thai Embassy and/or its personnel on their purchase of locally-assembled motor vehicles it appearing
allows similar exemption to the Philippine Embassy on their purchase of locally-assembled motor vehicles
in your country.
Hence, the local purchase of one (1) unit of 2007 Honda Civic 1.8S A/T, for the personal use of
Ms. Panalee Choosri of the Royal Thai Embassy is exempt from VAT and ad valorem tax. (BIR Ruling
No. DA-ITAD-035-05 dated April 20, 2005)
Very truly yours,

Legal Service
March 1, 2007
Articles 5 (Permanent Establishment), 7 (Business Profits);

Philippines-Singapore tax treaty;
Revenue Memorandum Circular No. 44-05;
Regalado Bautista & Menzon Law Offices

Suite 710 City & Land Mega Plaza
ADB Ave. corner Garnet Street
Ortigas, Pasig City
Attention: Atty. Edith Abana-Bautista

Atty. Rhodora Corcuera-Menzon
Gentlemen :
This refers to your letter dated July 29, 2006 on behalf of your client, Canon Information
Technologies Philippines, Inc. (Canon-Philippines), requesting a ruling on the tax implication of the
purchase of software by Canon-Philippines from Mercury Interactive (Singapore) Pte. Ltd (Mercury
Interactive-Singapore) and the application of a tax treaty relief pursuant to the Philippines-Singapore tax
treaty.
It is represented that Mercury Interactive-Singapore is a nonresident foreign corporation, organized

and existing under the laws of the Singapore, with principal office at 9 Raffles Place #31-01/02, Republic
Plaza Singapore, 048619 Singapore; that Mercury Interactive-Singapore is not registered either as a
corporation or as a partnership in the Philippines as confirmed by the Certification of Non-Registration of
Corporation/Partnership dated November 23, 2005 issued by the Securities and Exchange Commission;
that Canon-Philippines is a corporation duly organized and existing under the laws of the Philippines with
office address at 2nd Floor Techno Plaza One, 18 Orchard Road, Eastwood, Quezon City; that it is
engaged in the business of hardware design and software development involving imaging, communications
and related technologies.
It is further represented that Canon-Philippines purchased software products from Mercury

Interactive-Singapore; that under the Software License Agreement (Mercury Terms of Use), all contents
and materials available on the Sites or through the Services are protected by copyrights, trademarks,
service marks, patents, trade secrets, or other proprietary rights and laws; that Mercury
Interactive-Singapore owns the intellectual property rights to the software and the other content on the
Services and Sites and their design, structure and compilation, other than customer-provided materials;
that Canon-Philippines may only view, copy, download, and print Mercury documents from the Sites so
long as they used them only for personal purposes and Canon-Philippines does not post, distribute, or
modify or does not remove any copyright, trademark, or other proprietary notices; that the consideration
for the purchase of the software is $2,160.00; and that the issue or transaction subject of the above
application is not under investigation, on-going audit, administrative protest, claim for refund or issuance
of a tax credit certificate, collection proceedings, or a judicial appeal.
In reply please be informed that Revenue Memorandum Circular (RMC) No. 44-2005 treats
software payments either as business income, royalties, rental income, or capital gains, depending on the
nature of the transaction out of which such payments are made. It provides:

exploitation of the program.

described below:
without his authority shall constitute infringement of said copyright. IECcaA
The determination of whether a transfer of a copyright right in a software is a sale or exchange of

property is made on the basis of whether, taking into account all facts and circumstances, there has
been a transfer of all substantial rights in the copyright. A transaction that does not constitute a sale
or exchange because not all substantial rights have been transferred will be classified as a license
generating royalty income.
When only copyright rights are transferred, payments made in consideration therefor are royalties.
On the other hand, when copyright ownership is transferred, payments made in consideration
therefor are business income.
"b. Transfer of copyrighted articles. A copyrighted article incorporating a software includes a

communicated, either directly or with the aid of a machine or devices. The copy of the
main memory or hard drive of a computer; or in any other medium.
If a person acquires a copy of a software but does not acquire any of the rights described above (or
only acquires a de minimis grant of such rights), and the transaction does not involve the provision
of services or of know-how, the transfer of the copy of the software is classified solely as a transfer
of a copyrighted article and payments for which constitute business income.
"xxx xxx xxx"
The fact that what is being transferred to Canon-Philippines is only a copyrighted article
incorporated in a software and there was no transfer of ownership thereto including pertinent rights
protected under relevant intellectual property laws, Revenue Memorandum Circular (RMC) 44-2005,
Section 5 b thereof, will apply in this case which states that "If a person acquires a copy of a software but
does not acquire any of the rights described above (or only acquires a de minimis grant of such rights), and
the transaction does not involve the provision of services or of know-how, the transfer of the copy of the
business income."
Thus, payments made by Canon-Philippines to Mercury Interactive-Singapore, being business

income (or business profits), is subject to income tax in the Philippines only if it is attributable to a
permanent establishment which Mercury Interactive-Singapore has in the Philippines, under paragraph 1,
Article 7 in relation to Article 5 of the Philippines-Singapore tax treaty, to wit:
"Article 7
BUSINESS PROFITS
xxx xxx xxx"
"Article 5
2. The term 'permanent establishment' includes specially but is not limited to:
b) A branch;
c) An office;
e) A factory;
f) A workshop;


days. SCDaET
xxx xxx xxx"
Based on the foregoing, in order for Mercury Interactive-Singapore to be considered to have a

permanent establishment to which said business profit may be attributed, it must satisfy the following
conditions: 1(116)
— the existence of a "place of business", i.e., a facility such as premises or, in certain instances,
machinery or equipment;
— this place of business must be "fixed", i.e., it must be established at a distinct place with a
certain degree of permanence;
— the carrying on of the business of the enterprise through this fixed place of business. This
means usually that persons who, in one way or another, are dependent on the enterprise
(personnel) conduct the business of the enterprise in the State in which the fixed place is
situated." (Paragraph 2)
Since it appears, based on the SEC Certificate that Mercury Interactive-Singapore is not registered
either as a corporation or as a partnership in the Philippines, that Mercury Interactive-Singapore does not
have a place of business at its disposal which is fixed or established at a distinct place with a certain
degree of permanence in the Philippines through which it may use for carrying on its business, Mercury
Interactive-Singapore is deemed as not having permanent establishment to which said business profits
may be attributed to.
Thus, for as long as Mercury Interactive-Singapore is deemed not to have a permanent

establishment in the Philippines to which its profits may be attributable, income from its sale of software,
such as that made to Canon-Philippines in the instant case, shall be exempt from income tax and
consequently withholding tax. (BIR Ruling No. DA-ITAD 19-07 dated February 14, 2007)
However, the electronic transfer of software from the nonresident supplier is importation of
software and is subject to value-added tax (VAT) under Section 107 of the National Internal Revenue
Code, as amended by Republic Act No. 9337 and Revenue Memorandum Circular No. 7-2006. 2(117)
Accordingly, Canon-Philippines being the direct importer of the downloadable software, is subject to 12%
VAT and is required to withhold 12% VAT from its payments before it telegraphically transfers it to the
account of the Mercury Interactive-Singapore. TaIHEA
With regard to the procedures for withholding and paying the VAT, Canon-Philippines shall be
responsible for the withholding of the 12 percent VAT on the license fee before making any payment to
Mercury Interactive-Singapore. In remitting to the Bureau of Internal Revenue the VAT withheld on such
fee, Canon-Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of VAT and Other
Percentage Taxes Withheld). If a VAT-registered taxpayer, Canon-Philippines may use as documentary
accompanying it. If a non-VAT-registered taxpayer, Canon-Philippines may include as part of the cost of
the purchased software provided to it by Mercury Interactive-Singapore the VAT consequently shifted or
Canon-Philippines is required to issue in quadruplicate the relevant Certificate of Final Tax Withheld at
Source (BIR Form No. 2306), the first three copies for Mercury Interactive-Singapore and the fourth copy
for Canon-Philippines as its file copy. [Section 4.110-3(b), Revenue Regulations (RR) No. 7-95, as
amended by RR Nos. 4-02, 8-02, and 14-02 (now Section 4, 114-2(b), RR No. 16-05); Section 4.114(D),
RR No. 2-98, as last amended by RR No. 28-03]
Very truly yours,
By:

Legal Service
Footnotes
1. Organization for Economic Cooperation and Development (OECD), 2005 edition, paragraph 2, pages
85-91.
2. Prescribing Guidelines and Procedures in the Processing of Applications for Zero-Rating of Effectively
Zero-Rated Transactions for Value-Added Tax Purposes.
March 1, 2007
Articles 5 (Permanent Establishment), 7 (Business Profits);

Philippines-United Kingdom of Great Britain and Northern
Ireland tax treaty;

Ortigas, Pasig City

Gentlemen :
Technologies Philippines, Inc. (Canon-Philippines), requesting a ruling on the tax implication of the
purchase of software by Canon-Philippines from ARM, Limited (ARM-UK) and the application of a tax
treaty relief pursuant to the Philippines-United Kingdom of Great Britain and Northern Ireland (UK) tax
treaty.
It is represented that ARM-UK is a nonresident foreign corporation, organized and existing under
the laws of the United Kingdom, with principal office at Liberty House, Moonbridge Road, Maidenhead,
Berkshire SL6 8LT United Kingdom; that ARM-UK is not registered either as a corporation or as a
partnership in the Philippines as confirmed by the Certification of Non-Registration of
and related technologies;
It is further represented that Canon-Philippines purchased from ARM-UK through its sole
distributor, FTD Solutions Pte. Ltd., a nonresident foreign corporation from Singapore, a software, Annual
Maintenance for RVDS (Realview Developer Suite) 2.2; that as part of the End User License Agreement
for the Arm Realview Developer Suite (Agreement), Canon-Philippines shall be granted a non-exclusive,
non-transferable license to: (a) use and copy the object code of the software, and (b) use the
documentation, solely for the purposes of Canon-Philippines' internal development, testing and debugging
of software application that will be licensed to run only on microprocessors manufactured under license
from licensor; that under the Agreement, copying and use of the software is limited to the extent necessary
for normal use of the software on a single computer connected to a single monitor at any one time except
to make an additional copy for backup purposes only; that the rights granted under the said Agreement
may not be assigned, sublicensed or otherwise transferred by the Canon-Philippines to any third party
without the prior written consent of licensor; that Canon-Philippines shall not, likewise, rent or lease the
software or share it with contractors or third parties; that the consideration for the purchase of the software
is $1,500.00; that ARM-UK does not transfer title to the Software to Canon-Philippines; and that the issue
or transaction subject of the above application is not under investigation, on-going audit, administrative
protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial, appeal.
In reply please be informed that Revenue Memorandum Circular (RMC) No. 44-2005 treats
"Section 5. CHARACTERIZATION OF TRANSACTIONS — The character of payments


described below:
without his authority shall constitute infringement of said copyright.
The determination of whether a transfer of a copyright right in a software is a sale or exchange of

property is made on the basis of whether, taking into account all facts and circumstances, there has
been a transfer of all substantial rights in the copyright. A transaction that does not constitute a sale
or exchange because not all substantial rights have been transferred will be classified as a license
generating royalty income.
When only copyright rights are transferred, payments made in consideration therefor are royalties.
On the other hand, when copyright ownership is transferred, payments made in consideration
therefor are business income.
"b. Transfer of copyrighted articles. A copyrighted article incorporating a software includes a

communicated, either directly or with the aid of a machine or device. The copy of the
main memory or hard drive of a computer, or in any other medium.
If a person acquires a copy of a software but does not acquire any of the rights described above (or
only acquires a de minimis grant of such rights), and the transaction does not involve the provision
of services or of know-how, the transfer of the copy of the software is classified solely as a transfer
of a copyrighted article and payments for which constitute business income.
"xxx xxx xxx"
incorporated in a software and there was no transfer of ownership thereto including pertinent right
protected under relevant intellectual property laws, Revenue Memorandum Circular (RMC) 44-2005,
Section 5b thereof, will apply in this case which states that "If a person acquires a copy of a software but
does not acquire any of the rights described above (or only acquires a de minimis grant of such rights), and
the transaction does not involve the provision of services or of know-how, the transfer of the copy of the
business income. HTCISE
Thus, payments made by Canon-Philippines to ARM-UK, being business income (or business
profits), is subject to income tax in the Philippines only if it is attributable to a permanent establishment
which ARM-UK has in the Philippines, under paragraph 1, Article 7 in relation to Article 5 of the
Philippines-United Kingdom of Great Britain and Northern Ireland (UK) tax treaty, to wit:
"Article 7
BUSINESS PROFITS
the enterprise may be taxed in the other State but only so much of them as is directly or
indirectly attributable to that permanent establishment.
xxx xxx xxx"
"Article 5
2. The term 'permanent establishment' shall include especially:
b) a branch;
c) an office;
d) a factory;
e) a workshop;
f) a mine, oil well, quarry or other place of extraction of natural resources;
g) an installation or structure used for the exploration of natural resources;
h) a building site or construction or assembly project which exists for more than
183 days.
xxx xxx xxx"
Based on the foregoing, in order for ARM-UK to be considered to have a permanent establishment
to which said business profit may be attributed, it must satisfy the following conditions: 1(118)
- the existence of a "place of business", i.e., a facility such as premises or, in certain instances,
machinery or equipment;
- this place of business must be "fixed", i.e., it must be established at a distinct place with a
certain degree of permanence;
- the carrying on of the business of the enterprise through this fixed place of business. This
means usually that persons who, in one way or another, are dependent on the enterprise
(personnel) conduct the business of the enterprise in the State in which the fixed place is
situated." (Paragraph 2)
Since it appears, based on the SEC Certificate that ARM-UK is not registered either as a corporation
or as a partnership in the Philippines, that ARM-UK does not have a place of business at its disposal which
is fixed or established at a distinct place with a certain degree of permanence in the Philippines through
which it may use for carrying on its business, ARM-UK is deemed as not having permanent establishment
to which said business profits may be attributed to.
Thus, for as long as ARM-UK is deemed not to have a permanent establishment in the Philippines to
which its profits may be attributable, income from its sale of software, such as that made to
Canon-Philippines in the instant case, shall be exempt from income tax and consequently withholding tax.
(BIR Ruling No. DA-ITAD 19-07 dated February 14, 2007)
Code, as amended by Republic Act No. 9337 and Revenue Memorandum Circular No. 7-2006. 2(119)
VAT and is required to withhold 12% VAT from its payments before it telegraphically transfers it to the
account of the ARM-UK. EHTSCD
responsible for the withholding of the 12 percent VAT on the license fee before making any payment to
ARM-UK. In remitting to the Bureau of Internal Revenue the VAT withheld on such fee,
Canon-Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of VAT and Other
Percentage Taxes Withheld). If a VAT-registered taxpayer, Canon-Philippines may use as documentary
accompanying it. If a non-VAT-registered taxpayer, Canon-Philippines may include as part of the cost of
the purchased software provided to it by ARM-UK the VAT consequently shifted or passed on to it and
may treat such VAT either as expense or asset, whichever is applicable. In addition, Canon-Philippines is
required to issue in quadruplicate the relevant Certificate of Final Tax Withheld at Source (BIR Form No.
2306), the first three copies for ARM-UK and the fourth copy for Canon-Philippines as its file copy.
[Section 4.110-3 (b), Revenue Regulations (RR) No. 7-95, as amended by RR Nos. 4-02, 8-02, and 14-02
(now Section 4, 114-2 (b), RR No. 16-05); Section 4.114 (D), RR No. 2-98, as last amended by RR No.
28-03]
Very truly yours,
By:

Legal Service
Footnotes
85-91.
February 27, 2007
Art. 12 of the Philippines-Singapore tax treaty;

Isla Lipana & Co.

29th Floor Philam Tower
8767 Paseo de Roxas
1226 Makati City
Attention: Ms. Mary Assumption S. Bautista-Villareal

Gentlemen :
This refers to your letter dated September 8, 2006, on behalf of your client BK AsiaPac, PTE. LTD.
(BKA), requesting confirmation that the royalty fees to be paid by Philking Restaurants Development
Corporation (Philking-Philippines) to BKA are subject to Philippine withholding tax at the preferential
rate of 25% under Article 12(2)(c) of the Philippines-Singapore tax treaty, and that such royalty fees are
also subject to the 12% value-added tax (VAT) under Section 108 of the National Internal Revenue Code
1997 (Tax Code), as amended by Republic Act (RA) No. 9337.
It is represented that BKA with office address at 80 Raffles Place #18-20, UOB Plaza 2, Singapore
is a resident of Singapore for income tax purposes and for claiming benefit under the
Philippines-Singapore tax treaty for the Year of Assessment 2007, as certified by Ms. Sabina HB Cheong,
Assistant Commissioner, Corporate Tax Division of The Inland Revenue Authority of Singapore; that
Philking-Philippines is a corporation duly organized and existing under the laws of the Philippines with
principal address at 18th Floor, The JMT Corporate Condominium, ADB Avenue, Ortigas Center, Pasig
City; that Burger King Corporation (BKC) is a corporation organized and existing under the laws of the
State of Florida; that neither BKA nor BKC is registered as a corporation or as a partnership in the
Philippines per Certification dated September 5, 2006, issued by the Securities and Exchange
Commission. cDTaSH
It is further represented that BKC and Philking-Philippines entered into thirty (30) separate
franchise agreements covering different locations and providing varying periods, as follows:
Date of Agreements Location Period
1. August 6, 1999 Ground Level, Greenbelt Mall, Ayala Center, Makati City 20 years
2. November 12, 1999 Ground Level, Alabang Town Center Expansion, Manila 20 years
3. October 14, 1998 Quezon Avenue, cor. Kanlaon Street, Quezon City 20 years
4. August 19, 2000 Lot 33-F Pcs-386 Nicanor Reyes Street, Sampaloc Manila 20 years
5. May 25, 1999 275 E. Rodriguez Sr. Avenue, Quezon City, Metro Manila 20 years
6. July 26, 2000 Shell Service Station, North Luzon Tollways, Balagtas Bulacan 20 years
7. July 24, 2000 Same Block 29, Lots 1, 2-A, 3&4 Marcos Highway, Marikina 20 years
8. July 3, 2000 Lot 1, M.L. Quezon Street, Antipolo, Rizal 20 years
9. April 20, 1998 Ground Level, SM Fairview, Regalado cor. Quirino Avenue 10 years
10. May 13, 2000 Isetann Cinerama Complex, C.M. Recto St., Quiapo, Manila 20 years
11. November 11, 1998 Level 1&2, Robinson's Place Shopping Complex, Manila 20 years
12. January 4, 1999 Mother Ignacia Avenue cor. Timog Ave., Quezon City 20 years
13. March 18, 1999 Level 2, Robinson's Place, E. Aguinaldo ighway, Cavite 20 years
14. October 7, 1999 1421 Dapitan St., cor. Antonio St., Sampaloc, Manila 20 years
15. November 6, 1998 2nd Level, SM Bacoor, Tirona cor. Aguinaldo Highway, Cavite 20 years
16. November 6, 1998 Level 4, Robinson's Galleria Shopping Complex, Quezon City 20 years
17. November 6, 1998 Level 2, SM City North Edsa, North Ave., Quezon City 20 years
18. November 6, 1998 Level 2, Glorietta 4 Shopping Complex, Ortigas Ave., Quezon City 20 years
19. January 11, 2001 Title No. 56536, National Highway at Barrio Bucal & Lecheria, Laguna 20 years
20. October 6, 2000 Lot 7-B Ground Floor Unit 1430 Taft Ave., Manila 20 years
21. June 14, 2005 Quad 4 Cinema Lobby, Glorietta 4, Ayala Center, Ayala Ave., Makati Until May 20, 2018
22. November 12, 2004 Second Floor, SM City Batangas, Barangay Pallocan West, Batangas Until Jan. 26, 2019
23. August 13, 2004 Ground Floor, SM City Pampanga, San Fernando, Pampanga Until Oct. 26, 2020
24. July 15, 2005 Third Floor, SM City San Lazaro, Sta. Cruz, Manila Until Dec. 16, 2019
25. February 22, 2005 Food Court Express, level 3 Gateway Mall, Cubao, Quezon City Until Oct. 8, 2019
27. May 27, 2004 Ground Floor SM City Marilao, Marilao, Bulacan Until Dec. 18, 2020
28. September 17, 2004 Lower Ground Level, Shangri-la Plaza, Mandaluyong City Until Dec. 15, 2019
29. August 7, 2004 Upper Ground Level, SM City Dasmariñas, Cavite Until Oct. 29, 2020
30. June 28, 2004 Food Court Level, Edsa Central Pavillion, Mandaluyong City Until Nov. 15, 2020
that on June 22, 2006, BKC and BKA signed the APAC Intellectual Property Agreement (APAC
Agreement) which provides that BKC will grant BKA the exclusive right to operate and grant or
sublicense to third parties the right to operate the Restaurant Business in Asia and Australia, and in
connection therewith to: (i) license to BKA the Marks, Domain Names, and Intellectual Property Rights;
(ii) assign to BKA the Franchise Agreements; and (iii) contribute the Foreign Goodwill and Going
Concern Value as part of an integrated plan, pursuant to the terms and conditions of the APAC
Agreement; that under the APAC Agreement, it was agreed that BKC assigns to BKA, and BKA accepts
the assignment of all BKC's right, title, and interest in each and every franchise agreements (including
those entered into by BKC and Philking-Philippines) in effect on and from the effective date of said
agreements; and that the Philippine-Franchisees will pay to BKA royalty fees which they were previously
obliged to pay BKC under the franchise agreements.
In reply please be informed that Article 12 of the Philippines-Singapore tax treaty provides as
follows:
"Article 12
Royalties
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.
work, including cinematograph films or tapes for television or broadcasting, any patent,
trade mark, design or model, plan, secret formula or process, or for the use of, or the right to
commercial or scientific experience.
Based on the abovecited provisions, royalties arising from sources within the Philippines and
derived by a resident of Singapore shall be subject to the following preferential tax rates: (a) a rate not
exceeding 15 percent of the gross amount of the royalties, where the royalties are paid by a corporation
registered with the Philippine Board of Investments and engaged in preferred areas of activities and for
royalties in respect of cinematographic films or tapes for television or broadcasting; or (b) in all other
cases, a rate not to exceed 25 percent of the gross amount of the royalties.
Such being the case, and since Philking-Philippines is not a corporation registered with the
Philippine Board of Investments which is engaged in preferred areas of activities and that the subject fees
are not in respect of cinematographic films or tapes for television or broadcasting, this Office is of the
opinion and so holds that the fees paid by Philking-Philippines to BKA pursuant to the APAC Agreement
and the subject Franchise Agreements (including those agreements entered into by Philking-Philippines
and BKC) assigned by BKC to BKA, being royalties, shall be subject to income tax at the rate of 25
percent, based on the gross amount thereof. (BIR Ruling No. DA-ITAD-37-06 dated March 27, 2006) STcEIC
Furthermore, the fees paid by Philking-Philippines are subject to value-added tax (VAT) as follows:
(1) for the Agreements from 1999 to January 31, 2006, rate shall be 10%
(2) for the Agreements from February 2006 onwards, rate shall be 12%, under Section 108 of
the Tax Code, as amended by R.A. No. 9337
Very truly yours,
By:

Legal Service
February 21, 2007
Article 10 (2) (A), Philippines-Netherlands tax treaty;

Hoya Glass Disk Philippines, Inc.

111 East Main Avenue, SEPZ
Laguna Technopark
Biñan, Laguna 4024
Attention: Ms. Ma. Anita A. Policarpio

Finance & Accounting Manager
Gentlemen :
This refers to your application for relief from double taxation dated 16 January 2007, requesting
confirmation of your opinion that the dividend payments of Hoya Glass Disk Philippines, Inc. (Hoya
Philippines) to Hoya Holdings N.V. (Hoya Netherlands) are subject to a 10% preferential withholding tax
rate, pursuant to Article 10 of the Philippines-Netherlands tax treaty.
It is represented that Hoya Netherlands is a nonresident foreign corporation organized and existing
under the laws of The Netherlands with office address at Amsterdamseweg 29, 1422 AC Uithoorn, P.O.
Box 250, 1420 AG Uithoon, The Netherlands; that it is not registered either as a corporation or a
partnership in the Philippines per Certification dated January 24, 2007 issued by the Securities and
Exchange Commission; that Hoya Philippines (formerly NSG Philippines, Inc.) is a corporation registered
with the Philippine Economic Zone Authority under Certificate of Registration No. 97-010, duly organized
and existing under laws of the Philippines, with principal office and place of business at 111 East Main
Avenue, Special Economic Philippine Zone, Laguna Technopark, Biñan, Laguna 4024, Philippines. 1uptax07
It is further represented that Hoya Philippines has an Authorized capital stock of P548,800,000.00
with a par value of PhP1,000.00 per share; that Hoya Netherlands is the registered owner of 548,795
common shares of Hoya Philippines or an aggregate value of PhP548,795,000.00, representing 99.99%
ownership in Hoya Philippines; that on January 8, 2007, the Board of Directors of Hoya Philippines
approved and declared cash dividends in the amount of US$24,541,472.00 in favor of stockholders of
record as of March 31, 2006, payable on or before January 31, 2007.
follows, viz:
"Article 10
DIVIDENDS
dividends;
xxx xxx xxx
taxation law of the State of which the company making that distribution is a resident. TSADaI
xxx xxx xxx"
whenever the beneficial owner of the dividend owns directly at least 10 percent of the capital of the paying
considering that Hoya Netherlands holds 99.99% of the capital of Hoya Philippines, this Office is of the
opinion and so holds that the dividend payments by Hoya Philippines to Hoya Netherlands shall be subject
to the preferential tax rate of 10 percent, based on the gross amount thereof, pursuant to Article 10(2)(a) of
the Philippines-Netherlands tax treaty. (BIR Ruling No. DA-ITAD 34-06 dated March 20, 2006)
Very truly yours,
By:

Legal Service
February 21, 2007

Code of 1997;
Makati City
Gentlemen :
This has reference to your Note Verbale No. 046/07 dated January 24, 2007, referred to this Office
requesting for a tax-free purchase on a local motor vehicle for the official use of the Embassy of Australia,
specifically described as follows:
Make: Chevrolet Trailblazer 4.2L 4x2
Model Year: 2006
Conduction No.: ZU 6128
Engine Number: C66159424
Chassis Number: IGNES163666159424
reads:
"ARTICLE 34
services;
"xxx xxx xxx"
Philippine Embassy personnel on their purchases of motor vehicles in your country. DIEAHc
Hence, the herein local purchase of one (1) Chevrolet Trailblazer 4.2L 4x2 for the official use of
the Embassy of Australia is exempt from VAT and ad valorem tax. (BIR Ruling No. DA-ITAD-64-05
dated June 28, 2005)
Very truly yours,

Legal Service
February 19, 2007
1997;
Embassy of France
16th Floor Pacific Star Building
corner Gil Puyat and Makati Avenues
1200 Makati City, Philippines
Gentlemen :
This has reference to your Note Verbale No. 237/AL dated January 19, 2007, referred to this Office
requesting for a tax-free purchase on a local motor vehicle for the personal use of Mr. Dominique
Lebastard, Economic and Commercial Counsellor of the Embassy of France, specifically described as
follows:
Make: Honda CRV 2.0 Select AT

Model Year: 2006
Color: Shoreline Mist
Engine Number: PNKD756402021
Serial Number: PADRD48506V402078
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
However, applying the principle of reciprocity, this Office may grant exemption to the Embassy of
France on their purchase of locally assembled motor vehicles it appearing from the list submitted by the
Philippine Embassy personnel on their purchases of motor vehicles in your country. SECcAI
Hence, the herein local purchase of one (1) Honda CRV 2.0 Select AT for the personal use of Mr.
Dominique Lebastard, of the Embassy of France is exempt from VAT. (BIR Ruling No. DA-ITAD-41-05
dated May 9, 2005)
Very truly yours,

Legal Service
February 19, 2007

1997;
Embassy of Canada
8/F Tower 2, RCBC Plaza
Gentlemen :
This has reference to your Note Verbale No. 0014/07 dated January 17, 2007, referred to this Office
requesting for a tax-free purchase on a local motor vehicle for the official use of the Embassy of Canada,
specifically described as follows:
Make: Toyota Fortuner 4X4 V Diesel A/T

Model Year: 2006
Color: Deep Nautica
Frame Number: MR0YZ59G400048415
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
Canada on their purchase of locally assembled motor vehicles it appearing from the list submitted by the
Philippine Embassy personnel on their purchases of motor vehicles in your country. TaDSCA
Hence, the herein local purchase of one (1) Toyota Fortuner 4x4 V Diesel A/T for the official use
of the Embassy of Canada is exempt from VAT. (BIR Ruling No. DA-ITAD-162-05 dated December 21,
2005)
Very truly yours,

Legal Service
February 19, 2007

Embassy of Japan
2627 Roxas Blvd.,
Pasay City, Manila
Attention: Mr. Hiromi Adachi

Second Secretary
Gentlemen :
This has reference to your Note Verbale No. 526-06 dated January 23, 2007 referred to this Office
refund of value-added tax (VAT) on the local purchase of a motor vehicle, for the personal use of Mr.
Hiromi Adachi, Second Secretary of the Embassy of Japan, specifically described as follows:

Make: Toyota Innova V Gas A/T
Model Year: 2006
Chassis Number: TGN40-5008598
reads:
"ARTICLE 34
"(a) indirect taxes of a kind which are normally incorporated in the price of the goods and
services;
"xxx xxx xxx"
106 and 108 of the National Internal Revenue Code of 1997.
of Japan and its personnel on their purchase of locally-assembled motor vehicles it appearing from the list
similar exemption to the Philippine Embassy on their purchase of locally-assembled motor vehicles in
your country.
Hence, the local purchase of one (1) unit of 2006 Toyota Innova V Gas A/T, for the personal use of
Mr. Hiromi Adachi of the Embassy of Japan is exempt from VAT. (BIR Ruling No. DA-ITAD-89-06
dated August 11, 2006)
determining whether Mr. Hiromi Adachi of the Embassy of Japan is entitled to VAT exemption on the
basis of reciprocity. The determination on whether your request for tax refund should be given due course
is upon the Office which will be conducting the investigation for that purpose. Thus, the docket pertaining
thereto (including a copy of this ruling) shall be endorsed to the proper office for processing and
investigation. ITaCEc
Very truly yours,

Legal Service
(120)
February 9, 2007
Articles 2 & 13 Philippines-Singapore tax treaty;

Section 127, NIRC of 1997;

6760 Ayala Avenue
1226 Makati City
Attention: A.C. Tionko

Tax Service
Gentlemen :
This refers to your application for relief from double taxation dated March 1, 2005, on behalf of
your client, Singapore Telecom International Pte. Ltd. (Singtel), requesting confirmation of your opinion
that the disposition of shares of stock in a domestic company, whose shares are listed and traded in the
Philippine stock exchange shall be exempt from the stock transaction tax, pursuant to the
It is represented that Singtel is a foreign corporation organized and existing under the laws of
Singapore with address at 31 Exeter Road, Comcentre, Singapore; that it has a branch office in the
Philippines; that Singtel owns 4,202,401 shares of Globe Telecom, Inc. (Globe), a domestic corporation
organized and existing under the laws of the Philippines; and that Singtel's investment in Globe common
shares was made directly with Globe, without intervention, participation or benefit of its Philippine
branch; that Singtel intends to accept Globe's offer to buy back its 4,202,401 common shares, which are
listed and traded with the Philippine Stock Exchange (PSE); that the shares shall be traded through the
facilities of the PSE.
BASIC FACTS AND REQUEST FOR RULING
It is your opinion that normally, the disposition of shares listed and traded through the local stock
exchange shall be subject to the applicable stock transaction tax at the rate of 1/2 of 1% of the gross
selling price or gross value in money under Section 127 of the National Internal Revenue Code (Tax Code)
of 1997; that under Article 13 of the Philippines-Singapore tax treaty, gains from the disposition of shares
in a company whose assets do not consist principally of immovable property (i.e., not more than 50% of
the total assets as appearing in the audited financial statements of the company), are exempt from income
tax including stock transaction tax; that Article 2(4) of the same tax treaty states that the said Article 13
applies also to any identical or similar taxes in addition or, in place of, the existing taxes. In support of
your position, you cited BIR Ruling No. 139-98 dated September 28, 1998 where this Bureau held that the
exemption provided under the tax treaties includes exemption from the stock transaction tax.
DISCUSSION
Article 13 and Article 2

of the Philippines-Singapore tax treaty
follows, viz:
"Article 13
xxx xxx xxx
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
It should be emphasized that Article 13 should be read in consonance with Article 2 of the same tax
treaty, which provides:
"Article 2
TAXES COVERED
1. This Convention shall apply to taxes on income imposed on behalf of each Contracting
State, irrespective of the manner in which they are levied.
2. There shall be regarded as taxes on income all taxes imposed on total income or on elements
of income, including taxes on gains from the alienation of movable or immovable property
and taxes on the total amounts of wages or salaries paid by enterprises. ScAIaT
3. The existing taxes to which the Convention shall apply are in particular:
(a) in the case of the Philippines:
the income taxes imposed by the Government of the Republic of the

Philippines, (hereinafter referred to as 'Philippine tax');
(b) in the case of Singapore:
the income tax (hereinafter referred to as 'Singapore tax').
4. The Convention shall apply also to any identical or substantially similar taxes on income
which are imposed after the date of signature of this Convention in addition to, or in place
of, the existing taxes. The Competent Authorities of the Contracting States shall notify each
other of the changes which have been made to their respective taxation laws. (Emphasis
supplied)
xxx xxx xxx
The Philippines-Singapore tax treaty

applies to taxes on income only
It is clear from the foregoing that the Philippine-Singapore tax treaty covers, or is applicable, only
to "taxes on income" or "income taxes".
Income tax is referred to as tax on all yearly profits arising from property, professions, trades or
offices, or as a tax on a person's income, emoluments, profits and the like (61 C.J.S. 1559). It may be
succinctly defined as a tax on income, whether gross or net (67 Am. Jur. 308).
Income in tax law is an amount of money coming to a person within a specified time, whether as
payment for services, interest, or profit from investment. It means cash or its equivalent, or the flow of
wealth. It is gain derived and severed from capital, from labor or from both combined. The determining
factor for the imposition of income tax is whether any gain or profit was derived from a transaction
(Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R. No. 108576, January 20, 1999, 102
SCAD 119).
The above quoted paragraph 4 of Article 2 of the Philippines-Singapore tax treaty may be broken
down as follows: (1) the Philippines-Singapore tax treaty shall also be applicable to any identical or
substantially similar taxes on income, (2) such taxes on income are imposed after the date of signature of
the said tax treaty (i.e., on August 1, 1977), and (3) such taxes on income are in addition to, or in place of,
the existing taxes referred to in paragraphs 2 and 3 of the same Article 2 of the Philippines-Singapore tax
treaty.
Unlike the Philippines-Singapore tax treaty, the Organization for Economic Cooperation and
Development (OECD) and United Nations (UN) Model Conventions and some of the existing tax treaties
do not qualify the phrase "any identical or substantial similar taxes" as referring only to income taxes.
Thus, in applying Article 13 vis-a-vis paragraph 4 of Article 2 of the Philippines-Singapore tax treaty, it
must be recognized that the intention of the Contracting States is that the additional tax or the tax intended
to replace existing taxes on gains from the alienation of property should only be a tax "on income". And
such intention is clearly expressed in the language used in the said tax treaty.
History of Section 127

of the Tax Code of 1997
On the other hand, Section 127 (A) (under Title V-Other Percentage Taxes) of the National Internal
Revenue Code (Tax Code) of 1997 provides as follows, viz:
"SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through
the Local Stock Exchange. — There shall be levied, and assessed and collected on every sale, barter,
exchange or other disposition of shares of stock listed and traded through the local stock exchange
other than the sale by a dealer in securities, a tax at the rate of one-half of one percent (1/2 of 1%) of
the gross selling price or gross value in money of the shares of stock sold, bartered, exchange or
otherwise disposed which shall be paid by the seller or transferor."
The tax imposed by the foregoing provision is known as the "stock transaction tax". Such tax is not
a tax on the earnings derived from the sale of stocks but is an excise tax imposed on the privilege to sell
shares of stocks (BIR Ruling No. 118-80).
In enacting Republic Act No. (RA) 7717, 1(121) Congress has considered the view that the stock
transaction tax is not a tax on income as it explicitly provided under its Section 3, to wit:
"SEC. 3. Sections 21(d)(2), 24(e)(2)(B), 25(a)(6)(C)(ii), and 25(b)(5)(C)(ii) of the National

Internal Revenue Code, as amended, (i.e., the Tax Code of 1993) are hereby repealed" (Emphasis
supplied)
Such repealed provisions of the Tax Code of 1993 pertaining to foreign corporations are as follows,
viz:
"SEC. 25. Rates of tax on foreign corporations. —
"(a) Tax on resident foreign corporations. — . . .
"(6) Tax on certain incomes received by resident foreign corporations. . . .
"(C) Capital gains from sales of shares of stocks. — Capital gains realized from sale, exchange or
disposition of shares of stocks in any domestic corporation shall be taxed as follows:
xxx xxx xxx
"(ii) Capital gains presumed to have been realized from the sale, exchange or disposition of shares
of stock listed and traded through a local stock exchange — 1/4 of 1% based on the gross selling
price of the shares or shares of stock.
xxx xxx xxx
"(b) Tax on non-resident foreign corporations. — . . .
"(5) Tax on certain incomes realized by non-resident foreign corporations. . . .
"(C) Capital gains realized from sale, exchange or disposition of shares of stocks in any domestic
corporation shall be subject to tax as follows: CDcaSA
xxx xxx xxx
"(ii) Capital gains presumed to have been realized from the sale, exchange or disposition of shares
of stock listed and traded through a local stock exchange — 1/4 of 1% based on the gross selling
price of the shares or shares of stock." (Emphasis supplied)
In place of the foregoing provisions, Section 1 of RA 7717 inserted a new section [which was
reenacted as Section 127(A) of the Tax Code of 1997 as above-cited] under the Title V (on Other
Percentage Taxes), to wit:
"Sec. 124-A. Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded
through the Local Stock Exchange or through Initial Public Offering. — (a) Tax on sale, barter or
exchange of shares of stock listed and traded through the local stock exchange. — There shall be
levied, assessed, and collected on every sale, barter, exchange, or other disposition of shares of stock
listed and traded through the local exchange other than the sale by a dealer in securities, a tax at the
rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the
shares of stock sold, bartered exchanged, or otherwise disposed which shall be paid by the seller of
transferor."
In repealing Section 25 under the Tax Code of 1993 and replacing the same with Section 124-A
above, Congress removed the stock transaction tax from the classification of income taxes and considered
the same as a percentage tax. It is noted that the tax base in the former law, i.e., "(c)apital gains presumed
to have been realized" was not retained. Instead, the tax base was changed to "gross selling price or gross
value in money", making manifest the intent to change the stock transaction tax to a percentage tax.
A percentage tax is a business tax which is based on a given ratio between the gross sales or
receipts and the burden imposed upon the taxpayer (City of Manila vs. Inter-Island Gas, 99 Phil. 847). The
percentage tax on sales is based on a set ratio between the volume of sales and the amount of the tax
(Pepsi Cola Bottling Co., Inc. vs. Municipality of Tanauan, L-31156, February 27, 1976).
Congressional Deliberations
It is well-established that opinions expressed in the debates and proceedings of the Legislature,
steps taken in the enactment of a law, or the history of the passage of the law through the Legislature, may
be resorted to as aids in the interpretation of a statute with a doubtful meaning (Esso Standard Eastern,
Inc. vs. Commissioner of Internal Revenue, G.R. No. 28508-9, July 7, 1989).
Thus in relation to the foregoing, relevant portions in the Committee Deliberations (Committee on
Ways and Means, May 26, 1993) of the House of Representatives on House Bill No. 9187 (later to become
RA 7717) are hereunder reproduced:
xxx xxx xxx
THE CHAIRMAN.
Because the one fourth (1/4) of one percent (1%) right now is not really an income tax. It is out of
place in Title 2 of the Internal Revenue Code because it is based on gross selling price. That's why
we are transferring it and putting it in its proper place under Title 5 of the Internal Revenue Code.
Because it is a gross selling price.
MR. FRIENZA (DOF).
It might be that the present provision or the taxation of shares of stock is based on expediency and
that is why the provision reads that presumably the capital gains have been taxed at one fourth (1/4)
of one percent (1%). Now, the rate . . .
MS. GUEVARA (DOF).
Sir, except that we just have to interpret it in the light of policy context because for all intents and
purposes, it is really supposed to be a tax on capital gains except that . . . because of administrative
reasons and also for purposes of developing the stock market, it was based on the value and the rate
was lowered.
THE CHAIRMAN.
It does not detract from the fact that it is a business tax which is being characterized as an income
tax.
xxx xxx xxx
MS. SERASPI (NTRC).
Good morning, Mr. Chairman. I am Aurora Seraspi of the National Tax Research Center. We also
support the increase of the rate of tax from one-fourth of one percent to one-half of one percent,
however, on the part of the transfer of the tax from the income tax to the percentage tax, the NTRC
has also a reservation. As my other colleagues have stated, we subscribed to them, and then one
issue that we would like to point out is that the transfer of the tax from the income tax to the
percentage tax has a serious implication on the over all tax structure particularly on the progressivity
of the tax system because you will be eroding your direct taxes, it will be transferred to the indirect
taxes and the Philippine tax system will be again be said as a regressive tax system.
THE CHAIRMAN.
I don't think it will affect the progressivity of the system. Because right now, under the present
provisions of the Internal Revenue Code, this is already an indirect tax. This is already an indirect
tax.
MS. SERASPI (NTRC).
The capital gains?
THE CHAIRMAN.
No, this is not a capital gains tax, this is a transaction tax under the present provisions of the Internal
Revenue Code, but it's out place. It's also an indirect tax.
MS. SERASPI (NTRC).
Before it was an indirect tax under, earlier . . .
THE CHAIRMAN.
No! Because it can be passed on to the buyer.
MS. SERASPI (NTRC).
But what was taxed under the . . . one fourth of one percent is the presumed gains realized from the
sale.
THE CHAIRMAN.
There is no such thing as a presumed gain.
MS. SERASPI (NTRC).
Yeah, And then
THE CHAIRMAN.
How can you presume gain when you, for example, sell the shares of stock at a loss?
MS. SERASPI (NTRC).
I think the one fourth of one percent is not imposed if there is a loss. Because we are imposing . . .
THE CHAIRMAN.
No. It is imposed even if there is a loss.
VOICE.
Transaction tax iyan, eh.
THE CHAIRMAN.
So, it is really an indirect tax. There is no problem putting this indirect tax in its proper place and
really characterizing it as an indirect tax, rather than putting it, making it appear as an income tax.
AEHTIC
xxx xxx xxx
THE CHAIRMAN.
So I said, this is not a direct tax, as presently worded in the Internal Revenue Code. It is really an
indirect tax which is disguised as a direct tax.
HON. ALMARIO.
Or would you just . . . what you call it a direct tax because of the criticism that the Philippine tax
system is regressive.
MS. SERASPI (NTRC).
The dependence of the Philippine tax system is on indirect taxes. So, if that will be transferred
again, it will be . . . the tax system will become more regressive.
THE CHAIRMAN.
Yeah. Whatever tax system you will go, if you look at the present provisions of the Internal Revenue
Code imposing the one fourth of one percent on stock transaction, it's really not a direct tax, it's an
indirect tax. Because it can be even shifted to the seller. Because the tax is based on gross selling
price not on gain. It's the same as in the VAT. The VAT is based on gross selling price which can be
shifted to the buyer.
xxx xxx xxx
In the Congressional Floor Deliberations (held on September 2, 1993) regarding the same Bill,
Honorable Exequiel B. Javier of Antique delivered a sponsorship speech, a part of which is stated as
follows:
MR. JAVIER.
xxx xxx xxx
Finally, the proposed measure, Mr. Speaker, seeks to correct the present characterization of the
tax on sale of shares of stock listed in the stock exchange. Under the National Internal Revenue Code,
the tax is characterized as a tax on income. This is a misnomer, Mr. Speaker. The tax is in essence a
tax on transaction since it is imposed regardless of whether the gain or loss is derived from the sale of
shares of stock. Historically, Mr. Speaker, when this tax was introduced in 1970, it was likewise
characterized as a tax on the transaction. P.D. No. 779, however, erroneously change that
characterization to a tax on income. This measure, Mr. Speaker, merely seeks to restore the
characterization of this tax — a tax on transaction.
As shown above, there was a very clear intent on the part of our legislators to clarify the treatment
of the stock transaction tax under the Section 124-A [now Section 127(A) of the Tax Code of 1997] as one
which is not in the nature of an income tax.
RULING
In view of all the foregoing, the stock transaction tax cannot be considered as an identical or
substantially similar tax on income in place of the capital gains tax imposed under the former law on the
sale or transfer of shares of stock listed and traded through the local stock exchange.
Consequently, Singtel may not avail of the benefits of Article 13 of the Philippine-Singapore tax
treaty on its sale to Globe of its 4,202,401 common shares, which are listed and traded through the
facilities of the PSE.
Such being the case, your request for confirmation of opinion that the disposition of shares of stock
in a domestic company, whose shares are listed and traded on the Philippine stock exchange shall be
exempt from the stock transaction tax, pursuant to the Philippines-Singapore tax treaty, is hereby denied
for lack of legal basis.
BIR Ruling No. 139-98 is therefore modified. All other rulings or issuance inconsistent herewith
are hereby revoked.
Please be guided accordingly.
Very truly yours,
Commissioner
Footnotes
1. Entitled: "AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH
INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN
SUBSECTIONS THEREOF" (Emphasis supplied).
February 16, 2007
Arts. 5 & 7 of Philippines-Singapore tax treaty;

Arts. 5 & 7 of Philippines-Korea tax treaty;
BIR Ruling No. DA-ITAD 74-06;
Samsung Electronics Phils.

Manufacturing Corporation
Block 6, Calamba Premiere International Park
Barangay Batino, Calamba City
Attention: Mr. Jeong Ho Park

Chief Financial Officer
Gentlemen :
This refers to your letter dated September 7, 2006, received by this Office on November 23, 2006,
requesting confirmation of your opinion that the service fees to be paid by Samsung Electronics
Philippines Manufacturing Corporation (SEPMC-Philippines) to Samsung Asia Pte. Ltd.
(SAPL-Singapore) and to Samsung Electronics Corporation (SECL-Korea) under their respective
Contractual Agreement for IT Management Fee and Sales Commission Agreement are not subject to
Philippine income tax pursuant to Philippines-Singapore and Philippines-Korea tax treaties, respectively.
It is represented that SAPL-Singapore is a nonresident foreign corporation duly organized and

existing under the laws of Singapore with business address at 83 Clemenceau Avenue, # 08-01 UE Square,
Singapore 239220; that it has a representative office in the Philippines the activities of which are limited
to: gathering economic, market and industry information, conducting market research for the market
development in the Philippines, assisting Filipino distributors, buyers and end-users in the importation of
materials, supplies and components from Samsung Electro Mechanics companies abroad, conducting such
other activities which consists purely of coordination work, and acting as a liaison office between
SAPL-Singapore and the Samsung Group of Companies; that SECL-Korea is a nonresident foreign
corporation duly organized and existing under the laws of Korea with business address at 416 Maetan
3-dong, Paldal-ku, Suwon-City, Kyungki-Do, Korea 442-742; that it has a representative office in the
Philippines which acts exclusively for information collection and dissemination on its own behalf and for
other activities which are preparatory and auxiliary in character; that SEPMC-Philippines is a domestic
corporation with office address at Blk 6, Calamba Premiere International Park, Barangay Batino, Calamba
City, Laguna; that it is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone
Export Enterprise under Registration Certificate No. 01-11 dated February 9, 2001; that it is engaged in
the design, manufacture, and sale of electronic products, including optical disk drive products, their
components and parts.
It is further represented that on January 1, 2004, SAPL-Singapore and SEPMC-Philippines entered

into an Appendix, the terms and condition of which is an integral part of the Master Agreement 1(122)
(Agreement); that the said Appendix shall operate for a period of 1 year from January 1, 2004 to
December 31, 2004 and shall automatically continue unless or until terminated by either party giving to
the other no less than 30 days written notice of termination expiring on the last day of the initial period of
coverage or at any time thereafter; that under the Appendix IT Centre shall render the following scope of
IT services to SEPMC-Philippines:
(a) Support security system implementation and maintenance;
(b) Support critical security operational requests on security system including Web-based
security application operations (PC management, Software/Hardware management) and
server (Windows 2000) maintenance (user management and system upgrading);
(c) Implementing backup policy for security devices/components as well as monitoring systems
and databases for security breach.
That all of the above IT services shall be performed in Singapore; that in case SEPMC-Philippines deems
it necessary, SAPL-Singapore may send its qualified engineers and/or technicians to render on-site
technical supports to SEPMC-Philippines in relation to the above IT services; that the length of stay of
such engineers and/or technicians of SAPL-Singapore in the Philippines shall not exceed period or periods
aggregating more than six months within a period of twelve months; that SEPMC-Philippines shall pay
fees to SAPL-Singapore for SAP R/3 system process support and maintenance, serving hosting, other
project operating and technical support costs. IaHSCc
On the other hand, on April 1, 2004, SEPMC-Philippines entered into a Sales Commission
Agreement with SECL-Korea, whereby SECL-Korea will provide SEPMC-Philippines the following
services:
1) To perform market research and analysis in Territory 2(123) for the export of Products 3(124) on
behalf of SEPMC-Philippines;
2) To call on regularly upon present clients for the purpose of increasing SEPMC-Philippines
sales of its Products;
3) To seek out new customers for SEPMC-Philippines and solicit orders for Products from such
customers.
That the foregoing services are largely to be performed abroad and in cases that SEPMC-Philippines
would request and require that the said services be performed in the Philippines, the length of stay of the
personnel of SECL-Korea shall not exceed 6 months or 183 days in any twelve-month period; that
SEPMC-Philippines shall compensate SECL-Korea for exporting services rendered at the rate of 2.0%
(CD-ROM), 2.0%(CD-RW) and 2.0% (COMBO) of the Net Selling Price.
In reply, please be informed of the following,
Appendix of Contractual Agreement

For IT Management Fee applying,
Philippine-Singapore tax treaty
"Article 7
BUSINESS PROFITS
xxx xxx xxx"
Based on the foregoing, the profits of a Singapore enterprise shall be taxable only in Singapore
Applying this to the instant case, the service fees received by SAPL-Singapore for the services rendered in
the Philippines under the Appendix shall be taxable in the Philippines in connection with the activities
giving rise to such income only if it has a permanent establishment in the Philippines.
In relation thereto, Article 5 of the Philippines-Singapore tax treaty provides
"Article 5
b) A branch;
c) An office;
e) A factory;
f) A workshop;


days.
xxx xxx xxx"
Inasmuch as the whole of such Agreement, including any continuance and renewal thereof such as
the Appendix for the period of January 1 to December 31, 2004, shall be regarded as being part of the
"same or connected project" for the purpose of counting the aggregate period of 183 days above, based on
the total number of days the services are rendered in the Philippines beginning on the effectivity of the
Agreement, January 1, 2003, including all periods resulting from its continuance and renewal. The yearly
renewal of the Agreement shall not be taken as a separate project but shall be treated as the "same
project". Accordingly, for as long as the employees of SAPL-Singapore do not stay in the Philippines for a
period or periods aggregating more than 183 days in the course of their rendition of services to
SEPMC-Philippines for the "same or connected project", then SAPL-Singapore is deemed not to have a
permanent establishment in the Philippines to which payment of the service fees may be attributed to and
therefore, exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 91-06 dated August 14, 2006)
aIEDAC
Sales Commission Agreement applying

Philippines-Korea tax treaty
"Article 7
BUSINESS PROFITS
xxx xxx xxx"
Based on the foregoing, the profits of a Korean enterprise shall be taxable only in Korea unless
such enterprise carries on business in the Philippines through a permanent establishment situated therein.
If the Korean enterprise carries on business as aforesaid, the profits of such enterprise may be taxed in the
Philippines but only so much of them as is attributable to that permanent establishment. Applying this to
the instant case, the service fees received by SECL-Korea for the services rendered in the Philippines
under the Agreement shall be taxable in the Philippines in connection with the activities giving rise to such
income only if it has a permanent establishment in the Philippines.
In relation thereto, Article 5 of the Philippines-Korea tax treaty provides
"Article 5
place of business through which the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
b) a branch;
c) an office;
d) a factory;
e) a workshop;
resources;
3. a) a building site or construction, installation or assembly project or supervisory

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

through an employee or other personnel constitutes a permanent
establishment only if activities of that nature continue within a Contracting
State for a period or periods exceeding in the aggregate 183 days within any
twelve-month period; and
c) a place of exploration of natural resources constitutes a permanent

establishment only if it exists for more than six months.
xxx xxx xxx"
Considering the foregoing and as much as it is represented that SECL-Korea's representative office
acts exclusively for information collection and dissemination on its behalf and for other activities that are
preparatory and auxiliary in character and for as long as the employees of SECL-Korea do not stay in the
Philippines for a period or periods aggregating more than 183 days within any twelve-month period in the
course of their rendition of services to SEPMC-Philippines, then SECL-Korea is deemed not to have a
permanent establishment in the Philippines to which payment of the service fees may be attributed to and
therefore, exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 91-06 dated August 14, 2006)
As regards the imposition of the VAT on the respective rendition of services by SAPL-Singapore
and SECL-Korea, please be informed further that Section 108 of the Tax Code of 1997 4(125) provides as
follows:
Thus, in general, the VAT is imposed on the actual respective services rendered by
SAPL-Singapore and SECL-Korea in the Philippines. On every payment of service fees,
SEPMC-Philippines is required to withhold such VAT and treat the same as a "passed on" VAT, pursuant
to Section 4.110-3 (b) of Revenue Regulations No. 7-95 as amended [now Section 4.114-2 (b) of Revenue
Regulations No. 16-05].
"Special laws may certainly exempt transactions from the VAT. 6(127) However, the Tax
Code provides that those falling under PD 66 are not. PD 66 is the precursor of RA 7916 — the
special law under which respondent was registered. The purchase transactions it entered into are,
therefore, not VAT-exempt. These are subject to the VAT; respondent is required to register.
xxx xxx xxx
xxx xxx xxx
Moreover, the exemption is both express and pervasive for the following reasons.
also prohibited indirectly. SCEDAI
xxx xxx xxx"
No. 7916 or PEZA Law, is particularly applicable to the instant case.
Such being the case, the respective payments of services fees by SEPMC-Philippines, being a
PEZA-registered enterprise, to SAPL-Singapore and SECL-Korea under their respective agreements
should be, as it is hereby confirmed to be, exempt from VAT.
Very truly yours,
By:

Legal Service
Footnotes
1. Contractual Agreement For IT Management Fee entered into by and between SEPMC-Philippines and
SAPL-Singapore on January 1, 2003.
2. Territory shall mean all of the countries in the world during the term of this Agreement.
3. Products shall mean optical disc drive such as CD-ROM, CD-RW, COMBO and other products to be added
from time to time by the mutual agreement of both parties during the term of this agreement.
No. 9337].
February 15, 2007
Article 10, Philippines-Australia tax treaty;


20th Floor, Tower I
6766 Ayala Avenue
1200 Makati City
Philippines
Attention: Ms. Benedicta Du-Baladad

Tax Partner
Gentlemen :
This refers to your letter dated 29 August 2006 which was filed on behalf of your client, Metrobank
Card Corporation (MCC), requesting confirmation of your opinion that the dividends to be paid to ANZ
Funds Pty. Ltd. (ANZ Funds) by MCC are subject to a 15% final withholding tax rate provided under the
National Internal Revenue Code of 1997, as amended.
It is represented that ANZ Funds is a nonresident foreign corporation organized and existing under
the laws of Australia with office address at Level 14, 100 Queen Street, Melbourne, Australia; that it is not
registered either as a corporation or a partnership in the Philippines per Certification dated 26 July 2006
issued by the Securities and Exchange Commission; that MCC is a corporation organized and existing
under laws of the Philippines, with principal office and place of business at 2/F, GT Tower International,
Ayala Avenue corner H.V. Dela Costa Street, Makati City, Philippines.
It is further represented that MMC has an authorized capital stock of Five Hundred Million
(500,000,000) common shares with a par value of One Peso (PhP1.00) per share; that ANZ Funds, a
registered shareholder of MCC, holds One Hundred Forty-One Million Thirty-Four Thousand Eighty-Four
(141,034,084.00) common shares or an aggregate value of One Hundred Forty-One Million Thirty-Four
Thousand Eighty-Four Pesos (PhP141,034,084.00) which represents 39.9988% of the outstanding capital
stock of MCC and is within the foreign ownership limit allowed by the Constitution and existing laws; that
on June 14, 2006, the Board of Directors of MCC resolved that a cash dividend of 170% or PhP1.70 per
share based on par value totaling Six Hundred Million (PhP600,000,000.00) be declared payable to all
common stockholders of record as of June 14, 2006, with payment date as may be fixed by the President
but not later than December 31, 2006; and that the issue/s or transaction subject of the above request for
ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a
tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s involved.
In reply, please be informed that Articles 10 and 24 of the Philippines-Australia tax treaty
respectively provides as follows, viz:
"ARTICLE 10
Dividends
(1) Dividends paid by a company which is a resident of one of the Contracting States for the
purposes of its tax, being dividends to which a resident of the other Contracting State is
beneficially entitled, may be taxed in that other State.
(2) Such dividends may be taxed in the Contracting State of which the company paying the
dividends is a resident for the purposes of its tax, and according to the law of that State, but
the tax so charged shall —
(a) in the case of dividends derived by a company, not exceed 15 per cent of the
gross amount of the dividends where relief, either by way of credit as
described in paragraph 2 of Article 24 or relief by way credit as described in
the second sentence of paragraph 4 of Article 24, is given to the beneficial
owner of the dividends; and
(b) in any other case, not exceed 25 per cent of the gross amount of the
dividends.
Nothing in this paragraph shall affect the taxation of a company in respect of profits out of
which dividends are paid.
(3) The term 'dividends' in this Article means income from shares and other income assimilated
to income from shares by the taxation law of the Contracting State of which the company
making the distribution is a resident. TAacIE
xxx xxx xxx"
"CHAPTER IV
METHODS OF ELIMINATION OF DOUBLE TAXATION
ARTICLE 24
(1) Subject to the provisions of the law of Australia from time to time in force which relate to
the allowance of a credit against Australian tax of tax paid in a country outside Australia
(which shall not affect the general principle hereof), Philippine tax paid, whether directly or
by deduction, in respect of income derived by a person who is a resident of Australia from
sources in the Philippines (excluding, in the case of dividends, tax paid in respect of the
profits out of which the dividends are paid except to the extent that the provisions of
paragraph (2) may permit that the tax to be included) shall be allowed as a credit against
Australian tax payable in respect of that income.
(2) A company which is a resident of Australia is, in accordance with the provisions of the
taxation law of Australia in force at the date of signature of this Agreement, entitled to a
rebate in its assessment at the average rate of tax payable by the company in respect of
dividends that are included in its taxable income and are received from a company that is a
resident of the Philippines. However, should the law so in force be amended so that the
rebate in relation to the dividends ceases to be allowable under that law, credit shall be
allowed to the first-mentioned company under paragraph (1) for the Philippines tax paid on
the profits out of which the dividends are paid, but only if that company beneficially owns at
least 10 per cent of the paid-up share capital of the second-mentioned company.
xxx xxx xxx"
Based on the aforequoted provision, dividends paid by a Philippines company to a company which
is a resident of Australia may be taxed at a rate not exceeding 15 per cent of the gross amount of the
dividends where relief is given to the said Australian company by way of rebate or credit in respect of the
dividends that are included in its taxable income or the rebate in relation to the dividends ceases to be
allowable but only if the Australian company beneficially owns at least 10 per cent (10%) of the paid-up
share capital of the Philippine company.
In view of the representation that under Section 23AJ of the Income Tax Assessment Act 1936 of
Australia, foreign dividends received in Australia are not subject to income tax being classified as
non-assessable non-exempt income, 1(128) in which case then, no Philippine-sourced dividend income will
be subject to tax in Australia against which a tax rebate may be claimed. It appears, therefore, that the
provisions on rebate of tax on dividends as provided for in the Philippines-Australia tax treaty as a
pre-requisite in availing of the 15% preferential rate are not met. Hence, the provisions of the said treaty
on dividends shall not apply in the instant case.
However, please be informed that Section 28 (B) (5) (b) of the National Internal Revenue Code of
1997, as amended Republic Act (RA) No. 9337, provides:
SEC. 28. Rates of Income Tax on Foreign Corporations. —
xxx xxx xxx
(B) Tax Nonresident Foreign Corporations. —
xxx xxx xxx
(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation. —
xxx xxx xxx
(b) Intercorporate Dividends. — A final withholding tax at the rate of fifteen percent (15%)
is hereby imposed on the amount of cash and/or property dividends received from a domestic
corporation, which shall be collected and paid as provided in Section 57(A) of this Code, subject to
the condition that the country in which the nonresident foreign corporation is domiciled, shall allow a
credit against the tax due from the nonresident foreign corporation taxes deemed to have been paid in
the Philippine equivalent to twenty percent (20%), which represents the difference between the
regular income tax of thirty-five percent (35%) and the fifteen percent (15%) tax on dividends as
provided in this subparagraph: Provided, That effective January 1, 2009, the credit against the tax due
shall be equivalent to (15%), which represents the difference between the regular income tax of thirty
percent (30%) and the fifteen percent (15%) tax on dividends;"
xxx xxx xxx"
It is clear from the above provisions that the dividends received by ANZ Funds from MCC shall be
taxed at 15% subject to the condition that Australia shall allow a credit against the tax due from ANZ
Funds' corporate taxes deemed to have been paid in the Philippines equivalent to 20% which represents
the difference between the regular income tax of 35% and the 15% tax on dividends. In the instant case,
the fact that Australia will not impose any income tax on the dividends received by ANZ from MCC, the
foreign dividends being classified as non-assessable non-exempt income and therefore not liable to pay
income tax on it, should be considered as a full satisfaction of the given condition (Commissioner of
Internal Revenue vs. Wander Philippines, Inc., No. L-68375, April 15, 1988). Such being the case, this
Office is of the opinion and so holds that the dividends remitted by MCC to ANZ Funds are subject to the
preferential rate of 15% pursuant to Section 28 (B) (5) (b) of the NIRC of 1997 as amended by R.A. No.
9337. (BIR Ruling No. 008-00 dated January 5, 2000)
It must be emphasized, however, that in line with Revenue Memorandum Circular No. 80-91, the
preferential tax rate of 15% imposed under the said Section 28 (B) (5) (b) may be availed of only when the
following documentation requirements are punctiliously complied with within a reasonable time;
a) to show that the dividends received by ANZ Funds from MCC were not among the
items considered in arriving at the income tax due from ANZ Funds;
b) to present the income tax return of ANZ Funds for the taxable year when the subject
dividends were received; and
c) to submit any authenticated document showing that the Australian Government did not
impose any tax on the subject dividends. cDaEAS
Otherwise, the general tax rate of 35% shall be applied.
Very truly yours,
By:

Legal Service
Footnotes
* definition of non-assessable non-exempt income
1. Div. 6-23 Income Tax Assessment Act 1936
An amount *ordinary income or *statutory income is non-assessable non-exempt if a provision of this
Act or of another *Commonwealth law states that it is not assessable income and is not *exempt income.
For a summary list of provisions about non-assessable non-exempt income, see Subdivision 11-B.
Div. 6-20 Exempt income
(1) An amount of *ordinary income or *statutory income is exempt income if it is made exempt
from income tax by a provision of this Act or another *Commonwealth law.
For summary lists of provisions about exempt income, see sections 11-5, 11-10 and 11-15
(2) *Ordinary income is also exempt income to the extent that this Act excludes it (expressly or by
implication) from being assessable income.
(3) By contrast, an amount of *statutory income is exempt income only if it is made exempt from
income tax by a provision of this Act outside this Division or another *Commonwealth law.
(4) If an amount of *ordinary income or *statutory income is *non-assessable non-exempt
income, it is not exempt income
Div 6-15 What is not assessable income
(1) If an amount is not *ordinary income, and is not *statutory income, it is not assessable income
(so you do not have to pay income tax on it).
(2) If an amount is exempt income, it is not assessable income
(3) If an amount is *non-assessable non-exempt income, it is not assessable income.
February 14, 2007
Articles 5 (Permanent Establishment), 8 (Business Profits)


Ortigas, Pasig City

Gentlemen :
Technologies Philippines, Inc. (Canon-Philippines), requesting a ruling on the tax implication and tax
treaty relief in relation to its purchase of software from InterWorking Labs, Inc. (Inter Working Labs)
pursuant to the Philippines-United States of America (US) tax treaty.
It is represented that InterWorking Labs is a nonresident foreign corporation, organized and existing
under the laws of the United States of America, with principal office at 108 Whispering Pines Drive, Suite
115, Scotts Valley, California; that InterWorking Labs is not registered either as a corporation or as a
partnership in the Philippines as confirmed by the Certification of Non-Registration of
and related technologies.
It is further represented that Canon-Philippines purchased a software (Internet Working Labs) from
InterWorking Labs through its agent Digital Architect Corporation, also a nonresident foreign corporation
from Japan, not registered either as a corporation or partnership in the Philippines as evidenced by the
Certificate of Non-Registration of Corporation/Partnership dated May 26, 2006 issued by the Securities
and Exchange Commission; that the software has been defined as a test suite and documentation software,
including bug fixes and updates thereto; that under the Software License Agreement (Agreement) entered
into by InterWorking Labs and Canon-Philippines on April 18, 2006, InterWorking Labs grants to
Canon-Philippines a non-exclusive, non-transferable license to use and modify the Source Code and
Binary Code for internal use only, for the sole purpose of testing and verifying computer network products
for compliance with the Networking Protocols; that Canon-Philippines has no right to transfer, sublicense
or otherwise distribute the Licensed Software to any third party; that Canon-Philippines may not (i)
disassemble, decompile or reverse engineer the Binary Code or permit any third party to do so; (ii) copy
the Licensed Software, except as necessary to use the License Software in accordance with the license
granted except for reasonable back-up copies; or (iii) to use the Licensed Software in any manner to
provide testing or other computer services to third parties; that Canon-Philippines has no right or license
to use any trademark of InterWorking Labs or its suppliers during or after the term the Agreement; that all
right, title and interest in and to the Licensed Software, and all Intellectual Property Rights embodied
therein shall at all times remain with InterWorking Labs or its suppliers, as applicable; that the
consideration for the purchase of the software is 288,000 Japanese Yen; and that the issue or transaction
subject of the above application is not under investigation, on-going audit, administrative protest, claim for
refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal.
In reply, please be informed that Revenue Memorandum Circular (RMC) No. 44-2005 treats

rights that the transferee acquires under the particular arrangement regarding the use and exploitation
of the program.
a. Transfer of copyright rights. A transfer of software is classified as a transfer
of a copyright right if, as a result of the transaction, a person acquires any one
or more of the rights described below: AHECcT
i. The right to make copies of the software for purposes of distribution

to the public by sale or other transfer of ownership, or by rental, lease
or lending;
in. The right to make a public performance of the software;
v. any other rights of the copyright owner, the exercise of which by

another without his authority shall constitute infringement of said
copyright.

exchange of property is made on the basis of whether, taking into account all facts
and circumstances, there has been a transfer of all substantial rights in the copyright.
A transaction that does not constitute a sale or exchange because not all substantial
rights have been transferred will be classified as a license generating royalty income.
When only copyright rights are transferred, payments made in consideration therefor
are royalties. On the other hand, when copyright ownership is transferred, payments
made in consideration therefor are business income.
"b. Transfer of copyrighted articles. A copyrighted article incorporating a

software includes a copy of the software from which the work can be
perceived, reproduced, or otherwise communicated, either directly or with the
aid of a machine or device. The copy of the software may be fixed in the
magnetic medium of a floppy disk or a CD-ROM, or in the main memory or
hard drive of a computer, or in any other medium.
If a person acquires a copy of a software but does not acquire any of the rights
described above (or only acquires a de minimis grant of such rights), and the
transaction does not involve the provision of services or of know-how, the
transfer of the copy of the software is classified solely as a transfer of a
copyrighted article and payments for which constitute business income.
"xxx xxx xxx"
incorporated in a software and there was no transfer of ownership thereto including pertinent rights
protected under relevant intellectual property laws, Section 5b of the aforequoted provision of RMC No.
44-05, will apply in this case which states that "If a person acquires a copy of a software but does not
acquire any of the rights described above (or only acquires a de minimis grant of such rights), and the
transaction does not involve the provision of services or of know-how, the transfer of the copy of the
business income."
Thus, payments made by Canon-Philippines to InterWorking Labs, being business income (or
business profits), are subject to income tax in the Philippines only if such payments are attributable to a
permanent establishment which InterWorking Labs has in the Philippines, under paragraph 1, Article 8 in
relation to Article 5 of the Philippines-United States of America (US) tax treaty, to wit:
"Article 8
BUSINESS PROFITS
them as are attributable to the permanent establishment.
xxx xxx xxx"
"Article 5
trade or business.
2. The term 'fixed place of business' includes but is not limited to:
b) A branch;
c) An office;
e) A factory;
f) A workshop;
g) A warehouse;


days.
xxx xxx xxx"
Based on the foregoing, in order for InterWorking Labs to be considered to have a permanent
establishment to which said business profit may be attributed, it must satisfy the following conditions: 1(129)
STECAc
— the existence of a "place of business", i.e., a facility such as premises or, in certain
instances, machinery or equipment;
— this place of business must be "fixed", i.e., it must be established at a distinct place with
a certain degree of permanence;
— the carrying on of the business of the enterprise through this fixed place of business.
This means usually that persons who, in one way or another, are dependent on the
enterprise (personnel) conduct the business of the enterprise in the State in which the
fixed place is situated." (Paragraph 2)
Since it appears, based on the SEC Certificate that InterWorking Labs is not registered either as a
corporation or as a partnership in the Philippines, that InterWorking Labs does not have a place of
business at its disposal which is fixed or established at a distinct place with a certain degree of
permanence in the Philippines through which it may use for carrying on its business, InterWorking Labs is
not deemed to have a permanent establishment to which said business profits may be attributed to.
Thus, for as long as InterWorking Labs does not have a permanent establishment in the Philippines
to which its profits may be attributable, income from its sale of software, such as that made to
Canon-Philippines in the instant case, shall be exempt from income tax and consequently withholding tax.
(BIR Ruling No. DA-ITAD 93-06 dated August 22, 2006)
Code, as amended by Republic Act No. 9337 and Revenue Memorandum Circular No. 7-2006.
VAT and is required to withhold 12% VAT from its payments before telegraphically transferring it to the
account of the InterWorking Labs.
responsible for the withholding of the 10 percent/(12 percent effective February 1, 2006) VAT on the fees
before making any payment to InterWorking Labs. In remitting to the Bureau of Internal Revenue the VAT
withheld on such fees, Canon-Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of
VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer, Canon-Philippines may use as
documentary substantiation for its claim of input VAT the duly filed BIR Form No. 1600 and the proof of
payment accompanying it. If a non-VAT-registered taxpayer, Canon-Philippines may include as part of
the cost of the purchased software provided to it by InterWorking Labs the VAT consequently shifted or
Canon-Philippines is required to issue in quadruplicate the relevant Certificate of Final Tax Withheld at
Source (BIR Form No. 2306), the first three copies for InterWorking Labs and the fourth copy for
Canon-Philippines as its file copy. [Section 4.110-3 (b), Revenue Regulations (RR) No. 7-95, as amended
by RR Nos. 4-02, 8-02, and 14-02 (now Section 4, 114-2 (b), RR No. 16-05); Section 4.114 (D), RR No.
2-98, as last amended by RR No. 28-03]
Very truly yours,
By:

Legal Service
Footnotes
85-91.
February 12, 2007

The People's Bureau of The Great

Socialist People's Libyan Arab Jamahiriya
1644 Dasmariñas Avenue
Corner Mabolo Streets
Gentlemen :
This has reference to your Note No. 013/07 dated January 18, 2007, referred to this Office by the
Department of Finance and the Department of Foreign Affairs, requesting for the exemption from payment
of taxes on the local purchase of a motor vehicle, for the official use of The People's Bureau of the Great
Socialist People's Libyan Arab Jamahiriya, specifically described as follows:

Make: Toyota Fortuner 4 X 2 G Gas A/T
Model Year: 2006
Chassis Number: MROZX69G200010486
reads:
"ARTICLE 34
goods and services;
"xxx xxx xxx"
from VAT on its local purchases of goods and services. In other words, purchases by that Embassy of
goods and/or services shall in general, be subject to the value-added tax prescribed under Sections 106 and
108 all of the National Internal Revenue Code of 1997.
However, applying the principle of reciprocity, this Office may confirm exemption to The People's
Bureau of the Great Socialist People's Libyan Arab Jamahiriya on their purchase of locally-assembled
motor vehicles it appearing from the list submitted by the Department of Foreign Affairs as of October 18,
2005 that your Government allows similar exemption to the Philippine Embassy on their purchase of
Hence, the local purchase of one (1) unit of 2006 Toyota Fortuner 4 X 2 G Gas A/T for the official
use of The People's Bureau of the Great Socialist People's Libyan Arab Jamahiriya is exempt from
value-added tax. (BIR Ruling No. DA-ITAD-114-04 dated October 26, 2004) SDECAI
Very truly yours,

Legal Service
February 9, 2007
Article 12 (Royalties) Philippines-Singapore tax treaty
Quisumbing Torres
12th Floor, Net One Center
26th Street corner 3rd Avenue
Crescent Park West
Bonifacio Global City
Taguig, Metro Manila
Attention: Atty. Dennis G. Dimagiba

Atty. Jose Jaime V. Cruz
Gentlemen :
This refers to your letters dated January 5 and November 18, 2005 requesting for a reconsideration
of BIR Ruling No. DA-ITAD 153-04 dated December 20, 2004 issued to Autodesk Asia Pte., Ltd.
(Autodesk Asia) where we ruled that software payments made to Autodesk Asia by CIM Technologies, Inc.
(CIM Technologies) are royalties and subject to twenty-five percent (25%) income tax based on the gross
amount thereof pursuant to Article 12 (Royalties) of the Convention between the Republic of the
Philippines and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income (Philippines-Singapore tax treaty).
Background:
It is represented that Autodesk Asia is a corporation organized and existing under the laws of
Singapore, with registered office at 391B Orchard Road, No. 12-06 Ngee Ann City Tower B, Singapore
238874, as confirmed by its Certificate of Residence dated May 3, 2004 issued by the Inland Revenue
Authority of Singapore, its Memorandum and Articles of Association, and its profile downloaded from the
website called BizNet on May 31, 2004; that Autodesk Asia is licensed by the Securities and Exchange
Commission (Commission) to establish a representative office in the Philippines and that as of March 30,
2004, Autodesk Asia has not yet filed a petition for cancellation or withdrawal of such license with the
Commission, as confirmed by the Certificate of Corporate Filing/Information dated March 30, 2004 issued
by the Commission; that the objects for which Autodesk Asia is established are, among others, (1) to carry
on the business of consultants and advisors in connection with computers, computer equipment and
machinery, both hardware and software, computer related products and peripheral equipment in
connection thereto, and (2) to provide information and services including maintenance, repair,
programming, installation, designs, systems, data centres, software development and research analysis to
its parent company, 1(130) to firms and corporations engaged in business with the parent company, and to
computer users generally; that, on the other hand, CIM Technologies is a corporation organized and
existing under the laws of the Philippines, with principal office at LG 103, Peninsula Court Building, 8735
Paseo de Roxas corner Makati Avenue, Makati City, Philippines.
It is further represented that on February 1, 2004, Autodesk Asia and CIM Technologies entered into
an Autodesk Authorized Distributor Agreement (Agreement) which has an initial term of effectivity of one
(1) year from February 1, 2004 to January 31, 2005 unless terminated earlier; that under the Agreement,
Autodesk Asia appointed CIM Technologies as a non-exclusive Autodesk Authorized Distributor for the
Products 2(131) within the Territory, 3(132) and CIM Technologies accepted such appointment; that CIM
Technologies shall, unless otherwise directed by Autodesk Asia, purchase the Products from Autodesk Asia
for distribution to the Autodesk Distribution Channel 4(133) within the Territory only and not to End-Users;
5(134) that CIM Technologies shall not be entitled to distribute the Products to any parties other than those
permitted by Autodesk Asia, and that CIM Technologies undertakes (1) to fulfill all orders for the Products
which it receives, and (2) not to reject any orders for the Products from, or cease to supply the Products to,
any Retail Reseller 6(135) or any party in the Autodesk Distribution Channel unless a prior written consent
of Autodesk Asia has been obtained; that all prices of the Products are on Incoterms 2000 "Ex-Works"
(fulfillment facility as notified by Autodesk Asia) basis, and that the price to CIM Technologies for each of
the Products (the "Per Copy Fee") shall be as set forth in Autodesk Asia's then prevailing price list as
notified to CIM Technologies; that CIM Technologies' profit or income from distributing the Products
shall be the difference between CIM Technologies' price of the Products charged to its customers and CIM
Technologies' Per Copy Fee charged by Autodesk Asia; that CIM Technologies' minimum purchase
commitments for the Products for the four (4) quarters of the initial year shall be as follows:
Products Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total

(February- (May-July) (August- (November-
April) October) January)
MSD $22,000 $24,000 $30,000 $24,000 $100,000
MAP $55,000 $60,000 $75,000 $60,000 $250,000
LCS $19,800 $21,600 $27,000 $21,600 $90,000
——— ——— ——— ——— ———
TOTAL $96,800 $105,600 $132,000 $105,600 $440,000
===== ===== ===== ===== =====
that Autodesk Asia may modify the above figures from time to time by making a written notice to CIM
Technologies; that upon shipment of the Products to CIM Technologies, Autodesk Asia shall submit an
invoice to CIM Technologies, which indicates therein CIM Technologies' Per Copy Fee of the Products
shipped plus any freight, taxes, insurance or other applicable costs initially paid by Autodesk Asia but to
be paid afterwards by CIM Technologies; and that CIM Technologies shall pay Autodesk Asia the full
invoiced amount in United States dollars and within thirty (30) days from the invoice date. HIaSDc
It is also represented that on February 1, 2005, Autodesk Asia made a written notice to CIM
Technologies informing the latter that Autodesk Asia has renewed the Agreement for another term of one
(1) year from February 1, 2005 to January 31, 2006 unless terminated earlier, upon the same terms and
conditions in the original Agreement, with few modifications relating to taxes, stock rotation, upgrades
and crossgrades, sales records, survival of certain terms, and intellectual property rights.
Request for Reconsideration:
In view of the foregoing, you seek reconsideration and argue that instead of royalties, payments to
be made by CIM Technologies to Autodesk Asia under the Autodesk Authorized Distributor Agreement
should be characterized as business profits and taxed accordingly under the articles on permanent
establishment and business profits of the Philippines-Singapore tax treaty.
Further, in your letter dated November 18, 2005, you requested that we issue another ruling for
Autodesk Asia in the light of the renewed Agreement and of the pertinent Philippine tax laws, regulations
and administrative issuances in effect during the term of the renewed Agreement.
BIR Position on the Request for Reconsideration:
1. On BIR Ruling No. DA-ITAD 153-04 dated December 20, 2004
In reply, please be informed that we maintain our position in BIR Ruling No. DA-ITAD 153-04
since Revenue Memorandum Circular (RMC) No. 77-2003 (Classification of Payments for Software for
Income Tax Purposes) was in place at the time of the drafting and issuance of the said ruling and this
RMC mandated the observance of its provisions regarding the taxation of software payments made on
November 18, 2003 up to September 7, 2005. RMC 77-2003 is applicable to payments made to domestic
and foreign licensors and in case of the latter, whether or not such payments can be subject to relief under
a particular tax treaty. Under this RMC, software payments are generally characterized as royalties for
taxation purposes, and this includes and treats as royalties payments from the mere purchase of a
copyrighted article embedding a software and payments from reselling and distributing a copyrighted
article embedding a software, among others, to wit:
"Definition of Royalties Includes Payments for the Use of Software:
The term "royalties" as generally used means payment of any kind received as a consideration for
the use of, or the right to use, any copyright of literary, artistic or scientific work including
cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade
mark, design, or model, plan, secret formula or process, or for the use of, or the right to use,
or scientific experience. The term "use " as contained herein shall include the reselling or
distribution of software.
Software is generally assimilated as a literary, artistic or scientific work protected by the copyright
laws of various countries including the Philippines; thus payments in consideration for the use of, or
the right to use, a copy or a copyrighted article relating to software are generally royalties."
Applying the provisions of RMC 77-2003 in ITAD Ruling 153-04, payments to be made by CIM
Technologies to Autodesk Asia under the Autodesk Authorized Distributor Agreement are royalties and
subject to 25% income tax based on the gross amount thereof, under the article on royalties of the
2. On the Renewed Agreement
Payments made by CIM Technologies to Autodesk Asia under the renewed Agreement from
February 1 to September 7, 2005 are covered by the provisions of RMC 77-2003 while payments made or
to be made by CIM Technologies to Autodesk Asia from September 8, 2005 and thereafter are covered by
the provisions of RMC 44-2005 (Taxation of Payments for Software), which took effect on September 8,
2005. Under RMC 44-2005, which substantially amended RMC 77-2003, software payments are treated as
royalties only if the transaction does not constitute a sale or exchange and not all substantial rights in the
software have been transferred, but are merely for the transfer of copyright rights in the software. It
provides:

a. Transfer of copyright rights. A transfer of software is classified as a transfer

of a copyright right if, as a result of the transaction, a person acquires any one
or more of the rights described below:
i. The right to make copies of the software for purposes of distribution

to the public by sale or other transfer of ownership, or by rental, lease
or lending;
v. any other rights of the copyright owner, the exercise of which by

another without his authority shall constitute infringement of said
copyright.

exchange of property is made on the basis of whether, taking into account all facts
and circumstances, there has been a transfer of all substantial rights in the copyright.
A transaction that does not constitute a sale or exchange because not all substantial
rights have been transferred will be classified as a license generating royalty income.
When only copyright rights are transferred, payments made in consideration therefor
are royalties. On the other hand, when copyright ownership is transferred, payments
made in consideration therefor are business income.
b. Transfer of copyrighted articles. A copyrighted article incorporating a

software includes a copy of the software from which the work can be
perceived, reproduced, or otherwise communicated, either directly or with the
aid of a machine or device. The copy of the software may be fixed in the
magnetic medium of a floppy disk or a CD-ROM, or in the main memory or
hard drive of a computer, or in any other medium.
If a person acquires a copy of a software but does not acquire any of the rights
described above (or only acquires a de minimis grant of such rights), and the
transaction does not involve the provision of services or of know-how, the
transfer of the copy of the software is classified solely as a transfer of a
copyrighted article and payments for which constitute business income.
xxx xxx xxx"
Other than as royalties, this RMC treats software payments as business income, rental income, or capital
gains, depending on the nature of the transaction out of which such payments are made.
A significant difference between the two RMCs lies in the characterization of payments made for
the purchase of a copyrighted article incorporating a software where an end-user is merely granted access
and use of the software for its own internal data processing requirements and not any of the copyright
rights in the software as described above. While RMC 77-2003 would treat payments made by an end-user
as royalties, RMC 44-2005, on the other hand, would treat such payments as business income (or business
profits for tax treaty purposes). Furthermore, software payments will constitute as royalties under RMC
44-2005 if the licensor grants access and use of any of the copyright rights in the software exclusively or
with limitations to the particular person.
On the question of whether RMC 44-2005 continues to characterize payments to be made by CIM
Technologies to Autodesk Asia under the Autodesk Authorized Distributor Agreement as royalties, please
be informed that when only copyright rights are transferred in a transaction involving software, payments
made in consideration therefor are royalties. A transfer of software is classified as a transfer of a copyright
right if, as a result of the transaction, a person acquires any one or more of the following rights:
1. The right to make copies of the software for purposes of distribution to the public by
sale or other transfer of ownership, or by rental, lease or lending;
2. The right to prepare derivative computer programs based upon the copyrighted
software;
3. The right to make a public performance of the software;
4. The right to publicly display the computer program; or
5. Any other rights of the copyright owner, the exercise of which by another without his
authority shall constitute infringement of said copyright. AScTaD
Based on the facts as represented, it is understood that under the Autodesk Authorized Distributor
Agreement, Autodesk Asia will ship the Products to CIM Technologies who will in turn distribute the
Products to the parties in the Autodesk Distribution Channel and to Retail Resellers. CIM Technologies
has a minimum purchase commitment for the Products for each quarter of the term of the Agreement.
Upon shipment of the Products, Autodesk Asia shall submit an invoice to CIM Technologies, which will
indicate therein CIM Technologies' Per Copy Fee of the Products shipped plus any freight, taxes, insurance
or other applicable costs initially paid by Autodesk Asia but which shall be paid afterwards by CIM
Technologies. The Per Copy Fee for the Products paid by CIM Technologies is the basis for computing
Autodesk Asia's income from the transaction.
An analysis of this business arrangement cannot be considered as a grant by Autodesk Asia to CIM
Technologies of a copyright right as described in Items 1, 2, 3 and 4 above. In relation to Item 1, CIM
Technologies is granted by Autodesk Asia the right to distribute the Products in public but not to reproduce
them. CIM Technologies will acquire the Products by ordering them from Autodesk Asia and not from
reproducing them in its own premises or assigning another person to reproduce the Products for its (CIM
Technologies) own benefit before distributing the Products. In relation to Items 2, 3 and 4, CIM
Technologies is also not granted the right to prepare derivative computer programs based upon the
software embedded in the Products, to make a public performance of the software, nor to publicly display
the software.
However, in relation to Item 5, the grant by Autodesk Asia to CIM Technologies of the right to
distribute the Products in public but not to reproduce them shall be classified as a transfer of a copyright
right if the acquisition and exercise of such right without the authority of Autodesk Asia constitutes an
infringement of such copyright. In order to determine if such right can be the subject of infringement,
Section 177 of the Intellectual Property Code of 1998 (Republic Act No. 8293) enumerates those rights of
an author or owner of a literary, artistic or scientific work like software which can be the subject of
infringement. It provides:
"Section 177. Copyright or Economic Rights. — Subject to the provisions of Chapter

VIII, copyright or economic rights shall consist of the exclusive right to carry out, authorise or prevent
the following acts:
177.1. Reproduction of the work or substantial portion of the work;
177.2. Dramatization, translation, adaptation, abridgment, arrangement or other

transformation of the work;
177.3. The first public distribution of the original and each copy of the work by sale or
other forms of transfer of ownership;
177.4. Rental of the original or a copy of an audiovisual or cinematographic work, a

work embodied in a sound recording, a computer program, a compilation of data and other materials
or a musical work in graphic form, irrespective of the ownership of the original or the copy which is
the subject of the rental;
177.5. Public display of the original or a copy of the work; and
177.6. Other communication to the public of the work." (emphasis supplied)
It is noteworthy that Section 177.3 includes as one of the copyright or economic rights of the author
or owner of a work the right to make a first public distribution of the original and each copy of the work
by sale or other forms of transfer of ownership. A simple interpretation of Section 177.3 would mean that
the grant by the author or owner of a work to another person of` the right to distribute the work in public
even without the right to reproduce the work constitutes a transfer of a copyright right because the other
person acquires a right the exercise of which by him without the authority of the author or owner
constitutes infringement, as emphasized by the phrase the "exclusive right to carry out, authorise or
prevent the act (of distributing the work)". Applying this to the case at hand, the grant by Autodesk Asia to
CIM Technologies of the right to distribute the Products in public to the parties in the Autodesk
Distribution Channel and to Retail Resellers constitutes a transfer of a copyright right whereby CIM
Technologies acquires a right the exercise of which by CIM Technologies, without Autodesk Asia's
authority, constitutes infringement of such right of Autodesk Asia.
In fact, this right granted to CIM Technologies is even subject to further limitations by reason, for
example, that CIM Technologies can distribute the Products to the parties in the Autodesk Distribution
Channel and to Retail Resellers only but not to End-Users, and that CIM Technologies should fulfill all
orders for the Products which it receives, and cannot reject any orders for the Products from, or cease to
supply the Products to, any Retail Reseller or any party in the Autodesk Distribution Channel unless the
prior written consent of Autodesk Asia has been obtained. Taking a step further, if Autodesk Asia also
imposes these limitations to the parties in the Autodesk Distribution Channel and to Retail Resellers who
in turn distribute the Products to End-Users, such an arrangement also constitutes a transfer of a copyright
right whereby the parties in the Autodesk Distribution Channel and the Retail Resellers acquire a right the
exercise of which by them without Autodesk Asia's authority constitutes infringement of such right of
Autodesk Asia. This transfer of a copyright right provided under Section 177.3 of the Intellectual Property
Code applies only to the distribution and reselling of a copyrighted work like software but not to the
distribution and reselling of a non-copyrighted work. By applying a 'substance-over-form' approach, a
transfer of copyright right exists regardless of the business arrangement between the author or owner of
the copyrighted work and the distributor or reseller, that is, whether the arrangement is a consignment
arrangement where title and ownership of the copyrighted work remains with the author or owner until the
copyrighted work is sold by the distributor or reseller to a third party, or a reselling arrangement where
title and ownership of the copyrighted work is with the distributor or reseller of the copyrighted work and
not with the author or owner of the work until the distributor or reseller sold the work to a third party.
This is buttressed by the fact that a distributor or reseller of a copyrighted work like software, as
distinct from an end-user, cannot distribute or resell such work unless he is permitted to do so by the
author or owner of the work. Lacking such permission, the act of distribution or reselling of the
copyrighted work constitutes an infringement of the right or rights subsisting in that work, punishable
under Section 217.3 of the Intellectual Property Code, to wit:
"Section 217. Criminal Penalties. — . . .
217.3. Any person who at the time when copyright subsists in a work has in his possession an
article which he knows, or ought to know, to be an infringing copy of the work for the
purpose of:
(a) Selling, letting for hire, or by way of trade offering or exposing for sale, or
hire, the article;
(b) Distributing the article for purpose of trade, or for any other purpose to an
extent that will prejudice the rights of the copyright owner in the work; or
(c) Trade exhibit of the article in public, shall be guilty of an offense and shall be
liable on conviction to imprisonment and fine as above mentioned. (Sec. 29,
P.P. No. 49a)
xxx xxx xxx"
On the other hand, Sections 185 and 189 of the Intellectual Property Code, quoted below, do not
consider it an infringement when an end-user merely makes a "fair use" of a software, nor when he copies
(reproduces) the software onto a computer or copies (reproduces) it but for archival or backup purposes
only.
"Section 185. Fair Use of a Copyrighted Work. — 185.1 The fair use of a copyrighted work for
criticism, comment, news reporting, teaching including multiple copies for classroom use,
scholarship, research, and similar purposes is not an infringement of copyright. Decompilation,
which is understood here to be the reproduction of the code and translation of the forms of the
computer program to achieve the inter-operatibility of an independently created computer program
with other programs may also constitute fair use. In determining whether the use made of a work in
any particular case is fair use, the factors to be considered shall include:
(a) The purpose and character of the use, including whether such use is of a commercial nature
or is for non-profit educational purposes;
(b) The nature of the copyrighted work;
(c) The amount and substantiality of the portion used in relation to the copyrighted work as a
whole; and
(d) The effect of the use upon the potential market for or value of the copyrighted work."
"Section 189. Reproduction of Computer Program. — 189.1. Notwithstanding the provisions of

Section 177, the reproduction in one (1) backup copy or adaptation of a computer program shall be
permitted, without the authorization of the author of, or other owner of copyright in, a computer
program, by the lawful owner of that computer program; Provided, That the copy or adaptation is
necessary for:
(a) The use of the computer program in conjunction with a computer for the purpose, and to the
extent, for which the computer program has been obtained; and
(b) Archival purposes, and, for the replacement of the lawfully owned copy of the computer
program in the event that the lawfully obtained copy of the computer program is lost,
destroyed or rendered unusable.
189.2. No copy or adaptation mentioned in this Section shall be used for any purpose other than the
ones determined in this Section, and any such copy or adaptation shall be destroyed in the event that
continued possession of the copy of the computer program ceases to be lawful.
189.3. This provision shall be without prejudice to the application of Section 18.5 whenever
appropriate."
In relation to the use of software by an end-user, it should be emphasized that the software
payments made by an end-user are now treated as business income (or business profits for tax treaty
purposes) under the new RMC 44-2005 and no longer as royalties under the old RMC 77-2003. Under
RMC 44-2005, the rights generally acquired by the end-user to reproduce the software onto a computer or
to reproduce the software for archival or backup purposes only is merely a de minimis right compared to
other rights mentioned in Section 177 of the Intellectual Property Code. However, the grant of a right to
distribute the software cannot be considered as de minimis as in the case of the end-user. The grant of this
right to a distributor or reseller by the author or owner of the software pertains to rights which may be
subject to infringement and as such gives rise to royalties. This is true even if payments to be made by the
distributor or reseller to the author or owner are not literally termed as royalties but merely payments or
fees in general and even if the contract between the parties are not literally termed license contracts but
merely contracts of sale, contracts to sell, consignment contracts, etc., as those generally used when the
goods or merchandise involved are noncopyrighted works. What is essential is that copyright rights are
granted under such contract and without which, the reseller or distributor may be regarded as infringing
the copyright owner's rights, based on the provisions of the Intellectual Property Code.
In view of the foregoing, this Office is of the opinion and so holds that payments to be made by
CIM Technologies to Autodesk Asia under the renewed Autodesk Authorized Distributor Agreement
continues to be in the nature of royalties and are not business profits under RMC 44-2005. These
payments (in this case, termed Per Copy fees) shall be subject to 25% income tax based on the gross
amount thereof pursuant to Article 12 (Royalties) of the Philippines-Singapore tax treaty in relation to
RMC 44-2005.
Finally, the sale of the Products by Autodesk Asia to CIM Technologies is subject to value-added
tax (VAT) under Section 106(A) of the Tax Code, to wit:
(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale, barter
or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the
gross selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferror.
xxx xxx xxx" 7(136)
The gross amount of the Per Copy Fees payable to Autodesk Asia constitutes the gross selling price
or gross value in money of the Products on which the appropriate VAT rate (now 12%) is imposed.
Regulations No. 14-2002 and Section 4.114.2 of Revenue Regulations No. 16-2005, provide that CIM
Technologies shall be responsible for the withholding of the appropriate VAT rate (now 12%) on the Per
Copy Fees before remitting them to Autodesk Asia. In remitting to the Bureau of Internal Revenue the
VAT withheld on such fees, CIM Technologies shall use BIR Form No. 1600 (Monthly Remittance Return
of VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer, CIM Technologies may use
as documentary substantiation for its claim of input VAT the duly filed BIR Form No. 1600 and the proof
of payment accompanying it. If a non-VAT-registered taxpayer, CIM Technologies may include as part of
the cost of the Products sold to it by Autodesk Asia the VAT consequently shifted or passed on to it and
may treat such VAT either as expense or asset, whichever is applicable. In addition, CIM Technologies is
required to issue the Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate,
the first three copies thereof to be given to Autodesk Asia upon its request, and the fourth copy to be
retained by CIM Technologies as its file copy.
Very truly yours,

Commissioner
Footnotes
1. Parent company shall mean Autodesk, Inc., a foreign corporation organized and existing under the laws of
the United States of America, with principal office at 111 McInnis Parkway, San Rafael, California 94903,
United States of America.
2. Products shall mean (1) Non-Retail Products (AIS/AIP, MAP, MapGuide, Map Series, Land and Civil
Series) and (2) Sell-Through Products (Subscriptions, Streamline, AIP). Non-Retail Product refers to a
Product which may be sold to the Autodesk Distribution Channel only, and Sell-Through Product refers to
a Product for which a purchase order may be placed with Autodesk Asia only after an End-User purchase
order for that Product has been received. Autodesk Asia may modify the list of Products from time to time
by making a written notice to CIM Technologies.
3. Territory shall mean the Philippines. Autodesk Asia may modify the Territory from time to time by making
a written notice to CIM Technologies.
4. Autodesk Distribution Channel shall mean the authorized distribution channels designated by Autodesk
Asia comprising of Autodesk Systems Centers, Autodesk Authorized Resellers, Autodesk Authorized
Systems Integrators, and such other persons in the Territory certified by Autodesk Asia to purchase specific
Products from CIM Technologies for resale to End-Users. Autodesk Asia may modify the Autodesk
Distribution Channel from time to time by making a written notice to CIM Technologies.
5. End-User shall mean any third party which obtains the Products solely in order to fulfill its own internal
data processing needs.
6. Retail Reseller shall mean any retail outlet or reseller not forming part of the Autodesk Distribution
Channels and which purchases the Retail Products from CIM Technologies for resale to End-Users
114, 116, 117, 119, 121, 148, 151, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997,
As Amended, and for Other Purposes), which was signed into law on May 24, 2005 and became effective
the seller or transferor: Provided, that the President, upon the recommendation of the Secretary of Finance,
xxx xxx xxx"
Increase the Value Added Tax Rate From Ten Percent to Twelve Percent) dated January 31, 2006.
January 9, 2007
Articles 5 & 7, Philippines-Japan tax treaty;

BIR Ruling No. DA-79-06

20th Floor, Tower 1, The Enterprise Center
6766 Ayala Avenue
1200 Makati City
Attention: Atty. Maria Victoria C. Españo

Tax Partner
Gentlemen :
This refers to your letter dated November 15, 2006, on behalf of your client, Ina Micro Corporation
(IMO), requesting reconsideration of BIR Ruling No. DA-ITAD-111-06 dated September 19, 2006 on the
portion thereof where it was pronounced that service fees paid by IMO to Masuda Co. Ltd. (MCL) under
the Management and Marketing Agreement are subject to value-added tax, pursuant to the provisions of
the National Internal Revenue Code (Tax Code) of 1997.
It is represented that MCL is a nonresident foreign corporation duly organized and existing under
the laws of Japan with office address at 6689-1 Miyada-Mura, Kamiina-Gun, Nagano-Ken, Japan; that it is
not registered either as a corporation or as a partnership in the Philippines per Certification of
Non-Registration issued by the Securities and Exchange Commission dated December 15, 2005; that, on
the other hand, IMO is a corporation duly organized and existing under the laws of the Philippines with
office address at Mactan Economic Zone II, Basak, Lapu-lapu City, Cebu; that IMO is registered with the
Philippine Economic Zone Authority (PEZA) as an export enterprise with PEZA Certificate of
Registration No. 00-007 dated January 25, 2000.
It is further represented that on April 1, 2004, MCL and IMO entered into a Management and
Marketing Service Agreement (Agreement) whereby MCL shall provide marketing and management
services to IMO in the following areas:
1. Administrative support, such as but not limited to the accounting, reconciliation and
administration of IMO's bank accounts maintained in Japan;
2. Support in the procurement and shipment of IMO's raw materials and supplies in and
their shipment in Japan;
3. Training on IMO's employees and managerial support in Japan;
4. Advertisement and promotion of the products manufactured by IMO in the Philippines

to potential clients in Japan and other countries outside the Philippines;
5. MCL may identify, contact and make presentations to potential buyers of IMO's
products;
6. MCL can participate in the initial stages of the negotiation of the terms and condition of
the contract by and between the potential buyer and IMO;
7. Development and maintenance of marketing strategies for IMO outside the Philippines;
and
8. Undertake such other incidental marketing services as may be required by IMO to

promote the latter's business in other countries;
that the above-described services shall in no case involve the transfer of MCL's technology, know-how or
other intellectual property rights; that the aforementioned services are to be performed in Japan or in other
countries outside the Philippines; that in case it would be necessary for MCL to send its employees to the
Philippines, the stay of these individuals in the Philippines shall not, in any case, exceed six (6) months;
that in consideration for the above services, IMO shall pay MCL a monthly fee of Three Million Five
Hundred Thousand Japanese Yen (JPY3,500,000) and a maximum of Five Million Japanese Yen
(JPY5,000,000) covering the period from April 1, 2004 to March 31, 2005; that thereafter, the monthly fee
shall be evaluated and agreed upon by IMO and MCL; and that the Agreement shall be subject to
automatic renewal for another twelve-month term unless one of the parties serves a written notice of
non-renewal to the other party not later than one (1) month prior to the expiration of the current term.
In reply, please be informed that Article 7, and, in relation thereto, Article 5 of the
Philippines-Japan tax treaty provide that: EcTCAD
"Article 7
(1) The profits of an enterprise of a Contracting State shall be taxable only in that Contracting
xxx xxx xxx"
"Article 5
(1) For the purposes of this Convention, the term 'permanent establishment' means a fixed place
(2) The term 'permanent establishment' includes especially:
(a) a store or other sales outlet;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a warehouse;
(g) a mine, an oil or gas well, a quarry or other place of extraction of natural
resources.
xxx xxx xxx"
(6) An enterprise of a Contracting State shall be deemed to have a permanent establishment in

independent status to whom paragraph 7 applies — , provided that such activities continue
Contracting State."
xxx xxx xxx"
Based on the abovementioned provisions and inasmuch as it has been represented that the services
will generally be performed by MCL outside the Philippines, and that if it be necessary to send its
employees to the Philippines, said employees will not stay in the Philippines for more than six months in
their rendition of services to IMO, MCL may be considered as not having a permanent establishment in the
Philippines. In other words, MCL is deemed not to have a permanent establishment for as long as its
employees do not stay in the Philippines for a period or periods aggregating more than six months in the
course of their rendition of services to IMO.
Such being the case, the services fees to be paid by IMO to MCL under the aforementioned
Agreement are not subject to Philippine income tax, pursuant to the Philippines-Japan tax treaty. (BIR
Ruling No. DA-79-06 dated July 19, 2006)
As regards the imposition of the VAT on the rendition of services of IMO, please be informed
further that Section 108 of the Tax Code of 1997 1(137) provides viz:
tax equivalent to ten percent (10%) 2(138) of gross receipts derived from the sale or exchange of
Thus, in general, the VAT is imposed on services rendered by MCL in the Philippines. On every
payment of service fees, IMO is required to withhold such VAT and treat the same as a "passed on" VAT,
pursuant to Section 4.110-3 (b) of Revenue Regulations No. 7-95 as amended [now Section 4.114-2( b) of
Revenue Regulations No. 16-05].
However, in Commissioner of Internal Revenue vs. Seagate Technology (Philippines), G.R. No.
153866, February 11, 2005, the Supreme Court held, viz:
provides that those falling under PD 66 are not. PD 66 is the precursor of RA 7916 — the special law
under which respondent was registered. The purchase transactions it entered into are, therefore, not
VAT-exempt. These are subject to the VAT; respondent is required to register.
xxx xxx xxx
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero.
Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate,
because the ecozone within which it is registered is managed and operated by the PEZA as a separate
customs territory. This means that in such zone is created the legal fiction of foreign territory. Under
the cross-border principle of the VAT system being enforced by the Bureau of Internal Revenue (BIR),
no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority. If exports of goods and services from the Philippines to a
foreign country are free of the VAT, then the same rule holds for such exports from the national
territory — except specifically declared areas — to an ecozone.
xxx xxx xxx
internal revenue laws and regulations. DSCIEa
VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect
burden is passed on to another. Respondent, as an exempt entity, can neither be directly charged for
the VAT on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on
its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not
distinguish, we ought not to distinguish.
. . ., RA 7916 states that 'no taxes, local and national, shall be imposed on business
Moreover, even though the VAT is not imposed on the entity but on the transaction, it may still
be passed on and, therefore, indirectly imposed on the same entity — a patent circumvention of the
law. That no VAT shall be imposed directly upon business establishments operating within the
xxx xxx xxx"
effectively zero-rated. However, instead of zero-rating which is not available to nonresident suppliers, the
which provides VAT exemption for transactions that are exempt under special laws, e.g., RA 7916 or
PEZA Law, is particularly applicable to the instant case.
Such being the case, the payment of service fees by IMO, being a PEZA-registered enterprise, to
MCL under the subject Agreement should be, as it is hereby confirmed to be, exempt from VAT.
This ruling supplements BIR Ruling No. DA-ITAD-111-06 dated September 19, 2006 and applies
the appropriate exemption from VAT with respect to the income from services derived by MCL in the
Philippines.
Very truly yours,
By:

Legal Service
Footnotes
No. 9337].
January 8, 2007
Article 12, Philippines-Japan tax treaty;

Smart Communications, Inc.

29th Floor Smart Tower
6799 Ayala Avenue
Makati City, Philippines 1605
Attention: Ms. Rina R. Manuel

Senior Tax Manager
Gentlemen :
This refers to your letter dated May 26, 2006, on behalf of NTT DoCoMo (hereinafter referred to
as "DoCoMo"), applying for relief from double taxation on the royalty payments made by your company,
SMART COMMUNICATIONS, INC. (hereinafter referred to as "Smart"), to DoCoMo, pursuant to the
Philippines-Japan tax treaty.
From the documents submitted it is represented that DoCoMo is a nonresident foreign corporation
organized and existing under the laws of Japan with office address at 2-11-1, Nagata-cho, Chiyoda-ku,
Tokyo 100-6150, Japan as shown in the Certificate of Status of Taxable Person dated March 8, 2006
issued by the Office of the District Director of Kujimachi Tax Office; that it is not registered either as a
corporation or as a partnership in the Philippines per Certification of Non-registration issued by the
Securities and Exchange Commission dated March 20, 2006; that Smart, on the other hand, is a
corporation duly organized and existing under the laws of the Philippines; that it is registered with the
Board of Investments (BOI) as Expanding Operator of Telecommunication Systems (Nationwide Cellular
Mobile Telephone Services-Global System for Mobile Communication (GSM) Network) on a pioneer
status per BOI Certificate of Registration No. 2001-066 dated May 3, 2001.
It is further represented that on February 15, 2006, Smart and DoCoMo entered into an
INTEGRATED I-MODE SERVICE PACKAGE AGREEMENT (hereinafter referred to as "Agreement")
whereby DoCoMo grants to Smart a non-transferable license to use the Licensed Materials 1(140) and the
i-mode Brand within the Field of Use, and (ii) agrees to provide the licensee with the Implementation
Support and Assistance and the Post Commercial Launch Support; that in consideration for the grant of
rights, Smart shall make a lump sum payment in the amount of Four Million US Dollars
(US$4,000,000.00), as Initial Payment, to be paid in installments as provided for in the Agreement; that, in
addition to the Initial Payment, Smart shall pay to DoCoMo the Running Royalty from the Commercial
Launch Date for the Philippines at a rate of five percent (5%) of the i-mode revenue as calculated pursuant
to Exhibit 7 of the Agreement; that the said Agreement has been granted exemption from the provision of
Section 88.4 of the Intellectual Property Code on Voluntary Licensing with regard solely to value-added
tax on royalty payment as shown Certificate of Registration No. 5-2006-00009 issued by the Intellectual
Property Office dated February 27, 2006.
In reply, please be informed that Article 12 of the Philippines-Japan tax treaty provides, viz:
"Article 12
may be taxed in that other Contracting State.
according to the laws of that Contracting State, but if the recipient is the beneficial owner of the
royalties the tax so charged shall not exceed:
a) 15 per cent of the gross amount of the royalties if the royalties are paid in
respect of the use of or the right to use cinematograph films and films or tapes for
radio or television broadcasting;
b) 25 per cent of the gross amount of the royalties in all other cases.
3. Notwithstanding the provisions of paragraph 2, the amount of tax imposed by the Philippines
on the royalties paid by a company, being a resident of the Philippines, registered with the Board of
Investments and engaged in preferred pioneer areas of investment under the investment incentives
laws of the Philippines to a resident of Japan, who is the beneficial owner of the royalties, shall not
exceed 10 per cent of the gross amount of the royalties. TCEaDI
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,
or scientific experience."
Based on the above provision, royalty payments will be taxed at a preferential rate of ten percent
(10%), if the payor is a BOI-registered enterprise and engaged in preferred areas of investment; fifteen
percent (15%) if the payments are in respect of the use of or right to use cinematograph films and films or
tapes for radio or television broadcasting; and in all other cases, twenty-five (25%) of the gross amount of
the royalties.
Considering that Smart is a BOI-registered enterprise engaged in pioneer areas of investment, the
said royalty payments are subject to the preferential tax rate of 10% of the gross amount of royalties
pursuant to Article 12(3) of the Philippines-Japan tax treaty. (BIR Ruling No. DA-ITAD-144-04 dated
December 17, 2004)
Moreover, the above royalty payments shall be subject to value-added tax (VAT) as provided in
Section 108 of the National Internal Revenue Code of 1997, viz:
"SEC. 108. 2(141) Value-added Tax on Sale of Services and Use or Lease of Properties. —
Philippines for others for a fee, . . . . The phrase 'sale or exchange of services' shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or
model, plan secret formula or process, goodwill, trademark, trade brand or other like property or right;
...
With regard to the procedures for withholding and paying the VAT, Smart, being the resident
VAT on such fees before making any payment to DoCoMo. In remitting the VAT withheld, Smart shall
use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax & Other Percentage Taxes
Withheld). The duly filed BIR Form No. 1600 and the proof of payment thereof shall serve as
documentary substantiation for the claim of input tax to be applied against the output tax that may be due
from Smart if it is a VAT-registered taxpayer. In case Smart is a non-VAT-registered taxpayer, the
passed-on VAT withheld shall form part of the cost of the service purchased and may treat such VAT as
an "expense" or as an "asset", whichever is applicable. In addition, Smart is required to issue in
quadruplicate a Certificate of Final Tax Withheld at Source (BIR Form No. 2306) in quadruplicate, the
first three copies for DoCoMo and the fourth copy for Smart as its file copy. (Sections 4 & 6, Revenue
Regulations (RR) No. 4-2002; Section 3 of RR 8-2002; Section 7 of RR 14-2002)
Very truly yours,
By:

Legal Service
Footnotes
1. Licensed Materials shall mean the items and materials set forth in Exhibit 2 of the Agreement.
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one
half percent (1 1/2%).
xxx xxx xxx
February 6, 2007

Embassy of Italy
6th Floor, Zeta II Building
191 Salcedo Street, Legaspi Village
Makati City
Attention: Dr. Michaelangelo Nerini

Second Secretary Commercial
Gentlemen :
This has reference to your Note No. 101 dated January 18, 2007, referred to this Office by the
Department of Finance and the Department of Foreign Affairs, requesting for the exemption from payment
of taxes on the local purchase of a motor vehicle, for the personal use of Dr. Michaelangelo Nerini,
Second Secretary Commercial of the Embassy of Italy, specifically described as follows:

Make: Toyota Fortuner 4 X 2 G Gas A/T
Model Year: 2006
Color: Deep Nautica
Chassis Number: MR0ZX69G2-00010441
reads:
"ARTICLE 34
goods or services;
"xxx xxx xxx"
of Italy and/or its personnel on their purchase of locally-assembled motor vehicles it appearing from the
list submitted by the Department of Foreign Affairs as of October 18, 2005 that your Government allows
similar exemption to Philippine Embassy personnel on their purchase of locally-assembled motor vehicles
in your country. cSaCDT
Hence, the local purchase of one (1) unit of 2006 Toyota Fortuner 4 X 2 G Gas A/T, for the
personal use of Dr. Michaelangelo Nerini of the Embassy of Italy is exempt from value-added tax. (BIR
Ruling No. DA-ITAD-010-03 dated January 17, 2003)
Very truly yours,

Legal Service
February 6, 2007

Embassy of the Federal Republic of Nigeria

2211 Paraiso Street
Dasmariñas Village
Makati City
Attention: Ms. Chituru Chendo

Counsellor
Gentlemen :
This has reference to your Note No. NE/07/01/2007 dated January 15, 2007, referred to this Office
payment of taxes on the local purchase of a motor vehicle, for the personal use of Ms. Chituru Chendo,
Counsellor of the Embassy of the Federal Republic of Nigeria, specifically described as follows:

Make: Honda CRV 4 X 2 2.0 L Select Edition A/T
Model Year: 2006
Chassis Number: PADRD48506V402071
Engine Number: PNKD75-6402082
reads:
"ARTICLE 34
goods and services;
"xxx xxx xxx"
of the Federal Republic of Nigeria and/or its personnel on their purchase of locally-assembled motor
that your Government allows similar exemption to the Philippine Embassy on their purchase of
Hence, the local purchase of one (1) unit of 2006 Honda CRV 4 X 2 2.0L Select Edition A/T, for
the personal use of Ms. Chituru Chendo of the Embassy of the Federal Republic of Nigeria is exempt from
value-added tax. (BIR Ruling No. DA-ITAD-136-06 dated November 6, 2006)
the herein parties are concerned. ACETID
Very truly yours,

Legal Service
February 9, 2007
of 1997; Article 34, Vienna Convention;

Makati City
Gentlemen :
This has reference to your Note Verbale No. 175 dated December 27, 2006, referred to this Office
Russian Federation, specifically described as follows:
Make: Honda Civic 1.8 S AT

Model Year: 2006
Color: Habanero Red
Serial Number: PADFD16406V002211
reads:
"ARTICLE 34
"xxx xxx xxx"
from the value-added tax (VAT) and ad valorem taxes on its local purchases of goods and services. In
other words, purchases by that Embassy of goods and/or services shall, in general, be subject to the VAT
the Russian Federation on their purchase of locally assembled motor vehicles it appearing from the list
similar exemption to Philippine Embassy personnel on their purchases of motor vehicles in your country.
cSaCDT
Hence, the herein request for tax-free local purchase of one (1) Honda Civic 1.8 S AT, for the
official use of the Embassy of the Russian Federation, is hereby granted. (BIR Ruling No.
DA-ITAD-180-00 dated November 29, 2000)
Very truly yours,

Legal Service
January 31, 2007

1997;
Embassy of Japan
Pasay City
Gentlemen :
This has reference to your Note Verbale No. 478-06 dated November 23, 2006, referred to this
(DFA), requesting for a tax-free purchase on a local motor vehicle for the official use of the Embassy of
Japan, specifically described as follows: tpe073up
Make: Toyota Fortuner DSL 4x4 3.0 4S

Model Year: 2006
Color: 1CO Lithium
Frame Number: MROYZ59G3-00043562
reads:
"ARTICLE 34
"xxx xxx xxx"
106 and 108 of the National Internal Revenue Code of 1997. aTCAcI
Japan on their purchase of locally assembled motor vehicles it appearing from the list submitted by the
Philippine Embassy personnel on their purchases of motor vehicles in your country.
Hence, the herein local purchase of one (1) Toyota Fortuner DSL 4x4 3.0 4S for the official use of
the Embassy of Japan is exempt from VAT. (BIR Ruling No. DA-ITAD-176-03 dated November 21,
2003) 1uptax07
Very truly yours,

Legal Service
January 31, 2007
Articles 5 & 7, Paragraph 1 (a) of the GADC between GRP

and GOA;
Section 106 (A) (2) (c) of the Tax Code of 1997;
Philippines-Australian Land Administration

and Management Project (PALAMP)
Level 23 Tower 2 RCBC Plaza
Gentlemen :
This has reference to the Australian Embassy's Note No. 362/06 and File No. MN94/00112 dated
September 22, 2006 referred to this Office by the Department of Finance (DOF) and the Department of
Foreign Affairs (DFA), requesting exemption from payment of ad valorem and value-added taxes (VAT)
on the local purchase of motor vehicles for official use by the Philippines-Australian Land Administration
and Management Project, specifically described as follows:
Make Model Year Color Chassis Engine

Number Number
Toyota Hi Ace 2.5 2006 Nobel Pearl JTFRS13P8- 2KD-1511424

GL Grandia Diesel 2 tone 00003591
Toyota Hi-Ace 2.5 2006 Nobel Pearl JTFRS13P8- 2KD-1507065
GL Grandia Diesel 2 tone 00003476
In reply, please be informed that Article 5, paragraphs 1 & 2 of the General Agreement on
Development Cooperation (GADC) between the Government of the Republic of the Philippines (GRP)
and the Government of Australia (GOA) provides, viz:
"Article 5
"Subsidiary arrangements
"1. In support of the objectives of this Agreement, the Government of Australia and the
Government of the Republic of the Philippines, or their agencies, statutory authorities or organizations
may conclude subsidiary arrangements in respect of specific activities. ScaATD
"2. Subsidiary arrangements shall make specific reference to this Agreement and the terms
of this Agreement shall, unless otherwise stated, apply to such subsidiary arrangements. Wherever
possible, such subsidiary arrangements shall set out: (Emphasis supplied)
"(a) the name and duration of the activity;
"(b) a description of the activity and statement of its objectives;
"(c) the nominated implementing agencies in both countries
"(d) potential benefits of the activity;
"xxx xxx xxx"
Relative thereto, Article 7, paragraph 1(a) of the GADC between GRP and GOA, pertinently
provides as follows:
"Article 7
"Project supplies and professional and technical material and services
1. In respect of project supplies and professional and technical material and services
whether to be imported from outside or procured within the Philippines, the Government of the
Republic of the Philippines shall:
"(a) for direct supplies of domestic goods and services, subject them to zero rate for
purposes of Value Added Tax (VAT); exempt direct importation of goods from
import duties, VAT and other taxes imposed in the Philippines (or pay such duties
thereon); and be responsible for inspection fees, storage charges and all other levies,
fees and charges; . . ."
In addition, Section 106 (A) (2) (c) of the National Internal Revenue Code of 1997, as amended
(NIRC) provides, viz:
"Section 106. Value-added Tax on Sale of Goods or Properties.
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor: Provided, That the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve-percent (12%), . . .
xxx xxx xxx"
(2) (Zero-rated Sales) — The following sales by VAT-registered persons shall be subject to
zero percent (0%) rate:
xxx xxx xxx
(c) Sales to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory effectively
subjects such sales to zero rate.
"xxx xxx xxx"
Based on the abovequoted provisions, the terms of the GADC, unless otherwise stated, shall apply
to subsidiary arrangements with specific reference to said Agreement. Moreover, Article 7 of the GADC
states that the Government of the Republic of the Philippines shall subject to zero rate, for purposes of
VAT, direct supplies of domestic goods and services in respect of project supplies and professional and
technical material and services whether to be imported from outside or procured within the Philippines.
Such being the case, since PALAMP is a subsidiary arrangement of GADC and falls within the
purview of Section 106 (A) (2) (c) of the National Internal Revenue Code of 1997, and which exemption,
under an international agreement (GADC) to which the Philippines is a signatory, effectively subjects such
sales to zero rate, this Office is of the opinion and so holds that the purchase of two (2) units of Toyota
Hi-Ace 2.5GL Grandia Diesel, for PALAMP's official use shall be subject to zero rate.
the herein party is concerned.
Very truly yours,

Legal Service
January 31, 2007

British Embassy
17th Floor L.V. Locsin Bldg.
6752 Ayala Avenue
Makati City
Gentlemen :
This has reference to your Note Verbale No. 177-06 dated October 23, 2006 referred to this Office
refund of value-added tax (VAT) on the local purchase of motor vehicles, for the official use of the
Embassy of the British Embassy, specifically described as follows:
Make Type of Use Color Chassis Number Engine Number
Yamaha Motorcycle Official Blue 5EV-000821 5EV-000821

XT225
Yamaha Wonderbike Official Green 5EV-000788 5EV-000788
XT225
reads:
"ARTICLE 34
goods and services;
"xxx xxx xxx"
Thus, the tax exemption privilege of an Embassy does not include exemption from value-added tax (VAT)
on its local purchases of goods and services. In other words, purchases by that Embassy of goods and/or
services shall, in general, be subject to the VAT prescribed under Sections 106 and 108 of the National
However, applying the principle of reciprocity, this Office may confirm exemption to the British
Embassy on their purchase of locally-assembled motor vehicles it appearing from the list submitted by the
the Philippine Embassy on their purchase of locally-assembled motor vehicles in your country.
Hence, the local purchases of one (1) unit of Yamaha Motorcycle XT225 and one (1) unit of
Yamaha Wonderbike XT225, for the official use of the British Embassy are exempt from VAT. (BIR
Ruling No. DA-ITAD-5-05 dated January 21, 2005) ISaTCD
determining whether the British Embassy is entitled to VAT exemption on the basis of reciprocity. The
determination on whether your request for tax refund should be given due course is upon the Office which
will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including a copy
of this ruling) shall be endorsed to the proper office for processing and investigation.
Very truly yours,

Legal Service
January 25, 2007
Sections 105, 106 and 109, Tax Code of 1997, as amended;

Bearing Point
Unit 1007, 10/F The Orient Square
Emerald Avenue, Ortigas Center
Pasig City
Attention: Mr. Stewart Hall

Project Manager
E-Governance for Efficiency
and Effectiveness Project
Gentlemen :
This refers to your letter dated August 15, 2006, forwarded to this Office on December 5, 2006,
requesting exemption for the Project Management Office (PMO) of the Canadian International
Development Agency's new bilateral project called "Electronic Governance for Efficiency and
Effectiveness" (E3 Project) managed by Canadian Executing Agency (CEA), Bearing Point.
It is represented that on September 7, 2005, a Memorandum of Understanding (MOU) was executed

between the Government of Canada and the Government of the Republic of the Philippines concerning the
E3 Project; that the goal of the E3 Project is to foster efficient, responsive, transparent and accountable
governance at all levels and especially with respect to social services; that this 5-year project will focus on
the development and strengthening of government's capacity in electronic governance to facilitate the
delivery of informational component of targeted social services.
It is further represented that under the MOU, Canada designates the Canadian International
Development Agency (CIDA) to assume its responsibilities under the MOU; that for the implementation
of its undertaking, CIDA awarded the contract to Bearing Point who will be responsible for the overall
financial, administrative and technical management of the project under the direction of the Project
Steering Committee (PSC); that the Philippines, on the other hand, designates the Commission on
Information and Communications Technology (CICT) to assume its responsibilities under the said MOU;
that for the implementation of its undertaking, CICT will co-chair the PSC with CIDA and will mobilize
appropriate local human resources necessary for the implementation of the project; that the contribution of
Canada will consist of professional and technical services, as well as monitoring and evaluating the
project; that the total value of Canada's contribution will not exceed ten million Canadian dollars
(Cdn$10,000,000).
In reply, please be informed that Section 105 of the National Internal Revenue Code of 1997 (Tax
Code), as amended, provides that any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports goods, shall be
subject to the 12 percent value-added tax VAT. Being an indirect tax, the VAT may be shifted or passed
on by the person concerned to the buyer, transferee, or lessee of the properties, or services.
However, Sections 106(A)(2)(c), 108(B)(3) and 109(K) of the Tax Code allow exemption from
VAT or zero percent VAT for goods and services sold to persons and entities who are treated under
special laws or international agreements to which the Philippines is a signatory as exempt or are
effectively subjected to zero percent on such goods and services sold to them. In this regard, Articles IV
and V of the Philippines-Canada General Agreement Development Cooperation, an international
agreement to which the Philippines is a signatory, provide, viz:
"ARTICLE IV
The Government of the Republic of the Philippines shall ensure that development aid funds
provided under any subsidiary arrangement are not used to pay any taxes, fees, customs duties or any
other levies and charges imposed directly or indirectly by the Government of the Republic of the
Philippines, on any goods, materials, equipment, vehicles and services purchased or acquired for the
execution of any project being carried out in the Philippines pursuant to a subsidiary arrangement."
"ARTICLE V
The Government of the Republic of the Philippines shall exempt Canadian firms and Canadian
personnel from or bear the costs of customs and excise duties, sales taxes, fees (except those
associated with private motor vehicles), and other charges imposed by the Government of the
Republic of the Philippines of similar nature, on all goods, materials, equipment, vehicles and services
and on any other goods or services acquired in or imported into the Philippines for or related to the
execution of projects established under any subsidiary arrangement. Resale of goods, materials,
equipment or vehicles acquired under this section to a firm or person other than a Canadian firm or
Canadian personnel or other exempt buyer will be subject to normal taxes and duties as provided for
by the existing laws of the Philippines."
Pursuant to the foregoing, a subsidiary arrangement must first be concluded between the
Government of Canada and the Government of the Republic of the Philippines (GOP) in respect of a
specific project. And in respect of such subsidiary arrangement, the Philippine government ensures that
the development aid funds shall not be used to pay any taxes, fees, customs duties or any other levies and
charges imposed directly or indirectly by the GOP, on any goods, materials, equipment, vehicles and
services purchased or acquired for the execution of the project. And further, the GOP shall exempt
Canadian firms and Canadian personnel from or bear the costs of customs and excise duties, sales taxes,
fees (except those associated with private motor vehicles), and other charges imposed by the Government
of the Republic of the Philippines of similar nature, on all goods, materials, equipment, vehicles and
services and on any other goods or services acquired in or imported into the Philippines for or related to
the execution of projects established under any subsidiary arrangement.
Relative thereto, Article V, Section 5.02 of the MOU, which is a subsidiary arrangement referred to
under Article V of the GADC provides, to wit:
"Section 5.02
CANADA's contribution cannot be used to pay any taxes, fees, customs duties or any other
levies or charges imposed directly or indirectly by the PHILIPPINES on any goods, materials,
equipment, vehicles and services purchased or acquired to meet project requirements or in relation to
the implementation of the Project."
From the aforequoted provision of the MOU, it is clear that the Government of the Republic of the
Philippines agreed that the contributions made by Canada for the implementation of the E3 Project shall
not be used to pay any taxes, fees, customs duties or any other levies or charges imposed directly or
indirectly by the Philippines on any goods, materials, equipment, vehicles and services purchased or
acquired to meet project requirements or in relation to the implementation of the Project. SEHaDI
Hence, Canada's contribution for the purpose of purchasing or acquiring goods, materials,
equipment, vehicles and services needed to meet project requirements or related to the implementation of
the E3 Project is exempt from the payment of both direct and indirect taxes being by the Government of
the Republic of the Philippines.
Accordingly, this Office is of the opinion and so holds that in keeping with the intention of
provisions of the GADC as quoted above, Bearing Point, as the Canadian Executing Agency, shall be
exempt from corporate income tax on the income paid out of the development aid funds, as well as from
VAT and excise tax imposed on the purchases of goods and services by Bearing Point relevant to the
implementation of the Project. (BIR Ruling No. DA-ITAD 145-04 dated December 17, 2004)
Very truly yours,
By:

Legal Service
January 22, 2007
Philippines-Japan Tax Treaty, Article 10;

Luzon Electronics Technology, Inc.

Special Export Processing Zone
Gateway Business Park
Javalera, Gen. Trias
4107 Cavite
Attention: Ms. Luz G. Cuyco

Manager for Finance Department
Gentlemen :
This refers to your letter dated February 13, 2006, requesting relief from double taxation on
dividends paid to Hitachi Metals, Ltd., pursuant to Article 10 of the Philippines-Japan tax treaty.
It is represented that HITACHI METALS LTD. (HML) is a nonresident foreign corporation duly
organized and existing under the laws of Japan with principal office at 2-1 Shibaura I-chome, Minato-ku,
Tokyo, Japan; that it is not registered either as a corporation or as a partnership in the Philippines per
certification dated February 9, 2006 issued by the Securities and Exchange Commission; that Luzon
Electronics Technology, Inc. (LETI) is a corporation organized and existing under the laws of the
Philippines, with principal address located at Special Export Processing Zone, Gateway Business Park,
Javalera, Gen. Trias, Cavite; that its primary business purpose is the manufacture, assembly and packaging
of magnetic recording heads such as plated coil D-MIG (Double Sided Metal-In-Gap) slider, D-Mig Head
Slider and magneto resistive slider gimbal assembly for export and the importation of raw materials,
machineries, equipment, tools, goods, wares, articles or merchandise directly used in its registered
operations at the Gateway Business Park Special ECOZONE; that the authorized capital stock of LETI is
Two Hundred Ninety-Two Million Pesos (P292,000,000.00) divided into Thirty Six Million Five Hundred
(36,500,000) authorized shares with a par value of Eight Pesos (Php 8.00) per share; that in a meeting of
the Board of Directors of LETI held on January 10, 2006, a resolution was unanimously adopted and
approved to declare cash dividends of Eight Million Pesos (Php8,000,000.00) in favor of all stockholders
of record of the corporation as of March 31, 2005, which shall be paid on or before March 31, 2006.
In reply, please be informed that Article 10 of the Philippines-Japan tax treaty provides:
"Article 10

payment of the dividends; (Emphasis supplied)
The provisions of this paragraph shall not affect the taxation of the company in
respect of the profits out of which the dividends are paid.
xxx xxx xxx
4. The term 'dividends' as used in this Article means income from shares or other rights, not
xxx xxx xxx"
Based on the abovequoted provisions, the Philippines may tax the dividends paid by a Philippine
company to a Japanese company at a rate not exceeding ten percent (10%) if the latter holds directly at
least twenty-five percent (25%) either of the voting shares or of the total shares of the former for a period
of six (6) months immediately preceding the date of payment of the dividends. HDTcEI
Considering that HML directly holds 100% of LETI's shares of stock from March 31, 2005 up to
March 31, 2006 which is more than six (6) months immediately preceding the date of payment of the
dividends, this Office is of the opinion and hereby holds that the dividend payments of HML to LETI are
subject to the 10% preferential tax rate pursuant to Article 10(2)(a) of the Philippines-Japan tax treaty.
(BIR Ruling No. DA-ITAD-130-04 dated November 10, 2004)
Very truly yours,
By:

Legal Service
January 17, 2007

1997;
Embassy of the Republic of South Africa

29th Floor Yuchengco Tower, RCBC Plaza,
Attention: Ms. Sylvia Matona

First Secretary, Immigration and Civic Services
Gentlemen :
This has reference to your Note No. Phil/62/06 dated October 13, 2006 referred to this Office by
the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), Office of Protocol,
requesting for the exemption from payment of value-added taxes (VAT) on the local purchase of one (1)
unit motor vehicle for the personal use of Ms. Sylvia Matona, First Secretary, Immigration and Civic
Services of the Embassy of South Africa, specifically described as follows:
Make: Honda City 1.3 S CVT

Model Year: 2006
Color: Tango Red
Engine Number: REGD536201841
Frame Number: PADCD66306V201830
reads:
"ARTICLE 34
"xxx xxx xxx"
from the VAT and ad valorem tax on its local purchases of goods and services. In other words, purchases
by that Embassy of goods and/or services shall, in general, be subject to the value-added tax prescribed
under Sections 106 and 108 of the National Internal Revenue Code of 1997. CTDacA
South Africa or its personnel on their local purchases of locally assembled motor vehicles it appearing
allows similar exemption to Philippine Embassy personnel on their purchases of motor vehicles in your
country.
Hence, the herein local purchase of one (1) unit of 2006 Honda City 1.3 S CVT for the personal use
of Ms. Sylvia Matona, First Secretary, Immigration and Civic Services of the Embassy of South Africa is
exempt from VAT. (BIR Ruling No. ITAD-DA-77-05 dated August 2, 2005)
Very truly yours,

Legal Service
January 17, 2007
Embassy of the Republic of South Africa

Suite 1, c/o Oakwood Premier Suites
Ayala Center, Makati City
Gentlemen :
This has reference to your Note Verbale No. Phil/73/06 dated November 23, 2006 referred to this
Office by the Department of Finance (DOF) and the Department of Foreign Affairs (DFA), requesting for
a tax-free purchase of one (1) locally purchased motor vehicle specifically described hereunder, for the
personal use of Mr. Pierre M. De Villiers, First Secretary Administration and Consular of the Embassy of
the Republic of South Africa:
Make: ISUZU CROSSWIND XUVi A/T

Model Year: 2005
Chassis No.: PABTBR54F42028068
Engine No.: 4JA1-CF7207
"ARTICLE 34
or services;
"xxx xxx xxx"
of the Republic of South Africa and/or its personnel on their local purchases of locally assembled motor
vehicles, it appearing from the list submitted by the Department of Foreign Affairs as of October 18, 2005
that your Government allows similar exemption to Philippine Embassy and its personnel on their
purchases of locally assembled motor vehicles in your country. TAaHIE
Hence, the herein local purchase of one (1) 2005 Isuzu Crosswind XUVi A/T for the personal use
Mr. Pierre M. De Villiers is exempt from VAT. (BIR Ruling No. DA-ITAD-077-05 dated August 2, 2005)
This ruling is issued on the basis of the facts represented. However, if upon investigation it shall be
Very truly yours,

Legal Service
January 17, 2007
Makati City
Attention: Ms. Louisa Agatha Petralia

First Secretary
Gentlemen :
This has reference to your Note No. 499/06 and File No. MN94/00109 dated December 4, 2006
unit motor vehicle for the personal use of Ms. Louisa Agatha Petralia, First Secretary of the Embassy of
Australia specifically described as follows:
Make: Altis 1.6E A/T

Model Year: 2006
Color: Flaxen
Frame Number: ZZE121-8021199
Engine Number: 3ZZ-4617493
reads:
"ARTICLE 34
or services;
"xxx xxx xxx"
of 1997.
the list submitted by the Department of Foreign Affairs as of October 18, 2005, that your Government
locally-assembled motor vehicles thereat. EaDATc
Hence, the local purchase of one (1) unit of 2006 Altis 1.6E A/T for the personal use of Ms. Louisa
Agatha Petralia, First Secretary of the Embassy of Australia is exempt from VAT and ad valorem tax.
(BIR Ruling No. ITAD-19-04 dated February 23, 2004)
Very truly yours,

Legal Service
January 16, 2007
Article 9 (1) (a) Philippines-United Kingdom of Great

Britain and Northern Ireland tax treaty; BIR Ruling No.
ITAD-187-00
SyCip Gorres Velayo & Co.

6760 Ayala Avenue
1226 Makati City
Philippines
Attention: W.U. Villanueva

Gentlemen :
This refers to your application for tax treaty relief dated July 12, 2006, on behalf of your client, AB
Food and Beverages Philippines, Incorporated (AB Phil.), requesting confirmation of your opinion that the
dividends declared and paid by AB Phil. to ABF Overseas Limited (AB UK), are subject to the
preferential tax rate of 15%, pursuant to Article 9 (1) (a) of The Convention between the Government of
the Republic of the Philippines and Government of the United Kingdom of Great Britain and Northern
Ireland for the Avoidance of Double Taxation (Philippines-UK tax treaty).
It is represented that AB UK is a nonresident foreign corporation organized and existing under the
laws of the United Kingdom with registered office at Weston Centre, 10 Grosvenor Street, London W1K
4QY; that it is not registered either as a corporation or as a partnership in the Philippines per certification
dated April 28, 2006 issued by the Securities and Exchange Commission; that AB Phil. is a corporation
duly organized and existing under and by virtue of Philippine laws, with principal office address at 105 E.
Rodriguez Jr. Avenue, Pasig City, Metro Manila, Philippines.
It is further represented that as of January 30, 2006 AB Phil. has an authorized capital stock of One
Hundred Ninety Million Pesos (PhP190,000,000.00) divided into Eight Million (8,000,000) common
shares and Eleven Million (11,000,000) preferred shares with a par value of Ten Pesos (PhP10.00) per
share; that Six Million One Hundred Five Thousand Thirty Eight (6,105,038) common shares and Ten
Million Three Hundred Seventy Thousand Six Hundred Forty Nine (10,370,649) preferred shares have
been subscribed and paid in full; that as of January 30, 2006, AB UK owns Six Million Sixty Six
Thousand Fifty Eight (6,066,058) common shares or 99.36% of the subscribed common shares and Ten
Million Three Hundred Seventy Thousand Six Hundred Forty Nine (10,370,649) preferred shares or 100%
of the subscribed preferred shares of AB Phil.; that on January 30, 2006, the Board of Directors of AB
Phil. passed and approved a Resolution declaring cash dividends in the amount of Two Hundred Million
Fourteen Thousand Eight Hundred Forty Pesos and Eighteen Centavos (PhP200,014,840.18) or Twelve
Pesos and Fourteen Centavos (PhP12.14) per share in favor of its stockholders of record as of January 30,
2006, payable on or before February 28, 2006; and that the issue/s or transaction subject of the above
request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or
issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s involved.
SCETHa
In reply, please be informed that Article 9 of the Philippines-UK tax treaty provides as follows, viz:
"Article 9
Dividends
1. Dividends derived from a company which is a resident of the Philippines by a resident of the
United Kingdom may be taxed in the United Kingdom. Such dividends may also be taxed in
the Philippines but where such dividends are beneficially owned by a resident of the United
Kingdom the tax so charged shall not exceed:
a) 15% of the gross amount of the dividends if the beneficial owner is a

company which controls directly or indirectly at least 10 per cent of the
voting power in the company paying the dividends;
b) in all other cases, 25% of the gross amount of the dividends.
xxx xxx xxx
4. The term 'dividends' as used in this Article means income from shares, or other rights, not
being debt-claims, participating in profits, as well as income from corporate rights
assimilated to income from shares by the taxation law of the State of which the company
making the distribution is a resident and also includes any other item (other than interest
relieved from tax under the provisions of Article 10 of this Convention) which, under the
law of the Contracting State of which the company paying the dividend is a resident, is
treated as a dividend or distribution of a company.
xxx xxx xxx"
whenever the recipient, who is the beneficial owner of the dividends, owns at least 10% of the voting
power of the paying company. In all other cases, the 25% preferential tax rate shall apply. Such being the
case and considering that AB UK holds approximately 99.36% of the subscribed common shares and
100% of the subscribed preferred shares of AB Phil., this Office is of the opinion and so holds that the
dividend payments by AB Phil. to AB UK shall be subject to the preferential tax rate of 15% of the gross
amount of dividends, pursuant to Article 9(1)(a) of the Philippines-UK tax treaty. (BIR Ruling No.
ITAD-187-00 dated December 7, 2000)
Very truly yours,
By:
Legal Service
January 4, 2007
Article 13, Philippines-Australia tax treaty;

Section 175, NIRC of 1997, as amended;

6760 Ayala Avenue, 1226 Makati City
Attention: Emmanuel C. Alcantara

Co-Head, Tax Services
Gentlemen :
This refers to your letter dated September 5, 2006 which was filed on behalf of your client,
SALMAT INTERNATIONAL PTY. LIMITED (SALMAT), requesting confirmation of your opinion that
the sale by SALMAT of its shares of stock in ClientLogic Philippines, Inc. (ClientLogic) to Service Zone
International LLC (Service Zone), is not subject to capital gains tax in the Philippines, pursuant to Article
13 of the Philippines-Australia tax treaty.
It is represented that SALMAT is a corporation duly organized and existing under the laws of
Australia, with principal office located at 14-16 Chandos Street, St. Leonards NSW 2065, Australia, as
evidenced by a Certificate of Residency dated 4 December 2006 issued by the Australian Government,
Australian Taxation Office; that it is not registered either as a corporation or as a partnership in the
Philippines as per certification issued by the Securities and Exchange Commission dated 30 August 2006;
that Service Zone is a limited liability company organized and existing under the laws of the State of
Florida, United States of America, with principal place of business at 3012 West End Avenue, Suite 1000,
Nashville, Tennessee 37027; that ClientLogic is a corporation organized and existing under the laws of the
Philippines with principal office address at 21st Floor, Taipan Place, Emerald Avenue, Ortigas Center,
Pasig City.
It is further represented that as of 25 August 2006, SALMAT owns 330,750 common shares
(inclusive of its three nominee directors) in ClientLogic with a par value of P100 per share or a total
amount of P33,075,000; that on 27 September 2006, SALMAT, Service Zone, and ClientLogic entered
into a Share Purchase Agreement, wherein SALMAT agreed to sell, and Service Zone agreed to purchase,
the said 330,750 common shares, upon the fulfillment of certain conditions, which may be waived by
Service Zone in its sole discretion; that at or prior to the fulfillment of the same conditions, SALMAT
shall deliver or procure delivery (as the case may be) to Service Zone of, among others, a Deed of
Absolute Sale in respect of the above sale substantially in the form attached to the said Share Purchase
Agreement, with the original subject certificates of stocks duly endorsed by SALMAT; and that the
purchase price of the subject shares of stocks is Twenty One Million Two Hundred Fifty Thousand US
Dollars (US$ 21,250,000.00).
In reply, please be informed that Article 13 of the Philippine-Australia tax treaty provides as
follows, viz:
"Article 13
ALIENATION OF PROPERTY
1. Income from the alienation of real property may be taxed in the Contracting State in which
that property is situated.
2. For the purposes of this Article —
a) the term 'real property' shall have the meaning which it has under the laws in
force in the Contracting State in which the property in question is situated and
shall include —
(i) a lease of land or any other direct interest in or over land;
(ii) rights to exploit, or to explore for, natural resources; and
(iii) shares or comparable interests in a company, the assets of which

consist wholly or principally of direct interests in or over land in one
of the Contracting States or of rights to exploit, or to explore for,
natural resources in one of the Contracting States; acSECT
b) real property shall be deemed to be situated —
(i) where it consists of direct interests in or over land — in the

Contracting State in which the land is situated;
(ii) where it consists of rights to exploit, or to explore for, natural

resources — in the Contracting State in which the natural resources
are situated or the exploration may take place; and
(iii) where it consists of shares or comparable interests in a company, the

assets of which consist wholly or principally of direct interests in or
over land in one of the Contracting States or of rights to exploit, or to
explore for, natural resources in one of the Contracting States — in
the Contracting State in which the assets or the principal assets of the
company are situated.
3. Subject to the provisions of paragraph 1, income from the alienation of capital assets of an
enterprise of one of the Contracting States or available to a resident of one of the Contracting
States for the purpose of performing professional services or other independent activities
shall be taxable only in that Contracting State, but, where those assets form part of the
business property of a permanent establishment or fixed base situated in the other
Contracting State, such income may be taxed in that other State."
Based on the foregoing, an Australian company is subject to Philippine tax on any gain derived on
its sale of shares of stocks in a Philippine company provided the assets of the subject Philippine company
consist wholly or principally of direct interests in or over land in the Philippines or of rights to exploit, or
to explore for, natural resources therein.
In relation thereto, Sections 2 and 4 of Revenue Regulations No. 4-86 provide as follows, to wit:
"SEC. 2. Definitions. — For purposes of these Regulations, the following terms and
phrases shall be understood to mean —
xxx xxx xxx
b) 'Principally', 'wholly or principally', 'directly principally' or 'attributable' — more than

fifty percent of the entire assets in terms of value;
xxx xxx xxx (Emphasis supplied)
"SEC. 5. Basis. — The value of all the assets of the subject corporation both real and
personal, as appearing in its financial statement on the date of the sale of the share or interest in such
corporation, as verified by the BIR, shall be used as the basis for determining the composition of its
assets.
In case the financial statement as of the date of the sale is not available, the most recent
financial statement may be used, after the necessary adjustments are made to reflect transactions made
during the period from the date of such financial statement to the date of the sale." (Emphasis
supplied)
Thus, if less than fifty percent of the value of the assets of the Philippine company consists of direct
interest in or over land, or the right to exploit or explore natural resources, in the Philippines, the gain
derived by an Australian company shall be taxable only in Australia, unless those assets form part of the
business property of a permanent establishment or fixed base of the Australian company situated in the
Philippines, in which case, the said gains will be taxed in the Philippines.
It must be emphasized, however, that the determination of this Office on whether the value of the
assets of the subject Philippine corporation consists wholly or principally of direct interests in or over
land, or of rights to exploit, or to explore for, natural resources, in the Philippines, will be done as of the
date of sale of the shares of stocks.
In view of all the foregoing, the gains derived by SALMAT on the sale to Service Zone of its shares
of stocks in ClientLogic shall be exempt from the capital gains tax in the Philippines only when it is
established, as of the date of sale, that the value of the assets of ClientLogic does not consist wholly or
principally of direct interests in or over land, or of rights to exploit, or to explore for, natural resources, in
the Philippines, pursuant to Article 13 of the Philippines-Australia tax treaty in relation to Section 4 of
Revenue Regulations No. 4-86.
However, the transaction by and between SALMAT and Service Zone as embodied in the
above-stated Share Purchase Agreement, being an agreement to sell, is already subject to the documentary
stamp tax (BIR Ruling No. 089-97), pursuant to Section 175 of the National Internal Revenue Code of
1997, as amended by Republic Act No. 9243.
Thus, this Office hereby defers from making any pronouncement as to the capital gains tax
exemption on the above transaction unless and until an actual agreement or contract of sale, which
stipulations must be consistent with the representations made herein, has been entered into by SALMAT
and Service Zone, and certified copies thereof and the financial statements of ClientLogic as of the date of
such sale as well as other pertinent and relevant documents and information (in addition to what have been
already submitted) have been evaluated by this Office, through the International Tax Affairs Division of
this Bureau.
Please be guided accordingly.
Very truly yours,

Legal Service
January 3, 2007

Section 108 (A) National Internal Revenue Code of 1997;
Bernaldo Mirador & Directo Law Offices

Unit 1807 Cityland Condominium 10-Tower I
6815 Ayala Ave. cor. H.V. dela Costa Streets
Makati City
Attention: Atty. Perfecto E. Mirador, Jr.

Partner
Gentlemen :
This refers to your letter dated July 4, 2005 received by this Office on October 20, 2005, on behalf
of your client, C. Melchers Gmbh & Co.-Philippine Branch (C. Melchers, for brevity), requesting
confirmation of your opinion that the service fees to be paid by C. Melchers to
Transmarina-Handlesgesellschaft Mbh (Transmarina for brevity) for the services rendered outside the
Philippines are not subject to Philippine income tax and consequently to expanded withholding tax.
It is represented that Transmarina is a nonresident foreign corporation organized and existing under
the laws of the Federal Republic of Germany with business address located at Schlachta 39/40, 28195
Bremen, Germany as shown in the Certificate of Registration issued by the Companies Register of the
Court of Bremen on September 6, 2005; that Transmarina is not registered either as a corporation or as a
partnership licensed to engage in business in the Philippines as confirmed by the Certification of
Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on July
12, 2005; that C. Melchers is a branch office of a foreign corporation duly licensed by the Securities and
Exchange Commission to transact business in the Philippines under SEC License No. A199903723 with
business address at Unit 19-C, 19th Floor, Rufino Pacific Tower, 6784 Ayala Avenue cor. Herrera Street,
Makati City; that C. Melchers is engaged in the business of buying, selling, distributing and marketing at
wholesale all kinds of goods, commodities, wares and merchandise of any kind in the Philippines or
abroad.
It is further represented that on July 26, 2005, C. Melchers and Transmarina entered into a Service
Agreement for a period of one (1) year starting January 1, 2005 to December 31, 2005 and renewable on
an annual basis subject to terms and conditions to be mutually agreed upon by the parties; that
Transmarina agrees to provide the following services to C. Melchers:
1. Diligently canvass for buyers, and in all reasonable and proper ways, for the promotion
of the business and interest of C. Melchers;
2. Receive, care for, and distribute in its territory catalogs, circulars, folders and other
advertising matters furnished by C. Melchers;
3. Receive and facilitate orders of customers or clients in Europe;
4. Disseminate information and conduct promotional activities about the products of C.

Melchers;
5. Undertake quality control of products of C. Melchers;
6. Properly display and advertise all sample goods left in the care of Transmarina, without
expense to C. Melchers, until sold or ordered elsewhere, and to promptly remedy and
attend to all complaints by the buyers without calling upon C. Melchers;
7. Store, protect and care for, and to insure all goods handled by Transmarina, without
expense to C. Melchers, until sold or ordered elsewhere, and to promptly remedy and
attend to all complaints by the buyers without calling upon C. Melchers for assistance;
8. Provide consultation on areas of productivity improvement, accounting and cost control

principles, procurement of supplies, human resource management and information
systems;
9. Arrange for the safe and timely transport and shipment of the products from the
Philippines;
10. Implement such quality measures as it deems necessary in order to maintain the
products in good condition until the same are delivered and accepted by the customers;
SECHIA
11. Advice C. Melchers on such other matters as may be needed for the success of the
business of C. Melchers; and
12. Perform all other services necessary to implement the foregoing;
that the foregoing services shall be carried out by Transmarina in Germany; and that in consideration for
the services, C. Melchers shall pay Transmarina an annual service fee of Fifty Five Thousand US Dollars
(US$55,000.00), subject to deduction for all taxes, fees and charges.
In reply, please be informed that Section 23(F) of the National Internal Revenue Code of 1997 (Tax
Code) provides:
xxx xxx xxx
xxx xxx xxx"
According to the above provision, a foreign corporation like Transmarina is taxable only on income
derived from sources within the Philippines. In the case of income from the provision of services, such
income is considered derived from sources within the Philippines if the services are performed in the
Philippines, as stated in Section 42(A)(3) of the Tax Code below:
A. Gross Income From Sources Within the Philippines. — The following items
of gross income shall be treated as gross income from sources within the
Philippines:
xxx xxx xxx

Philippines;
"xxx xxx xxx"
Such being the case and since the subject services will be carried out entirely in Germany, the
service fees to be paid therefor by C. Melchers to Transmarina, being income not derived from sources
within the Philippines by a foreign corporation, are exempt from Philippine income tax. (BIR Ruling No.
Similarly, the subject service fees are not subject to the VAT imposed under Section 108(A) of the
Tax Code below:
the Philippines for others for a fee, remuneration or consideration . . .
"xxx xxx xxx" 1(143)
As clearly stated above, the sale or exchange of services subject to VAT include only those services
that are performed in the Philippines. Accordingly, since the subject services will not be performed in the
Philippines, service fees in consideration for said services to be paid by C. Melchers to Transmarina are
therefore exempt from VAT. (BIR Ruling No. DA-ITAD 90-04 dated August 24, 2004)
Very truly yours,
By:

Legal Service
Footnotes
A. Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipt derived from the sale or exchange of services, including the
use or lease of properties selling price of gross value in money of the goods or properties sold, bartered or
xxx xxx xxx
Endnotes
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Finance to increase the Value-Added Tax Rate From Ten Percent to Twelve Percent)
2 (Popup - Popup)
3 (Popup - Popup)
Finance to increase the Value-Added Tax Rate from Ten Percent to Twelve Percent)
4 (Popup - Popup)
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1. STORE means the Krispy Kreme Store owned and operated by RADC pursuant to the subject Agreement.
6 (Popup - Popup)
2. September 2, 2002.
7 (Popup - Popup)
3. Effective February 1, 2006 rate is 12%.
8 (Popup - Popup)
108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 And 288 Of The National
May 24, 2005 and became effective on November 1, 2005, read as:
or exchanged, such tax to be paid by the seller or transferee: Provided, that the President, upon the
xxx xxx xxx
9 (Popup - Popup)
10 (Popup - Popup)
xxx xxx xxx
or under special laws, except those under Presidential Decree No. 529.
11 (Popup - Popup)
Purposes.
12 (Popup - Popup)
13 (Popup - Popup)
4. Ibid.
14 (Popup - Popup)
15 (Popup - Popup)
16 (Popup - Popup)
17 (Popup - Popup)
1. Signed on May 11, 1979, and became effective on January 1, 1980.
18 (Popup - Popup)
2. Intellectual Property Rights includes the Patents, the Trade Marks, the Copyright and
(a) all other rights in the nature of patent, copyright design, domain name, trade mark, service mark, trade
name, circuit layout rights and other proprietary rights;
(b) applications and registrations thereof, all rights identified in Article 2 of the Convention Establishing
the World Intellectual Property Organisation, as amended in September 28, 1979; and
(c) all rights to the registration of such rights wherever such rights exist in the world, comprising or
related to the Products. ECcDAH
Patents means the granted patents and patent applications owned by Aristocrat Asia or its licensors
and rights of a similar nature that relate to the Products, equipment to manufacture the Products or the
process according to which the Products are made filed in the Territory, patents issuing from those patent
applications, claims of all patent applications and of the resultant patents that are directed to the subject
matter described in the patents and/or patent applications specified in this definition, and any re-issues,
continuations, divisional applications, supplemental disclosures or extensions of any patents or patent
applications specified in this definition.
Trade Marks means the trade marks owned by Aristocrat Asia or its licensors in the Territory relating
to the Products, components of the Products, or services relating to the Products.
Copyright means all rights of copyright owned by Aristocrat Asia or its licensors in the Territory
which relate to the Products, including but not limited to such rights in Software, artistic, musical and
literary works, and cinematograph films comprising or related to the Products.
Software means any program or series of programs, containing instructions for a computer required
either for the operational processes of the computer itself or for the accomplishment of other tasks.
19 (Popup - Popup)
3. Territory means the Philippines or such other territory as may be agreed between the parties from time to
time.
20 (Popup - Popup)
4. Recurring Revenue means a revenue model where a Product (e.g., a Gaming Machine), is leased or
sub-leased to a Customer. Ownership of the leased Product at all times remains with Aristocrat Asia and
title is never transferred to the Customer.
21 (Popup - Popup)
5. Gaming Machine means an electronic gaming machine or other electronic gaming device (including tables
with software embedded within the machine to make this operational and includes the Game.
Game means an electronic gaming machine or other electronic gaming device supplied under the
Agreement consisting of the Software and firmware expressing the machine game and associated artwork.
22 (Popup - Popup)
6. System means a combination of hardware (including computer equipment) and Software (including third
party software) which operates and maintains a network connection between gaming machines and other
devices (including, for example, gaming machines and a table) and a central computer. System includes the
system known as Dacom.
23 (Popup - Popup)
7. Conversion Kits means a kit consisting of components of electronic gaming machines, associated hardware,
software and artwork sold, hired or otherwise provided for the purpose of enabling an existing electronic
gaming machine to be used for the playing of new or updated Games.
24 (Popup - Popup)
8. Parts means any components, parts, accessories, fixtures or fittings of materials which are part of a Gaming
Machine or Conversion Kits and includes main boards.
25 (Popup - Popup)
9. Customer means any person within the Territory to whom Aristocrat Philippines (Philippine Branch) has
leased or intends to lease the Gaming Machines, and also includes such persons outside the Territory where
the context requires this meaning.
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10. Maintenance and Support Services means maintenance and support services including but not limited to
account management, training, installation, product delivery and product maintenance and support.
27 (Popup - Popup)
11. Entitled An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119,
121, 148, 151, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, as Amended, and for
other Purposes, signed on May 24, 2005, and became effective on November 1, 2005.
28 (Popup - Popup)
12. Page 182.
29 (Popup - Popup)
30 (Popup - Popup)
1. It was incorporated as Pridelure Limited and then changed its name to Instone Aircraft Trading Limited
(IATL) as evidenced by Certificate of Incorporation on Change of Name No. 2136314 issued by
Companies Registration Office dated September 8, 1987. It further changed its name from IATL to Instone
Groups Services Ltd. (IGSL) as evidenced by Certificate of Incorporation on Change of Name No. 2136314
issued by the Registrar of Companies for England and Wales dated April 13, 2001.
31 (Popup - Popup)
2. As stated in Article Two (Primary Purpose) of its Articles of Incorporation.
32 (Popup - Popup)
xxx xxx xxx
33 (Popup - Popup)
34 (Popup - Popup)
35 (Popup - Popup)
2. Ibid.
36 (Popup - Popup)
37 (Popup - Popup)
38 (Popup - Popup)
39 (Popup - Popup)
1. Section 106 of the Tax Code, as amended by Republic Act No. 9337 provides as follows:
xxx xxx xxx
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(c) Sales to persons or entities whose exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such sales to zero rate.
xxx xxx xxx"
40 (Popup - Popup)
2. Section 196 of the Tax Code provides as follows:
"SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real Property. — On all
conveyances, deeds, instruments or writings, other than grants, patents or original certificates of
adjudication issued by the Government, whereby any land, tenement or other realty sold shall be granted,
assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or to any other person or
persons designated by such purchaser or purchasers, there shall be collected a documentary stamp tax, at
the rates herein below prescribed, based on the consideration contracted to be paid for such realty or on its
fair market value determined in accordance with Section 6 (E) of this Code, whichever is higher: Provided,
That when one of the contracting parties is the Government, the tax herein imposed shall be based on the
actual consideration:
(a) When the consideration, or value received or contracted to be paid for such realty, after
making proper allowance of any encumbrance, does not exceed One Thousand pesos (P1,000), Fifteen
pesos (P15.00).
(b) For each additional One thousand pesos (P1,000), or fractional part thereof in excess of One
thousand pesos (P1,000) of such consideration or value, Fifteen pesos (P15.00).
xxx xxx xxx
41 (Popup - Popup)
3. Section 173 of the Tax code provides as follows:
"SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments and Papers. — Upon
documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and
transfers of the obligation, right or property incident thereto, there shall be levied, collected and paid for,
and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes
prescribed in the following Sections of this Title, by the person making, signing, issuing, accepting, or
transferring the same wherever the document is made, signed, issued, accepted or transferred when the
obligation or right arises from Philippine sources or the property is situated in the Philippines, and at the
same time such act is done or transaction had: Provided, That whenever one party to the taxable document
enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one
directly liable for the tax." (emphasis ours)
42 (Popup - Popup)
1997, As Amended, And for Other Purposes), which was signed into law on May 24, 2005 and became
effective on November 1, 2005, amended Section 108(A) to read as:
xxx xxx xxx"
43 (Popup - Popup)
1. Signed on February 13, 1980, and became effective on January 1, 1981.
44 (Popup - Popup)
2. See definition of Target in the Senior Loan Agreement.
45 (Popup - Popup)
3. See definition of Acquisition, Closing and Closing Date in the Senior Loan Agreement.
46 (Popup - Popup)
4. See Section 2.1 (The Facilities) and Schedule 1 (Part 2) of the Senior Loan Agreement.
47 (Popup - Popup)
5. The term resident for this purpose may include a domestic corporation and even a resident foreign
corporation.
48 (Popup - Popup)
1. Formerly, Matsushita Communication Industrial Corporation of the Philippines.
49 (Popup - Popup)
2. Affiliate shall mean a company or other legal entity which is under control by Panasonic Japan, but any
such company or other legal entity shall be deemed to be an affiliate only as long as such control exists, and
for the purposes of this definition, "control" shall mean direct or indirect ownership of more than fifty
percent (50%) of the voting power, capital or other securities of controlled entity. For the purpose of the
Agreement, Affiliate shall include the joint venture Sony Ericsson Mobile Communications AB and any of
its Affiliates (hereinafter collectively referred to as "Sony Ericsson"), Ericsson India Ltd., Beijing Ericsson
Mobile Communication Co., Kuwait Ericsson Telecommunication Equipment and Services, Panasonic
Mobile & Automotive Systems Czech, (PMACZ), Panasonic Mobile Communications Corporation of the
Philippines (PMCP) and Panasonic Putian Communications Beijing Company, Ltd. (PMCB) for as long as
Ericsson Sweden, Panasonic Japan and/or Matsushita Electric Industrial Company Ltd. (the parent
company of Panasonic Japan) (as applicable) owns at least 40% of the shares of such company. Should, due
to domestic legal requirements within the home country of such mentioned companies, it would not be
possible for Ericsson Sweden, Panasonic Japan and/or Matsushita Electric Industrial Company Ltd. to own
as mush as 40% of the shares of such mentioned corporations, such are irrespective included in the
definition of Affiliates if the ownership of such shares are remaining as of the maximum extent possible
under such local law and regulation.
50 (Popup - Popup)
3. Ericsson Licensed Patents shall mean (i) all Patents owned by Ericsson Sweden and its Affiliates (Affiliates
shall be for the purpose of this definition be exclusive of Sony Ericsson), and (ii) the Ericsson patents listed
in Appendix 1 of the Agreement, including its patent families worldwide, (existing and future patents,
existing and future licensable patent applications, such as existing and future divisions, continuations,
continuations in part, reissues, renewals and extensions thereof).
51 (Popup - Popup)
4. Panasonic Products shall mean: (i) Panasonic Japan (and/or its Affiliates) branded or operator branded
End-User Terminals, and (ii) Modems and Modules, which are infringing upon any Ericsson Licensed
Patents and which are compliant with any or more of the Standards.
52 (Popup - Popup)
5. License Period shall mean the period commencing on September 25, 2003, and having a duration through
the expiration of the last one of the Ericsson Licensed Patents/Panasonic Licensed Patents, however, only
for as long as there are any Panasonic Products and Ericsson Products sold or otherwise disposed of by an
applicable Party (and/or its Affiliates).
53 (Popup - Popup)
6. In BIR Ruling No. DA-ITAD 12-02 dated January 29, 2002, this Bureau ruled that the phrase "enterprise
registered and engaged in preferred areas of activities" as used in the old Philippines-Sweden tax treaty and
other Philippine tax treaties refers only to an enterprise registered with the Board of Investments and does
not include an enterprise registered with the Philippine Economic Zone Authority (PEZA) like Panasonic
Philippines. The ruling took into account the nonexistence of Republic Act No. 7916 (An Act Providing for
the Legal Framework and Mechanism for the Creation, Operation, Administration, and Coordination of
Special Economic Zones in the Philippines, Creating for this Purpose, the Philippine Economic Zone
Authority (PEZA), and for Other Purposes) at the time of signature of these treaties.
54 (Popup - Popup)
effective on November 1, 2005, amended Section 108 (A), thus:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds one and one-half percent (1-1/2%); or
one-half percent (1-1/2%).
Philippines for others for a fee, remuneration or consideration. . . . "
55 (Popup - Popup)
8. Republic Act No. 9337 renumbered and amended Section 109 (q) to read as:
"SEC. 109. Exempt Transactions. — (1) Subject to the provisions of Subsection (2) hereof the
following transaction shall be exempt from the value-added tax:
xxx xxx xxx
(K) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree No. 529;"
56 (Popup - Popup)
9. When a transaction is exempt, Ericsson Sweden will not subject to VAT (output tax) the royalties for the
Ericsson Licensed Patents to be paid to it by Panasonic Philippines, and Ericsson Sweden is not allowed
any tax credit on VAT (input tax) on purchases it previously paid, if any. (Section 4.109-1, Revenue
Regulations 16-2005 [Consolidated Value-Added Tax Regulations of 2005])
57 (Popup - Popup)
1. Source Code means the set of instructions used to direct computer functions written in computer
programming language.
58 (Popup - Popup)
2. Object Code means computer programs in machine-readable form.
59 (Popup - Popup)
3. Product Lines means the different insurance Products Lines that Program Product is designed to administer,
consisting of: (1) life insurance products — universal life, variable universal life, interest sensitive whole
life, ordinary life, term life, first and second to die, (2) annuity products — variable annuities, fixed
annuities, single premium, flexible premium, guaranteed investment, and (3) health insurance products —
disability income, long term care, Medicare supplement insurance, hospital expense, major medical.
60 (Popup - Popup)
4. Modifications means any modification, enhancement, addition, correction, improvement, Release or other
change to Program Product
61 (Popup - Popup)
5. Release means a release of the Program Product licensed under the Renewal of License Agreement which is
released subsequent to the delivery of the Initial Copy of Program Product to Insular Life and which may
include error corrections, improvements and/or enhancements made to the Program Product, but does not
necessarily include any modifications specific to Insular Life and does not include new subsystems or
capabilities which may be developed by L.I.D.P.
62 (Popup - Popup)
6. L.I.D.P. Enhancements means any and all Modifications, whether in print, magnetic, electronic, video or
visual format, to the Program Product and Documentation, including the ideas, processes, formulas, and
methods relating thereto.
63 (Popup - Popup)
7. Documentation means the proprietary and confidential user/functional documentation, installation
procedures, training materials, and any other materials owned by L.I.D.P. which relate to the use,
programming, functioning, and maintenance of Program Product that is supplied by L.I.D.P. to Insular Life
whether in print, magnetic, electronic, or video format.
64 (Popup - Popup)
8. Under the principle of exemption, Germany does not tax the income, which according to the tax treaty, may
be taxed in the Philippines. The principle of exemption may be applied by two main methods:
a) the income which may be taxed in the Philippines is not taken into account at all by Germany for
purposes of its tax; Germany is not entitled to take the income so exempted into consideration when
determining the tax to be imposed on the rest of the income (full exemption method);
b) the income which may be taxed in the Philippines is not taxed by Germany, but Germany retains
the right to take that income into consideration when determining the tax to be imposed on the rest of the
income (exemption-with-progression method).
To illustrate the two methods, suppose a German taxpayer has an income of 150,000, 100,000 of which is
derived in Germany and 50,000 in the Philippines. The effective tax rate in Germany is 10% for an income
of 100,000 and below, and 20% for an income of more than 100,000. Where Germany applies the full
exemption method, the taxpayer is taxed only on income derived in Germany and not on that derived in the
Philippines. Germany does not take into consideration the exempted income when determining the tax to be
imposed on the rest of the income (100,000) so that the tax to be imposed on such income is 10% only, the
applicable rate to an income of 100,000. Where Germany applies the exemption with progression method,
the taxpayer is taxed only on income derived in Germany and not on that derived in the Philippines.
However, Germany takes into consideration the exempted income when determining the tax to be imposed
on the rest of the income (100,000) so that the tax to be imposed on such income is 20%, the rate applicable
to an income of 150,000.
65 (Popup - Popup)
(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale, barter or exchange
of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross
value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor: Provided, that the President, upon the recommendation of the Secretary of finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the
percent (1 1/2%).
xxx xxx xxx"
66 (Popup - Popup)
67 (Popup - Popup)
68 (Popup - Popup)
3. Referring to the old Section 109 (q) of the Tax Code of 1997 [now Section 109 (K), as amended by RA No.
9337].
69 (Popup - Popup)
1. Consolidated Value-Added Tax Regulations of 2005.
70 (Popup - Popup)
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax equivalent to
ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease
of properties selling price or gross value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor: Provided that the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent
(12%), after any of the following conditions has been satisfied:
exceeds two and four-fifth percent (2 4/5%); or
percent (1 1/2%).
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right;
xxx xxx xxx"
71 (Popup - Popup)
1. Received by this Office on January 2, 2006.
72 (Popup - Popup)
2. Effective February 1, 2006, the rate is 12% pursuant to Revenue Memorandum Circular No. 7-2006 —
[Publishing the full text of the memorandum issued by Executive Secretary Eduardo R. Ermita informing
the Secretary of Finance that his recommendation to increase the Value-Added Tax rate from 10% to 12%
effective February 1, 2006 has been approved by the President].
73 (Popup - Popup)
1. Republic Act No. 9337 has deleted Presidential Decree Nos. 66 and 1590.
74 (Popup - Popup)
2. Marubeni did not present a copy of its BIR Certificate of Registration. Upon verification, however, it
appears that Marubeni is a VAT-registered person.
75 (Popup - Popup)
3. Section 4.102-2 of Revenue Regulations No. 7-95 provides as follows:
"(c) Effectively zero-rated sale of services. — Effectively zero-rated sales of services shall refer to
the sale by a VAT-registered person or entity who was granted indirect tax exemption under special laws, or
international agreements. . . . "
76 (Popup - Popup)
The phrase 'sale of exchange of services' means the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration. . . "
77 (Popup - Popup)
2. Section 109 (q) was amended and renumbered by Republic Act 9337 to read as:
"SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following
shall be exempt from the value-added tax:
xxx xxx xxx
or under special laws, except those under Presidential Decree No. 529;"
78 (Popup - Popup)
3. Now Section 4.409-1 of Revenue Regulations 16-2005, the accompanying regulations of Republic Act
9337.
79 (Popup - Popup)
4. Now Section 4.108-5 of Revenue Regulations 16-2005.
80 (Popup - Popup)
1. Originally, AGX Services, Inc.
81 (Popup - Popup)
2. Signed on October 1, 1976, and became effective on January 1, 1983.
82 (Popup - Popup)
3. Animal Feeds means feed rations and/or supplements produced for dairy cows, beef cows, swine, poultry,
horses, domesticated animals, shrimp, fish, goats, sheep, and any other animal for which Cargill Philippines
is authorized to make or sell using the intellectual property licensed under the Agreement.
83 (Popup - Popup)
4. Patents means all original, provisional, CPA, utility, design, PCT, EP, divisional, continuation,
continuation-in-part, reissue, and extension patent applications relating to animal feed compositions,
processing, nutritional technology, and general business systems filed in the Philippines and all patents
issuing therefrom that CAN Technologies may own or otherwise possess sublicensible rights thereto now or
at any time during the term of the Agreement and may choose to make available thereunder.
84 (Popup - Popup)
5. Technology means all technical data, trade secrets, technical information, product standards, formulation
systems, computer modeling programs for animal and feeding simulations, laboratory standards and data,
new ingredient developments, manufacturing equipment advances, information which improves the
processes and procedures for the manufacture of animal feeds, sales/marketing programs, systems
developed for the delivery of proprietary technology and information, processes, techniques, compositions,
specifications, know-how, equipment or other information, as well as conferences, training and seminars
provided by or on behalf of CAN Technologies whether in tangible form or not, that are in the possession
of CAN Technologies pertaining to animal feed compositions, their nutritional components, and their
processing, production, use or sale that CAN Technologies may choose to make available under the
Agreement.
85 (Popup - Popup)
6. Copyrights means any original works of authorship fixed in a tangible medium of expression, including
without limitation any proprietary software, formulation, and operating manuals relating to the production
of any animal feed formulations, nutritional compositions and general business systems in the Philippines,
and any registration applications filed in the Philippines and registration certificates issuing therefrom that
CAN Technologies may own or otherwise possess sublicensible rights thereto now or at any time during the
duration of the Agreement and may choose to make available thereunder. For purpose of the Agreement,
copyright "use" does not include the right to make derivative works.
86 (Popup - Popup)
7. Net Sales means actual gross sales of animal feeds, including sales by Cargill Philippines' authorized
sublicensees of animal feeds (but only to the extent these sales are not already included in the definition of
Consulting Revenue) and sales to independent or related parties, if any; less certain deductions.
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8. Consulting Revenue means gross revenue from consulting fees that accrued through Cargill Philippines' use
or application of CAN Technologies' information, technology and intellectual property where these uses are
allowed by the terms of the Agreement.
88 (Popup - Popup)
9. G.R. No. 127105 dated June 25, 1999, Commissioner of Internal Revenue, petitioner, vs. S.C. Johnson and
Son, Inc. and Court of Appeals, respondents.
89 (Popup - Popup)
percent (1 1/2%).
xxx xxx xxx
xxx xxx xxx
(3) The supply of scientific, technical, industrial or commercial knowledge or information;
xxx xxx xxx"
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1. BIR Ruling No. ITAD-46-07 dated April 11, 2007 citing VAT Ruling No. 143-90 which revoked VAT
Ruling No. 176-89.
91 (Popup - Popup)
92 (Popup - Popup)
93 (Popup - Popup)
9337].
94 (Popup - Popup)
1. "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. — . . . .
The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
xxx xxx xxx
(c) Sales to Persons or Entities Deemed Tax-exempt Under Special Law or International Agreement. —
Sale of goods or property to persons or entities who are tax-exempt under special laws or international
agreements to which the Philippines is a signatory, such as, Asian Development Bank (ADB), International
Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate." (Emphasis supplied)
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96 (Popup - Popup)
97 (Popup - Popup)
9337]
98 (Popup - Popup)
xxx xxx xxx
or under special laws, except those under Presidential Decree No. 529;
99 (Popup - Popup)
Purposes.
100 (Popup - Popup)

101 (Popup - Popup)
4. Ibid.
102 (Popup - Popup)

103 (Popup - Popup)

104 (Popup - Popup)

105 (Popup - Popup)

106 (Popup - Popup)

107 (Popup - Popup)

3. Referring to the old Section 109 (q) of the Tax Code of 1997 [now Section 09 (K), as amended by R.A. No.
9337]
108 (Popup - Popup)

1. Signed in Manila on June 24, 1998, and became effective on January 1, 2002.
109 (Popup - Popup)

2. Net proceed of sales means in respect of Licensed Products sold by or on behalf of Alaska Philippines (or
any member of its Group), sales of the products to unrelated parties valued at list prices less (1) pricing
allowances (but excluding, trade/consumer promotions, specific incentives, logistic and settlement
discounts, as well as expenses incurred with the aim of doing business with Alaska Philippines' customers),
(2) returns accepted by Alaska Philippines on account of spoilage, breakage or other damage rendering the
relevant Licensed Products unmarketable, and (3) any taxes on sales of the Products.
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3. Ibid., Page 178.
111 (Popup - Popup)

4. Ibid., Page 72.
112 (Popup - Popup)

114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And 288 Of The National Internal Revenue Code of 1997,
As Amended, And For Other Purposes), which was signed into law on May 24, 2005 and became effective
year exceeds one and one-half percent (1 1/2 %); or
percent (1 1/2%).
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
xxx xxx xxx
(3) The supply of scientific, technical, industrial or commercial knowledge or information;"
113 (Popup - Popup)

114 (Popup - Popup)

1997, As Amended, And For Other Purposes), which was signed into law on May 24, 2005, amended
Sections 107 (A) and 108 (A) to read as:
value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax
to be paid by the importer prior to the release of such goods from customs custody: Provided, That where
the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax
shall be based on the landed cost plus excise taxes, if any: Provided further, That the President, upon the
one-half percent (1 1/2%)."
the use or lease of properties: Provided, that the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after
any of the following conditions has been satisfied:
Philippines for others for a fee, remuneration or consideration . . . ."
115 (Popup - Popup)

* Section 108 was amended by Republic Act No. 9337, which was signed into law on May 24, 2005 and
xxx xxx xxx
Increase the Value-Added Tax Rate from Ten Percent to Twelve percent) dated January 31, 2006.
116 (Popup - Popup)

85-91.
117 (Popup - Popup)

118 (Popup - Popup)

85-91.
119 (Popup - Popup)

120 (Popup - Popup)

121 (Popup - Popup)

1. Entitled: "AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF
STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH
INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN
SUBSECTIONS THEREOF" (Emphasis supplied).
122 (Popup - Popup)

1. Contractual Agreement For IT Management Fee entered into by and between SEPMC-Philippines and
SAPL-Singapore on January 1, 2003.
123 (Popup - Popup)

2. Territory shall mean all of the countries in the world during the term of this Agreement.
124 (Popup - Popup)
3. Products shall mean optical disc drive such as CD-ROM, CD-RW, COMBO and other products to be added
from time to time by the mutual agreement of both parties during the term of this agreement.
125 (Popup - Popup)

126 (Popup - Popup)

127 (Popup - Popup)

No. 9337].
128 (Popup - Popup)

1. Div. 6-23 Income Tax Assessment Act 1936
An amount *ordinary income or *statutory income is non-assessable non-exempt if a provision of this
Act or of another *Commonwealth law states that it is not assessable income and is not *exempt income.
For a summary list of provisions about non-assessable non-exempt income, see Subdivision 11-B.
Div. 6-20 Exempt income
(1) An amount of *ordinary income or *statutory income is exempt income if it is made exempt
from income tax by a provision of this Act or another *Commonwealth law.
For summary lists of provisions about exempt income, see sections 11-5, 11-10 and 11-15
(2) *Ordinary income is also exempt income to the extent that this Act excludes it (expressly or by
implication) from being assessable income.
(3) By contrast, an amount of *statutory income is exempt income only if it is made exempt from
income tax by a provision of this Act outside this Division or another *Commonwealth law.
(4) If an amount of *ordinary income or *statutory income is *non-assessable non-exempt
income, it is not exempt income
Div 6-15 What is not assessable income
(1) If an amount is not *ordinary income, and is not *statutory income, it is not assessable income
(so you do not have to pay income tax on it).
(2) If an amount is exempt income, it is not assessable income
(3) If an amount is *non-assessable non-exempt income, it is not assessable income.
129 (Popup - Popup)

85-91.
130 (Popup - Popup)
1. Parent company shall mean Autodesk, Inc., a foreign corporation organized and existing under the laws of
the United States of America, with principal office at 111 McInnis Parkway, San Rafael, California 94903,
United States of America.
131 (Popup - Popup)

2. Products shall mean (1) Non-Retail Products (AIS/AIP, MAP, MapGuide, Map Series, Land and Civil
Series) and (2) Sell-Through Products (Subscriptions, Streamline, AIP). Non-Retail Product refers to a
Product which may be sold to the Autodesk Distribution Channel only, and Sell-Through Product refers to
a Product for which a purchase order may be placed with Autodesk Asia only after an End-User purchase
order for that Product has been received. Autodesk Asia may modify the list of Products from time to time
by making a written notice to CIM Technologies.
132 (Popup - Popup)

3. Territory shall mean the Philippines. Autodesk Asia may modify the Territory from time to time by making
a written notice to CIM Technologies.
133 (Popup - Popup)

4. Autodesk Distribution Channel shall mean the authorized distribution channels designated by Autodesk
Asia comprising of Autodesk Systems Centers, Autodesk Authorized Resellers, Autodesk Authorized
Systems Integrators, and such other persons in the Territory certified by Autodesk Asia to purchase specific
Products from CIM Technologies for resale to End-Users. Autodesk Asia may modify the Autodesk
Distribution Channel from time to time by making a written notice to CIM Technologies.
134 (Popup - Popup)

5. End-User shall mean any third party which obtains the Products solely in order to fulfill its own internal
data processing needs.
135 (Popup - Popup)

6. Retail Reseller shall mean any retail outlet or reseller not forming part of the Autodesk Distribution
Channels and which purchases the Retail Products from CIM Technologies for resale to End-Users
136 (Popup - Popup)

114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And 288 of the National Internal Revenue Code of 1997,
as Amended, and for Other Purposes), which was signed into law on May 24, 2005 and became effective on
November 1, 2005, amended Section 106 (A) to read as:
the seller or transferor: Provided, that the President, upon the recommendation of the Secretary of finance,
xxx xxx xxx"
Increase the Value Added Tax Rate From Ten Percent to Twelve Percent) dated January 31, 2006.
137 (Popup - Popup)

138 (Popup - Popup)

139 (Popup - Popup)

No. 9337].
140 (Popup - Popup)

1. Licensed Materials shall mean the items and materials set forth in Exhibit 2 of the Agreement.
141 (Popup - Popup)

(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one
half percent (1 1/2%).
xxx xxx xxx
142 (Popup - Popup)

143 (Popup - Popup)

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

2007 ITAD Rulings - Delegated Authority

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December 28, 2007

DA ITAD BIR RULING NO. 128-07

Articles 5 & 7 of the Philippines-Singapore Tax Treaty;

Sycip Gorres Velayo & Co.

Attention: Joel L. Tan-Torres

xxx xxx xxx."

d) A store or other sales outlet;

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

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

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

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

xxx xxx xxx."

Very truly yours,

Commissioner of Internal Revenue

(SGD.) GREGORIO V. CABANTAC

December 28, 2007

DA ITAD BIR RULING NO. 127-07

Section 23 (F) in relation to Section 42 (A) (3) and

Mikuni Electronics Corp.

Attention: Mr. Shogo Kiga

It is represented that Mikuni-Japan is a nonresident foreign corporation organized and existing

(F) A foreign corporation, whether engaged or not in trade or business in

xxx xxx xxx"

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

xxx xxx xxx

(3) Services. — Compensation for labor or personal services performed in

xxx xxx xxx"

xxx xxx xxx"

xxx xxx xxx"

Very truly yours,

Commissioner of Internal Revenue

(SGD.) GREGORIO V. CABANTAC

December 21, 2007

DA ITAD BIR RULING NO. 126-07

Section 23 (F) in relation to Section 42 (A) (3) of the Tax

Sycip Gorres Velayo & Co.

2) Access to or use of MC-Japan's ASP Service by TC-Japan employees transferred to an entity

xxx xxx xxx

xxx xxx xxx"

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

xxx xxx xxx

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

xxx xxx xxx"

xxx xxx xxx

xxx xxx xxx"

Very truly yours,

Commissioner of Internal Revenue

(SGD.) GREGORIO V. CABANTAC

December 17, 2007

DA ITAD BIR RULING NO. 125-07

Make: Mitsubishi Pajero SUV 4X2

xxx xxx xxx"

(SGD.) JAMES H. ROLDAN

December 13, 2007

DA ITAD BIR RULING NO. 124-07

Secs. 106 & 108; Article 34, Vienna Convention on

Embassy of the Czech Republic

Attention: Ms. Radka Calabkova

Make: Ford Focus 2.0L A/T

xxx xxx xxx"