Internal Revenue Law of 1914

March 16, 2006 DA ITAD BIR RULING NO. 026-06 Article 10 (Dividends) Philippines-Singapore tax treaty; BIR Ruling No. DA-ITAD 119-04 Cochingyan & Peralta Law Offices 12th Floor, 139 Corporate Center 139 Valero Street, Salcedo Village Makati City Attention: Atty. Jose Cochingyan, III Gentlemen : This refers to your letter dated July 20, 2005 requesting confirmation that dividends to be paid by Rohde & Schwarz (Philippines), Inc. (Rohde Philippines) to Rohde & Schwarz Regional Headquarters Singapore Pte. Ltd. (Rohde Singapore) are subject to fifteen percent (15%) income tax pursuant to Article 10 (Dividends) 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). It is represented that Rohde Singapore is a foreign corporation, organized and existing under the laws of Singapore, as confirmed by its Memorandum and Articles of Association dated May 15, 2002, with office address at 1 Kaki Bukit View, Nos. 04-05/07 Techview, Singapore; that Rohde Singapore is not registered either as a corporation or as a partnership in the Philippines, as confirmed by the Certification of Non-Registration dated July 18, 2005 issued by the Securities and Exchange Commission; that, on the other hand, Rohde Philippines is a corporation organized and existing under the laws of the Philippines with principal office at Suite 2301, PBCOM Tower, 6765 Ayala Avenue, Makati City, Philippines; that from July 17, 2003 up to July 20, 2005, Rohde Singapore owns One Hundred Seven Thousand Seven Hundred and Sixty-two (107,762) shares of stock of the total issued and outstanding shares and which represents more than 99.99% of Rohde Philippines ' total outstanding shares, each share with a par value of P100.00; that the balance for five shares not recorded in the name of Rohde Singapore are held by nominee directors who have all executed a Declaration of Trust in favor of Rohde Singapore ; and that according to the notarized Secretary's Certificate dated July 20, 2005 executed by Rohde Philippines ' Corporate Secretary, the Board of Directors of Rohde Philippines unanimously approved on June 24, 2005 Resolution No. 2005-0624 authorizing the declaration of cash dividends in the amount of P129.91 per share, the total amount of which is P14,000,010.97, to the stockholders of record as of that date. In reply, please be informed that paragraph 2, 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. DCTHaS 2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the law of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 15 per cent of the gross amount of the dividends if the recipient is a company (including partnership) and during the part of the paying company's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 15 per cent of the outstanding shares of the voting stock of the paying company was owned by the recipient company; and b) in all other cases, 25 per cent of the gross amount of the dividends. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. xxx xxx xxx" Based on the abovementioned paragraph 2, the 15% income tax on dividends applies if the recipient who is the beneficial owner of the dividends is a company or a partnership who owns at least 15% of the outstanding shares of the voting stock of the company paying the dividends, during the part of the latter company's taxable year preceding the payment of dividends and during the whole of the company's prior taxable year. Accordingly, by reason that Rohde Singapore (the recipient company who is the beneficial owner of the dividends) owns more than 99.99% of Rohde Philippines ' outstanding shares (the company paying the dividends) during the part of Rohde Philippines ' taxable year preceding the payment of the dividends in 2005 and during the whole of Rohde Philippines ' prior taxable year in 2004, dividends to be paid by Rohde Philippines to Rohde Singapore are therefor subject to 15% income tax based on the gross amount thereof. The 15% income tax also applies to dividends to be paid by Rohde Philippines to the five nominee directors who merely hold the shares in trust for Rohde Singapore , the latter remaining the beneficial owner of those shares and, consequently, of any dividends arising therefrom. (BIR Ruling No. DA-ITAD 119-04 date October 27, 2004) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. cCSEaA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service