BIR Ruling [DA-381-99]

July 6, 1999 BIR RULING [DA-381-99] R. S. Bernaldo & Associates Unit 1810 Cityland Condominium 10 Tower 1 6815 Ayala Avenue cor. H.V. dela Costa Ext. Makati City Attention: Atty . Romeo A . De Jesus, Jr . Partner Gentlemen : This refers to your letter dated March 10, 1999 requesting on behalf of your client, Tottori Sanyo Electric (Philippines) Corporation (TSEC), for a confirmatory ruling that the interest payment of your aforesaid client to Sanyo Electric (Penang) Sdn. Bhd. is subject to Philippine withholding tax at the rate of 15% pursuant to Article II(2) of the RP-Malaysia Tax Treaty. It is represented that TSEC, a domestic corporation, entered into a loan agreement with its affiliate Sanyo Electric (Penang) Sdn. Bhd., a corporation existing under the laws of Malaysia; that you are of the opinion that the interest payment from the above-mentioned loan agreement is subject to final withholding tax of 15% pursuant to Article II(2) of the RP-Malaysia Tax Treaty; and that as of this date, TSEC had already paid interest in the amount of P6,380,427.27 and had already withheld P957,064.07 final withholding tax which you have remitted to this Office. In reply, please be informed that pertinent portion of Article II(2) of the RP-Malaysia Tax Treaty, provides, viz : " Article II " xxx xxx xxx "1. . . . "2. However, such interest may be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15% of the gross amount of the interest ". (Emphasis supplied) xxx xxx xxx Such being the case, and since the recipient, Sanyo Electric (Penang) Sdn. Bhd., of the interest paid by your client, TSEC, on said loan agreement is also the beneficial owner thereof, such interest payment is therefore subject to Philippine income tax and consequently to the preferential withholding tax of 15% pursuant to Article II(2) of the RP-Malaysia Tax Treaty. Hence, your opinion to this effect is hereby confirmed. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. aATCDI Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)