BIR Ruling [DA-616-99]

November 3, 1999 BIR RULING [DA-616-99] Romulo, Mabanta, Buenavetura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza Paseo de Roxas Makati City Attention: Attys . Priscilla B . Valec and Jayson L . Fernandez Gentlemen : This refers to your letter dated July 12, 1999 requesting for a ruling on the tax consequences of the issuance, offer and sale by your client, Globe Telecom, Inc. of senior notes in the principal amount of US$200,000,000.00 due on 2009 (Notes). cdlex It is represented that Globe is a corporation organized and existing under the laws of the Republic of the Philippines; that it is engaged in the business of providing a wide range of telecommunications services to business and residential subscribers, including cellular, fixed-line, domestic and international long distance and other business communication services; that to finance the expansion of its cellular and fixed-line network and repay some of its short-term debts. Globe will issue the Notes in registered form without coupons, in denomination of US$1,000 and integral multiples of US$1,000 under an indenture between Globe and The Bank of New York, as Trustee; that interest on the Notes will be payable semi-annually in arrears to persons who are holders of record on the designated record date immediately preceding each interest payment date; that the Notes will not be offered and sold in the Philippines; that the Notes will be offered and sold to qualified institutional buyers (QIBs) in the United States and can only be negotiated, resold or transferred by and between QIBs in the United States in compliance with Rule 144A under the US Securities Act of 1993; that except in certain limited circumstances, the Notes will be available only in book entry form and may be held by investors through the Depository Trust Company (DTC), Euroclear or Credel which provide their participants services for clearance and settlement of internationally traded securities through electronic book-entry changes in accounts of the participants thereby eliminating the need for physical movement of securities certificates; that the Notes will be tradeable as home market instruments in both the European and US domestic markets; that Globe has applied to have the Notes listed and traded in accordance with the rules of the Luxembourg Stock Exchange; and that the Notes are expected to be eligible for trading in the Portal Market and the National Association of Securities Dealer screen-based automated market for trading of securities eligible for resale pursuant to Rule 144A under the US Securities Act of 1993. llcd Based on the foregoing, you now request confirmation of your opinion that "1. The issuances, offer and sale of the Notes qualify as a public issue of bonds or bonded indebtedness; "2. The interest received on the Notes by registered owners who are residents of treaty countries shall be subject to the 10% withholding tax rate under the applicable treaty; and "3. The interest received on the Notes by non-resident foreign corporations which are not residents of treaty countries shall be subject to a final withholding tax of 20% pursuant to Section 28(B)(5)(a) of the Tax Code of 1997. In reply, please be informed that your opinion is hereby confirmed as follows: 1. The term "bond" is a very broad term. Fundamentally, it is an obligation; a written promise to pay money. It is thus similar to, and may be said to be a form of promissory note. (par. 25, 11 Am Jur 2d) Considering that the Notes will be in a particular form without coupons and the interest on the Notes will be payable semi-annually in arrears to persons who are holders of record on the designated record date immediately preceding each interest payment date, the said Notes is considered as bonded indebtedness Likewise, since the Notes will be tradeable in both the US and European domestic markets, listed and traded in the Luxembourg Stock Exchange and eligible for trading in the Portal Market and the National Association of Securities Dealers, the said Notes qualify as a public issue of bonds or bonded indebtedness. (BIR Ruling No. 052-98 dated May 5, 1998) 2. Interest received on the Notes by registered owners who are residents of treaty countries shall be subject to the withholding tax rate provided in their respective tax treaty; 3. Interest received on the Notes by non-resident foreign corporations which have no tax treaty with the Philippines shall be subject to 20% withholding tax pursuant to Section 28(B)(5)(a) of the Tax Code of 1997. Moreover, since the notes qualify as bonds or bonded indebtedness, the same shall be subject to the documentary stamp tax imposed under Sec. 177, in relation to Sec. 174, both of the Tax Code of 1997. 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. LibLex Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group