Application for Relief from Double Taxation Relative to Contractual Remittance of Royalty Payments

February 14, 1995 BIR RULING NO. 030-95 36 (a) 000-00 030-95 Eggs, Beans & Grains, Inc. 73 E. Rodriguez Avenue Ugong, Pasig, Metro Manila Attention: Ms . Elizabeth B . de Guzman Gentlemen : This refers to your application for relief from double taxation in behalf of Saint Cinnamon Bakery Ltd. (Cinnamon) a Canadian firm with postal address at 7181 Woodbine Avenue, Suite 223, Makham, Ontario, Canada, relative to your contractual remittance of royalty payments to the latter. cdti It appears that you and Cinnamon have entered into a franchise agreement under which you will exclusively produce bakery products using not only the firm's "system", methods and procedures, but also the trademark "Saint Cinnamon" that are exclusively owned/patented by said Canadian firm. In reply, please be informed that under Article XII, paragraphs 1 and 2 of the RP-Canada Tax Treaty stating "Royalties" "1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that order 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, provided that the royalties are taxable in the other Contracting State, not exceed: "(a) in Canada, 10 percent of the gross amount of the royalties; and "(b) in the Philippines, the lesser of "(i) 25 per cent of the gross amount of the royalties, and "(ii) the lowest rate of the Philippine tax that may be imposed on royalties of the same kind paid in similar circumstances to a resident of a third state. xxx xxx xxx royalties arising in the Philippines and paid to the Cinnamon shall be subject only to the 10% final tax being the lowest Philippine tax imposed on royalties of the same kind paid in similar circumstances to a resident of the third state, enjoying the benefits of a most favored nation clause, among others, residents of Japan, U.S.A. and Germany, the 10% tax shall be withheld and paid in the same manner and subject to the same conditions as provided for in Sections 25(b) and 50(a) of the Tax Code, as amended. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue