Technical Assistance Fees Payable by Andersen Consulting Inc. (Andersen-Philippines) to Andersen Consulting (Andersen-Illinois) under Their Technical Assistance Agreement Subject to Philippine Income Tax at the Rate of 10% Pursuant to the RP-US Tax Treaty and the RP-West Germany Tax Treaty

March 6, 1996 BIR RULING NO. 036-96 28 (b) (6) 000-00 036-96 Tax Counselling, Inc. 15/F, 6758 Ayala Avenue Makati City, Metro Manila Attention: Atty . Tirso A . Tejada Director Gentlemen : This refers to your letter dated December 6, 1995 requesting confirmation of your opinion that the technical assistance fees payable by your client, Andersen Consulting Inc. (Andersen-Philippines), to Andersen Consulting (Andersen-Illinois) under their Technical Assistance Agreement are subject to Philippine income tax at the rate of 10% pursuant to the RP-US Tax Treaty and the RP-West Germany Tax Treaty. LLpr It is represented that the Andersen-Philippines is a 100% Filipino owned domestic corporation engaged in the business of providing to its clients management consulting and management information consulting services, particularly information technology consultancy; that Andersen-Illinois is a general partnership established under the laws of the State of Illinois, U.S.A.; that it is engaged in the business of assisting in projects that render information technology consultancy services to clients; that it has access to, has developed, and uses such technology for client applications in connection with its professional practice; that Andersen-Philippines is desirous of obtaining sophisticated technology and technical' assistance for use in connection with performing its client engagements in the field of management consulting and management information consultancy services; that Andersen-Illinois has agreed to provide such technology and technical assistance to Andersen-Philippines; that the technology is provided in the form of software, manuals and documents; that the software is designed to run on a variety of hardware, and is enhanced, modified, supplemented and updated on a regular basis; that Andersen-Philippines and Andersen-Illinois entered into a Technical Assistance Agreement effective as of July 1, 1994 and shall remain in effect for a period of five (5) years, subject to renewal by mutual consent of the parties for consecutive periods of five (5) years each; that in consideration of the technology and technical assistance provided by Andersen-Illinois, Andersen-Philippines shall pay to Andersen-Illinois for each twelve (12) month period commencing from the effective date of the agreement and during the time the agreement remains in force, an amount equal to two percent (2%) of the net billings of Andersen-Philippines to its clients for professional services, but not to exceed an amount agreed upon from time to time by the parties; that Andersen-Philippines will also reimburse Andersen-Illinois for all the lodging and transportation expenses incurred by personnel of Andersen-Illinois in the Philippines in connection with the technical assistance rendered pursuant to the agreement; that the Technical Assistance Agreement is duly registered with the Technology Transfer Registry of the Bureau of Patents, Trademarks and Technology Transfer of the Department of Trade and Industry. In reply, please be informed that under the most favored nation provision of the RP-US Tax Treaty [Article 13, paragraph 2 (b) (iii)], the tax imposable on royalties derived by a resident of the United States from sources within the Philippines shall be the lowest rate of Philippine income tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third state. Article 12, paragraph (2) (b) of the RP-West Germany Tax Treaty, effective January 1, 1985, provides that royalties arising in the Philippines and paid to a resident of West Germany may also be taxed in the Philippines, but the tax so 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. The said treaty also provides that "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". In view of the foregoing, and inasmuch as the Technical Assistance Agreement between Andersen-Philippines and Andersen-Illinois has been approved by the Bureau of Patents, Trademarks and Technology Transfer of the Department of Trade and Industry, this Office hereby confirms your opinion that the technical assistance fees arising in the Philippines and payable to Andersen-Illinois by Andersen-Philippines are subject to Philippine income tax, to be withheld at source, at the rate of 10%. prLL Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue