Royalties Arising in the Philippines and Payable to Gillete Co., (U.S.A.) by Gillete (Philippines), Inc. Subject to Philippine Tax

April 14, 1997 BIR RULING NO. 053-97 36 (a) (4) 087-88 053-97 Gillette (Philippines), Inc. Villongco Road, Bo. San Dionisio Sucat, Paraaque, Metro Manila Attention: Ms . Marilou V . Supnet Financial Reporting Manager Gentlemen : This refers to your letter requesting that you be allowed to avail of the benefit provided for in Article 13, paragraph 2 (b) (iii) of the RP-US Tax Treaty, regarding the lowest rate of Philippine tax that may imposed on the royalties payable by you to Gillete Co., (U.S.A.), by applying the rate of 10% on royalties as provided for in the RP-West Germany Tax Treaty. cdt It appears that Gillette (Philippines), Inc., a duly registered domestic corporation entered into an agreement with Gillete Co. (U.S.A.), a corporation duly organized and existing under the laws of the State of Delaware, U.S.A., whereby the latter grants to the former an exclusive license to manufacture and package its products strictly in accordance with the agreement and to sell the same under its trademarks in the Philippines; that the license agreement dated December 1, 1990 and its Amendment dated March 16, 1994 were duly registered with the Technology Transfer Registry of the Department of Trade and Industry under Certificate of Registration No. 1536 and valid for ten (10) years from February 28, 1994 to February 27, 2004; and that for and in consideration of the license granted, Gillette (Philippines), Inc. undertakes to pay Gillette Co. (U.S.A.) 4% of net sales for blades and razors, 5% of net sales for toiletries, 4% of net sales for stationary products and 1% on net sales of all licensed products for the use of its trademarks. In reply, please be informed that your request is hereby granted. 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 tax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of the 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 charge 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 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 have been approved by the Philippine competent authorities. Such being the case, royalties arising in the Philippines and payable to Gillete Co., (U.S.A.) by Gillete (Philippines), Inc. are subject to the Philippine tax at the rate of 10% because this rate appears in the RP-West Germany Tax Treaty. The said tax shall be withheld and paid in the same manner and subject to the same conditions as provided in Sections 25 (b) and 50 (a) of the Tax Code, as amended. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue