Philippine Tax at the Rate of 10% Imposed on Royalties

March 8, 1988 BIR RULING NO. 089-88 36 359-87 089-88 Gentlemen : This refers to your letter dated November 24, 1987 requesting a ruling as to whether or not the royalties payable by your client, Twentieth Century Fox Philippines, Inc. (20th Century Phils.) to Twentieth Century Fox International Corporation (20th Century Int'l.) for the use in the Philippines of motion picture films owned by the latter are subject to a withholding tax at the reduced rate of ten percent (10%) pursuant to Article 13, paragraph 2(b)(iii) of the RP-US Tax Treaty in relation to the RP-Denmark and RP-Sweden Tax Treaties. It is represented that 20th Century Phils. a domestic corporation and a wholly owned subsidiary of 20th Century Int'l. is engaged in the business of distribution of motion pictures for theatrical and non-theatrical exhibition in the Philippines; that 20th Century Int'l. is a non-resident foreign corporation not engaged in trade or business in the Philippines; that it is organized under the laws of the State of New York, U.S.A.; that 20th Century Int'l. and 20th Century Phils. entered into a Franchise Agreement whereby the former granted to the latter an exclusive license to distribute and exhibit motion pictures owned by the former; and that 20th Century Phils. shall pay 20th Century Int'l. an amount equivalent to 60% of the net proceeds from the distribution and exhibition of the motion pictures. In reply thereto, I have the honor to inform you 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 Phil ippine t ax that may be imposed on royalties of the same kind paid under similar circumstances to a resident of the third State. Article VIII, paragraph (1) of the RP-Sweden and Article IX, paragraph (1) of the RP-Denmark Tax Treaties provides that income which a resident or corporation of Sweden and Denmark derives from rentals or other amounts paid by a resident or corporation of the Philippines as consideration for the use of, or the right to use, motion pictures films, films or tapes for radio or television broadcasting, may be taxed in the Philippines at ten percent (10%) of such rentals or amounts paid. Such being the case, the royalties payable by 20th Century Phils. to 20th Century Int'l. for the use in the Philippines of motion picture films are subject to the Phil ippine t ax at the rate of 10% because this rate appears to the RP-Sweden and RP-Denmark Tax Treaties and pursuant to Article 13, paragraph 2(b)(iii) of the RP-US Tax Treaty. The said tax shall be withheld and paid in the same manner and subject to the same conditions as provided in Section 50 of the Tax Code as amended. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner