Payment of Royalties by Heraeus-Phil. to Heraeus-Korea Subject to Preferential Tax Rate of 15% Philippine Income Tax Based on Gross Amount

December 11, 1997 BIR RULING NO. 131-97 128 (B) (6) 000-00 131-97 Siguion Reyna Montecillo & Ongsiako 8755 Paseo de Roxas Philcom Building Makati City Attention: Attys . Jose Lis C . Leagogo and Catherina M . Fernandez Gentlemen : This refers to your letter dated September 26, 1997 requesting on behalf of your client, Heraeus Electronic Material Philippines, Inc . (Heraeus-Phil . , for brevity) , for a ruling to the effect that its royalty payments to Heraeus Oriental Hitec Co., Ltd. (Heraeus-Korea, for brevity) is subject to income tax at the preferential tax rate of 15% under the RP-Korea Tax Treaty. It is represented that Heraeus-Phil. is a domestic corporation duly registered with the Securities and Exchange Commission with S.E.C. Registry No. A1997-2200; that Heraeus-Korea is a corporation duly organized and existing under the laws of Korea and has been engaged in the manufacture of bonding wires and in the sale of such products in Korea and elsewhere; that Heraeus-Korea has acquired or developed certain processes, methods, formulae and techniques used in the manufacturing, storing and handling, and possesses substantial valuable knowledge of a specialized nature relating to basic operational and technical aspects of such processes, methods, formulae and techniques, and reputation relative to the manufacture of bonding wires; that Heraeus-Phil. and Heraeus-Korea entered into a Licensing and Technical Assistance Agreement which was duly registered with the Technology Transfer Registry of the Bureau of Patents, Trademarks and Technology Transfer; that under the Agreement, Heraeus-Korea, as Licensor, will supply certain know-how, technical information and technical devices and assistance to enable Heraeus-Phil. to manufacture bonding wires; and that in consideration therefor, Heraeus-Phil. will pay Heraeus-Korea the total amount of US$750,000 according to the schedule of payment provided in the Agreement. cdt In reply, please be informed that pursuant to article 12, paragraphs 1, 2 and 4 of the RP-Korea Tax Treaty reading: " Article 12 ROYALTIES "1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State if such resident is the beneficial owner of the royalties. "2. However, such royalties may be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 15 percent of the gross amount of the royalties. xxx xxx xxx "4. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific experience, and includes payments of any kind in respect of motion picture films and works on films or videotapes for use in connection with television or tapes for use of radio broadcasting. xxx xxx xxx" the payment of royalties by Heraeus-Phil. to Heraeus-Korea will be subject to the preferential tax rate of 15% Philippine income tax based on the gross amount of royalties. The said tax shall be withheld by your client before actual remittance to Heraeus-Korea. This ruling is being issued based on the facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. cdti Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue