As of April 10, 1996, Royalties Arising from the Development Agreement and Franchise Agreement are Subject to the Preferential Tax Rate of 10%

November 29, 1996 BIR RULING NO. 135-96 28 (b) (6) 000-00 135-96 Quisumbing Torres & Evangelista 11/F Pacific Star Building Makati Ave. cor. Sen Gil J. Puyat Ave., Makati City Attention: Atty : Rachel P . Follosco Gentlemen : This refers to your letter dated April 1, 1996 requesting in behalf of your client, Benihana of Tokyo, Inc. (BOT) for a reconsideration of BIR Ruling No. DA-118-96 dated March 26, 1996, dispositive portion of which is quoted hereunder as follows: cdll "In reply thereto, 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 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 limitations 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. "Such being the case, and since the "Development Agreement" and the "Franchise Agreement" have not been approved by the Philippine competent authorities, royalties arising in the Philippines and payable to Benihana of Tokyo, Inc. by Benihana of Asia Corp. and Benihana of the Philippines Corp. are subject to 25% of the gross amount of the royalties pursuant to Article 13, paragraph (2) (b) (i) 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. (BIR Ruling No. 456-88 dated September 16, 1988)." Documentary evidence submitted however, to this Office disclosed that the aforementioned agreements were submitted by BOT to the Philippine competent authority and were duly approved by the Technology Transfer Registry, Bureau of Patents, Trademarks and Technology Transfer on April 10, 1996; that a Certificate of Registration was correspondingly issued with Registration No. 1802; and that this Certificate of Registration is valid for ten (10) years from November 29, 1995 to November 28, 2005. In view thereof, this Office is of the opinion as it hereby holds that your request for reconsideration of BIR Ruling No. DA-118-96 dated March 26, 1996 subjecting the royalties arising under the aforementioned agreements to 25% of the gross amount of the royalties, is hereby granted under the most favored nation clause provision of the RP-US Tax Treaty. In other words, as of April 10, 1996 royalties arising from the Development Agreement and Franchise Agreement are subject to the preferential tax rate of 10% under Article 13, par. 2 (b) (iii) of the RP-US Tax Treaty in relation to Article 12, paragraph 2 (b) of the RP-West Germany Tax Treaty. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue