35% Withholding Tax — Technical Service Fees or Royalties

October 13, 1981 BIR RULING NO. 198-81 53 (b) (2) 000-00 198-81 Union-Hikari Fertilizer Industries, Inc. Ajinomoto Building 331 Buendia Avenue Makati, Metro Manila Attention: Mr . Benjamin B . Nozawa Chief Accountant Gentlemen : This refers to your letter dated April 14, 1981 requesting certification in the effect that the technical service fees for the year 1980 that you are going to remit the Hikari Kogyo Co., Ltd. of Japan pursuant to the Central Bank approved Technical Assistance Agreement dated November 15, 1977 are subject to 25% withholding tax only under the RP-Japan Tax Treaty, instead of the 35% withholding tax imposed by Section 63(b)(2) of the Tax Code of 1977, as amended. It appears that you filed an application with the Central Bank to remit the US dollar equivalent of P52,500.00, which is net of 25% withholding tax, in favor of Hikari Kogyo, Co., Ltd. of Japan and that the Central Bank approved the remittance of only P45,500.00 which is net of 35% withholding, creating thereby a difference of P7,000.00. In reply, please be informed that the aforesaid Tax Treaty took effect on January 1, 1981. Consequently, in the absence of a treaty stipulation to the contrary only income derived on or after January 1, 1981 shall be covered by the Tax Treaty. Accordingly, since the technical service fees or royalties for which you are requesting a certification were earned in the year 1980, the same are subject to 35% withholding tax at source prescribe under Section 53(b)(2) in relation to Section 14 both of the Tax Code, as amended. Very truly yours, ROMULO M. VILLA Acting Commissioner