Management Fees Paid by a BOI-Registered Pioneer Enterprise to Japanese Corporation Subject to 10% Tax

November 7, 1985 BIR RULING NO. 198-85 24-b 000-00 198-85 Gentlemen : This refers to your letter dated February 28, 1985 requesting confirmation of your opinion to the effect that the management fees paid by Biophil, Inc. (Biophil) to Kanegafuchi Chemical Industry Co. Ltd. (KCIC), a corporation duly organized and existing under the laws of Japan are royalties subject to the 10% tax under paragraph 3, Article 12 of the RP-Japan Tax Treaty. It is represented that Biophil is a domestic corporation registered with the Board of Investments (BOI) under Republic Act No. 6135 as an export producer on a pioneer status; that Biophil is engaged in the manufacture and export of ribonucleic acid concentrate (RNA); that on January 6, 1976, a management contract was entered into by and between Biophil and KCIC whereby KCIC shall plan, direct, control, supervise and coordinate the manufacturing, marketing, administration, accounting, finance, costing, purchasing and various other managerial operations of Biophil; that the services of KCIC shall be retained and engaged by Biophil for a period of five years commencing from the date of the first delivery on a commercial scale of the product manufactured by Biophil; and that Biophil shall pay KCIC management fee equivalent to two percent (2%) of the total F.O.B. value of the product sold by Biophil. In reply thereto, I have the honor to inform you that the services rendered by KCIC to Biophil under the aforementioned Agreement consisting of planning, directing, controlling, supervising and coordinating the manufacturing and marketing operations of Biophil constitute technical assistance and information concerning industrial, commercial or scientific experience, in which case, the consideration paid therefor is royalty within the contemplation of Article 12, paragraph 4 of the RP-Japan Tax Treaty. Accordingly, the management fees paid by Biophil, a BOI registered pioneer enterprise, to KCIC, a Japanese corporation are, subject to a tax of 10% pursuant to paragraph (3), Article 12 of the RP-Japan Tax Treaty. aisadc Very truly yours, (SGD.) TOMAS C. TOLEDO Acting Commissioner