Withholding Tax Rate Applicable to the Royalty Fees for Technical Assistance

June 3, 1988 BIR RULING NO. 232-88 36 000-00 232-88 Gentlemen : This refers to your letter dated March 23, 1988 requesting confirmation of your opinion to the effect that the withholding tax rate applicable to the royalty fees for technical assistance to be paid and/or remitted by your client, Pillsbury-Mindanao Flour Milling Co., Inc. to Pillsbury Holdings (Canada) Ltd., a non-resident foreign corporation domiciled in Canada is subject to a tax of 25% under the RP-Canada Tax Treaty. It is represented that on July 25, 1985, a Revised Technical Assistance Agreement was entered into your client with Pillsbury Holdings (Canada) Limited; that prior to said agreement, a similar one was entered into by said parties on April 15, 1980 which expired on December 31, 1984; that the royalties paid and/or to be paid by your client which is equivalent to "1.6% of the mill net sales receipts from all sales" are in consideration of the formulas, manufacturing specifications, ingredient specifications and other technical information and experience relating to a number of consumer food products, now being marketed in the US; continuing research and development of food-cereal products services for manufacture in the Philippines; and right to use such consumer food product technology. cdt In reply thereto, please be informed that your opinion is hereby confirmed. Art. XII of the RP-Canada Tax Treaty provides, viz: "ARTICLE XII 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. "2. Such royalties may also be taxed in the Contracting State in which they arise and according to the law of the State. However, the tax so charged shall, provided that the royalties are taxable in the other Contracting State, not exceed (a) in Canada, 10 per cent of the gross amount of the royalties, and (b) in the Philippines, the lesser of (i) 25 per cent of the gross amount of the royalties, and (ii) the lowest rate of Philippine tax that may be imposed on royalties of the same kind paid in similar circumstances to a resident of a third State. "3. . . . "4. . . . "5. . . . Such being the case, the royalty fee to be paid and/or remitted by your client, Pillsbury-Mindanao Flour Milling Co., Inc. to Pillsbury Holdings (Canada) is subject to a tax of 25% pursuant to Art. XII (2)(b)(i) of the RP-Canada Tax Treaty. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner