Royalties Arising in the Philippines and Payable to the Foreign Principal by 3M Philippines, Inc. are Subject to the Philippine Tax at the Rate of 10%

November 13, 1987 BIR RULING NO. 359-87 37-a 263-86 359-87 Gentlemen : This refers to your letter dated October 1, 1987 requesting that your client, 3M Philippines, Inc., be similarly allowed to avail of the benefits in Art. 13(2) (iii) of the RP-US Tax Treaty for the royalties payable to its principal, Minnesota Mining and Manufacturing Co., by applying the 10% tax rate in the RP-West Germany Tax Treaty. Documentary evidence submitted shows that 3M Philippines, Inc., a company registered under the laws of the Philippines, entered into a patent and trademark license and technical information agreement with Minnesota Mining and Manufacturing Company, a non-resident foreign corporation based in Saint Paul, Minnesota, U.S.A., whereby 3M Philippines, Inc., was granted among others, the right to use in its business operations the licensed trademarks, licensed patents, licensed products and technical information owned by Minnesota Mining and Manufacturing Company (U.S.A.); that the patent and trademark license and technical information agreement dated November 1, 1983, concerning the manufacture of pressure sensitive adhesive tapes, abrasives, adhesives, traffic control materials, reflective points and security films is duly registered with the Technology Transfer Board of the Ministry (Department) of Trade and Industry under Certificate of Registration No. 0592; and that for the use of the trademarks, patents, products and technical information, 3M Philippines, Inc. is obliged to pay Minnesota Mining and Manufacturing Company (U.S.A) 2% royalty based on the net sales, as defined in said agreement, of 3M Philippines, Inc. In reply, I have the honor to inform you that your request is hereby granted. 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 limitation 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 have been approved by the Philippine competent authorities." cdta Such being the case, and inasmuch as the patent and trademark license and technical information agreement between 3M Philippines, Inc. and Minnesota Mining and Manufacturing Company (U.S.A.), has been approved by the Transfer Technology Board of the Ministry (Department) of Trade and Industry, royalties arising in the Philippines and payable to Minnesota Mining and Manufacturing Company (U.S.A) by 3M Philippines, Inc. are subject to the Philippine tax at the rate of 10% because this rate appears in the RP-West Germany Tax Treaty and pursuant to Article 13, paragraph 2(b)(iii) of the RP-US Tax Treaty. The said tax shall be withheld and paid in the same manner and subject to the same conditions so provided in Section 52 of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner