BIR Ruling [UN-417-95]

November 27, 1995 BIR RULING [UN-417-95] Gift Gate Inc. 2nd Floor, Padilla Arcade Greenhills Shopping Center San Juan, Metro Manila Attention: Atty . Rodrigo H . Nepomuceno AVP-Corporate's Legal Affairs Gentlemen : This refers to your letter dated August 23, 1995 requesting for a ruling that remittance of royalty by your company, Gift Gate, Inc. (GGI), in favor of Sony Creative Products (SCP), a Japanese Corporation, is subject only to the preferential rate of 25% Philippine income/withholding tax pursuant to Article 12 of the RP-Japan tax treaty. casia It is represented that GGI is a domestic corporation duly registered, organized and existing under the laws of the Republic of the Philippines; that SCP is a Japanese Corporation organized and existing under the laws of Japan, primarily engaged in the business of granting and issuing licenses in the Asia-Pacific Region for the use of certain trademarks, logos, names, characters, and/or intellectual property creations, such as among others, the muppet characters of Jim Henson's Sesame Street and Children's Television Workshop (CTW); that GGI and Sesame Street entered into a Licensing Agreement with SCP when by SCP appointed GGI to be its exclusive Philippine licensee for the manufacture, marketing, sale and distribution of various products of SCP; that the agreement provides that GGI, in consideration for the use of the Properties will be paying royalties to SCP at the rate of five per cent (5%) of retail sales of all SCP products. In reply, please be informed that pertinent portion of Article 12 of the RP-Japan Tax Treaty reads, as follows: (1) Royalties arising in a Contracting State and paid to resident of the other Contracting State may be taxed in that other Contracting State. (2) However, such royalties may also be taxed in the Contracting State in which they arise, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed: xxx xxx xxx (b) 25 per cent of the gross amount of the royalties in all other cases. xxx xxx xxx Accordingly, the remittance by GGI to SCP shall be subject to the preferential rate of 25% Philippine income/withholding tax in accordance with the aforequoted provisions of the RP-Japan Tax Treaty. This ruling is being issued on the basis of the foregoing facts at represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. (BIR Ruling No. UN-234-94 dated August 2, 1994. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)