Requesting Confirmatory Ruling that the Computation of Local Business Tax be Computed Based on the Management Fee that E. Works Flow Solution, Inc. (EWFSI) Received from Unilever Phils., Inc.

January 18, 2016 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Atty. Willie B. Santiago Director Tax & Corporate Service Division Diaz Murillo Dalupan & Company 5/F Don Jacinto Building Dela Rosa corner Salcedo Sts. Legaspi Village, Makati City SUBJECT : Requesting Confirmatory Ruling that the Computation of Local Business Tax be Computed Based on the Management Fee that E. Works Flow Solution, Inc. (EWFSI) Received from Unilever Phils., Inc. Sir : This refers to your letter dated December 21, 2015 requesting confirmatory ruling on the taxability of gross sales or receipts of your client, E. Works Flow Solutions, Inc. (EWFSI). Representations are made that EWFSI was incorporated and registered with the Securities and Exchange Commission (SEC) on January 11, 2013, primarily to provide print management services for the effective procurement of printed marketing material, display units and related marketing services, such as, but not limited to, supplier sourcing, file management, supplier selection, production management, digital delivery, distribution support, transaction support and performance review, including acquiring and selling such printed marketing material, display unit and related marketing materials. The Company was also registered with the Bureau of Internal Revenue (BIR) on January 11, 2012. Further, the Company is a wholly-owned subsidiary of Ergo Asia Pty. Ltd. ("Ergo", for brevity), a company organized in Australia to provide solutions and supply chains for artwork creation, print management, mail house services and retail store displays. The Company has a registered office address at 6th Flr. Don Pablo Bldg., 114 Amorsolo Street, Legaspi Village, Makati City. It has only on customer, Unilever Philippines, Inc. and based on the Letter of Intent of September 6, 2011, between Ergo and Unilever, Ergo through EWFSI shall provide print management services with the latter which include the following scope: a. General Responsibilities Form, maintain and review local and offshore suppliers EWFSI is only the management fee and the rest are just purely reimbursements. Invoices and official receipts to be issued by contracted suppliers will all for the account of Unilever. That office invoked our ruling dated January 14, 2013, in the case of Delta Distribution Corporation (DDC) , as follows: "In this regard, and unless DDC is able to prove that indeed, their only source of income is the commission gained from distributor's " discount ", then computing the LBT is based on the gross sales or receipts accounted on the basis of officials receipts and/or invoices issued by the distributors to its clienteles, is deemed proper. Stated otherwise, the claim that only the 'commission' (total amount of discount) should be considered in the computation of LBT, DDC will have to show that the amount in excess of the amount of commission are remitted to TMC otherwise there is no other recourse but to include said amount and be considered as part of the gross sales or receipts of the distributor. Conversely, if DDC is able to substantiate that its only income is the 'commission' , then the only option left is to compute the LBT based on said amount of 'commission' ." The foregoing considered, we therefore agree that EWFSI should only be liable for LBT computed based on Management Fee received for print management services as embodied under Items 12 & 13 of "Unilever Philippines Print Management Service Agreement" (Letter of Intent). Provided, however, that same conditions set forth above citation in the case of DDC are met otherwise, the "Net Sales" (Receipts) in the Annual Income Tax Return of EWFSI shall be considered as the "Gross Sales or Receipts" provided under Section 143 of the Local Government Code (LGC) of 1991, quoted hereunder, shall apply: " SEC. 143. Tax on Business . The municipality may impose taxes on the following businesses: xxx xxx xxx With gross sales or receipts for the preceding calendar year in the amount of : . . . ." (boldfacing ours) We are hoping that we have clarified matters. Very truly yours, (SGD.) JOCELYN T. PENDON OIC-Executive Director ATTACHMENT Diaz Murillo Dalupan and Company Certified Public Accountants December 21, 2015 Bureau of Local Government Finance Department of Finance 8th Floor, EDPC Building Bangko Sentral ng Pilipinas Complex, Roxas Boulevard, Manila To : Ms. Jocelyn T. Pendon OIC-Executive Director Re : Request for Confirmatory Ruling on Taxability of Gross Receipts of E. Work Flow Solutions, Inc. Madam: We write in behalf of E. Work Flow Solutions, Inc. (herein referred to as the "Company") requesting for a confirmatory ruling from your good office regarding the taxability of its gross receipts for local business purposes. DETACa Factual Background The Company was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on January 11, 2012, primarily to provide print management services for the effective procurement of printed marketing material, display units and related marketing services, such as, but not limited to, supplier sourcing, file management, supplier selection, production management, digital delivery, distribution support, transaction support and performance review, including acquiring and selling such printed marketing material, display units and related marketing materials. The Company was also registered with the BIR on January 11, 2012. The Company is a wholly-owned subsidiary of Ergo Asia Pty. Ltd. (the 'Parent Company') , a company organized in Australia, to provide solutions and supply chains for artwork creation, print management, mail house services and retail store displays. The registered office address is located at 6th Flr. Don Pablo Bldg., 114 Amorsolo St., Legaspi Village, Makati City. The Company has only one customer which is Unilever Philippines, Inc. It was agreed based on the letter of intent on September 6, 2011 between the Parent Company and Unilever, that thru the local subsidiary, the Company shall provide print management services with the latter which include the following scope: a. General Responsibilities Form, maintain and review local and offshore suppliers Deploy online workflows within the Unilever-preferred design and pre-press agencies Process print transactions from requisition to payment, including financing the print transaction Provide print management platform Maintain disaster recovery and business continuity plans for all technologies b. Print and Display Procurement Manage quotations, orders, and payment for all print purchases for Unilever and related entities Introduce and manage consistent coding structure, including version control identifiers, to track product within each country Manage the agency role as it relates to print Select best fit production method Manage quality of production and finished goods Create print format templates and specification templates to streamline processes and facilitate suppliers negotiations Evaluate economic efficiencies in production Leverage cross regional sourcing opportunities utilizing Ergo PMU Network c. Print and display design During the design agencies concept/design, stage, print production advice will be available from Ergo Provide advice on design, standards and design format changes Engage suppliers to collaborate on design Maintain design standards d. Digital Asset Management Provide adequate storage for digital assets Establish access for Unilever-preferred design and pre-press agencies to upload assets Provide initial training Implement standard naming conventions Manage platform support and meta data record associated with each asset Based on the scope mentioned, the Company will just manage suppliers for and in behalf of Unilever as the print management arm of the latter. It was agreed that the Company shall provide the necessary funding and reimburse the same to Unilever. On top of that, the Company charges Unilever management fees for the provision of services, resources and technology. With this kind of arrangement, it is clear that the Company is only an intermediary between Unilever and various suppliers. Hence, the true income of the Company is only the management fee and the rest are just purely reimbursements. Invoices and official receipts to be issued by contracted suppliers will all for the account of Unilever. For Confirmation We would like to request that the gross receipts to be considered for purposes of local business tax shall be limited to the management fee being an intermediary and not the direct supplier of Unilever; hence, reimbursements for costs being advanced shall not be part of gross receipts. Legal Bases We invoke for this purpose the favourable ruling issued by your good office to Delta Distribution Corporation dated January 14, 2014. In the said ruling, it was mentioned that under Section 131 (n) of the Local Government Code (LGC) of 1991 , defines the gross receipts as follows: SEC. 131 . Definition of Terms. When used in this Title, the term: xxx xxx xxx (n) Gross Sales or Receipts include the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding discounts if determinable at the time of sale, sales refund, excise tax, and value-added tax (VAT);" (Emphasis ours) As part of qualification, your good office also opined the following: aDSIHc 'In this regard, and unless DDC is able to prove that indeed, their only source of income is the commission gained from distributor's "discount", then computing the LBT is based on the gross sales or receipts accounted on the basis of officials receipts and/or invoices issued by the distributors to its clienteles, is deemed proper. Stated otherwise, the claim that only the "commission" (total amount of discount) should be considered in the computation of LBT, DDC will have to show that the amount in excess of the amount of commission are remitted to TMC otherwise there is no other recourse but to include said amount and be considered as part of the gross sales or receipts of the distributor.' Conversely, if DDC is able to substantiate that its only income is the "commission", then the only option left is to compute the LBT based on said amount of "commission".' Having laid down the premises, we humbly request that the proper basis of the local business tax shall be based on the management fees collected. For your deliberation, we have attached the following documents for your instant reference: a. Letter of intent between the Parent Company and Unilever b. Service Agreement between the Ergo Asia Pty. Ltd. and E. Work Solutions, Inc. c. Audited Financial Statements as of December 31, 2014 d. Annual ITR for the taxable year ended December 31, 2014 e. Business Process We sincerely plead that you would grant favorable considerations to this request. Thank you, (SGD.) ATTY. WILLIE B. SANTIAGO Director Tax & Corporate Services Division Diaz Murillo Dalupan & Company Local in Touch, Global in Reach Head Office: 5th Floor, Don Jacinto Building, Dela Rosa corner Salcedo Sts., Legaspi Village, Makati City 1200 Philippines Telephone: +63(2) 894 5892-95/894 0273/844 9421-23/Fax: +63(2) 818 1872 Cebu Office: Unit 504 Cebu Holdings Building, Cebu Business Park, Mabolo, Cebu City 6000 Phone +63(32) 415 8108-10/Fax: +63(32) 232 8028 Davao Office: 3rd Floor Building B Plaza De Luisa, Ramon Magsaysay Avenue, Davao City 8000 Phone/Fax +63(32) 222 6636 Website: www.dmdcpa.com.ph