DA ITAD BIR Ruling No. 060-07

May 11, 2007 DA ITAD BIR RULING NO. 060-07 Article 13 (Royalties), Philippines-United States of America tax treaty; Article 12 (Royalties), Philippines-Bahrain tax treaty; Article 12 (Royalties), Philippines-Czech tax treaty; Article 12 (Royalties), Philippines-Netherlands tax treaty; BIR Ruling Nos. DA-ITAD 127-06 and 76-06 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty. Mark Anthony P. Tamayo Partner, Tax and Customs Services Gentlemen : This refers to your letter dated December 14, 2005, requesting confirmation that the royalty fee to be paid by Cargill Philippines, Inc. (Cargill Philippines) to CAN Technologies, Inc. (CAN Technologies) 1 pursuant to an Intellectual Property License Agreement is subject to 10% income tax under Article 13 (Royalties) of the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income (Philippines-United States tax treaty) . 2 BASIC FACTS It is represented that CAN Technologies is a corporation organized and existing under the laws of the United States of America, with address at 300 Delaware Avenue, Suite 552, Wilmington, Delaware, 19801, United States of America, as evidenced by its Amended Certificate of Incorporation dated May 24, 2005; that CAN Technologies is not registered as a corporation or as a partnership in the Philippines, per Certificate of Non-Registration of Corporation/Partnership dated October 13, 2005, issued by the Securities and Exchange Commission; and that, on the other hand, Cargill Philippines is a corporation organized and existing under the laws of the Philippines, with address at the 14th Floor, Citibank Tower, Paseo de Roxas, Makati City, Philippines. It is also represented that CAN Technologies has developed, owns, and has the right to use and sublicense certain proprietary information and technology, and intellectual property relating thereto, for formulating animal feed 3 compositions, for applying and using animal feeds, for processing animal feeds, for determining the nutritional composition of components used in animal feeds, and for producing, marketing, and selling animal feeds; that, on the other hand, Cargill Philippines is desirous in obtaining access to CAN Technologies' information, technology and intellectual property in order to improve its production, marketing, and sale of animal feeds; that on June 1, 2002, CAN Technologies and Cargill Philippines entered into an Intellectual Property License Agreement (Agreement) whereby CAN Technologies granted Cargill Philippines a non-exclusive, royalty-bearing, and non-transferable license to use its Patents, 4 Technology 5 and Copyrights, 6 in the Philippines, in order for Cargill Philippines to produce, market, distribute, sell, use and apply animal feeds in the Philippines; that in consideration for the license, Cargill Philippines will pay CAN Technologies a royalty fee equal to 1.25% of Cargill Philippines net sales 7 and 5.25% of its consulting revenues 8 resulting directly or indirectly from its use of the Patents, Technology and Copyrights; that the royalty fee will be calculated each quarter based on a fiscal year from June 1st to May 31st, and will be due and payable on the 15th day of the month following the end of the quarter; that the royalty fee will be paid in United States dollars and will be transmitted along with a report showing the manner in which the royalty fee was calculated; and that the Agreement will remain in full force and effect unless and until it is terminated pursuant to Article 11 (Termination) thereof. RULING A. On income tax In reply, please be informed that concerning income tax, the royalty fee to be paid by Cargill Philippines to CAN Technologies for the Patents, Technology and Copyrights, is subject to the reduced income tax rates under Article 13 of the Philippines-United States tax treaty, to wit: "Article 13 ROYALTIES 1. Royalties derived by a resident of one of the Contracting States from sources within the other Contracting State may be taxed by both Contracting States. 2. However, the tax imposed by that other Contracting State shall not exceed a) In the case of the United States, 15 percent of the gross amount of the royalties, and b) In the case of the Philippines, the least of: (i) 25 percent of the gross amount of the royalties, (ii) 15 percent of the gross amount of the royalties, where the royalties are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities, and (iii) 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. xxx xxx xxx" According to paragraph 2(b) above, royalties arising in the Philippines and derived by a resident of the United States are subject to (a) 25% of the gross amount of the royalties for royalties in general, (b) 15% of the gross amount of the royalties if they are paid by a corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities, and (c) 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. Concerning (c) or commonly known as the most-favored-nation tax treatment of royalties, the Supreme Court, in the case of the Commissioner of Internal Revenue vs. S.C. Johnson and Son, Inc. and the Court of Appeals (the S.C. Johnson case), 9 cited two conditions for royalties arising in the Philippines and derived by a resident of another country (in this case, the United States) to be subject to a most-favored-nation tax treatment. First , the royalties derived by the resident of the other country must be of the same kind as those derived by a resident of the third country, which are subject of a most-favored-nation tax treatment under the existing tax treaty between the Philippines and that third country. Second, in mitigating the effects of double taxation of income derived by its residents from foreign sources, the mechanism employed by the other country for this purpose must be the same with that employed by the third country also, which can be determined by taking into account and comparing the respective articles on Elimination of Double Taxation of the tax treaties with the Philippines of the other country and of the third country. HSEIAT In looking for a third country for this purpose, you cited Bahrain and, accordingly, the Convention between the Republic of the Philippines and the State of Bahrain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (Philippines-Bahrain tax treaty) , which entered into force on October 14, 2003, and whose provisions on taxes apply on income derived or which accrued beginning January 1, 2004. Article 12 of this tax treaty provides as follows: "Article 12 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. However, the royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed: a) 15 per cent of the gross amount of royalties arising from the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or tapes for television or broadcasting, or b) 10 per cent of the gross amount of royalties in all other cases. The competent authorities of the Contracting States shall, by mutual agreement, settle the mode of application of this limitation. xxx xxx xxx" According to paragraph 2 above, royalties arising in the Philippines and derived by a resident of Bahrain may be subject to (a) 15% of the gross amount of the royalties for royalties arising from the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or tapes for television or broadcasting, or (b) 10% of the gross amount of the royalties in all other cases. Applying the two-tier tax rates in the Philippines-Bahrain tax treaty, ideally, a part of the royalty fee to be paid by Cargill Philippines to CAN Technologies for the use or the right to use of the Copyrights will be subject to 15%, while the other part of the royalty fee for the use or the right to use of the Patents and the Technology will be subject to 10%. However, this approach is not feasible in the case of the subject royalty fee because the Agreement between Cargill Philippines to CAN Technologies does not indicate a basis for making a reasonable apportionment for the use or the right to use of each type of intangible properties. Based on the Agreement, the royalty fee is a lump-sum payment based on a certain percentage of Cargill Philippines' net sales and consulting revenues resulting from its use of the subject intangible properties. Since there is no accurate way of apportioning such portion of the royalty fee which pertains to the use of the Copyrights and that which pertains to the use of the Patents and Technology, this Office is of the opinion that, by applying the Philippines-Bahrain tax treaty in relation to the most-favored-nation clause of the Philippines-United States tax treaty, the royalty fee to be paid by Cargill Philippines to CAN Technologies under the Agreement is subject to the 15% preferential tax rate on royalties. On the other hand, we are glad to inform you that your requested most-favored-nation tax rate of 10% can be granted based on the Convention between the Czech Republic and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Philippines-Czech tax treaty) , which entered into force on September 23, 2003, and whose provisions on taxes apply on income derived or which accrued beginning January 1, 2004. Article 12 of this tax treaty provides: "Article 12 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. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed: a) 10 per cent of the gross amount of the royalties arising from the use of, or the right to use, any copyright of literary, artistic or scientific work, other than that mentioned in sub-paragraph (b), any patent, trade mark, 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; b) 15 per cent of the gross amount of the royalties arising from the use of, or the right to use, any copyright of cinematograph films, and films or tapes for television or radio broadcasting. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of these limitations. xxx xxx xxx" According to paragraph 2, royalties arising in the Philippines and derived by a resident of Czech are subject to income tax at the rate of (a) 10% of the gross amount of the royalties arising from the use of, or the right to use, any copyright of literary, artistic or scientific work (except those for cinematograph films, and films or tapes for television or radio broadcasting), any patent, trade mark, 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, or (b) 15% of the gross amount of the royalties for royalties arising from the use of, or the right to use, any copyright of cinematograph films, and films or tapes for television or radio broadcasting. Applying the Philippines-Czech tax treaty, the royalty fee to be paid by Cargill Philippines to CAN Technologies for the use or the right to use of the Patents, Technology and Copyrights, may be subject to 10% based on the gross amount thereof, provided the two conditions for the most-favored-nation tax treatment of` royalties (as described above) are both satisfied. On whether the first condition is satisfied, we note that under paragraph 3, Article 13 of the Philippines-United States tax treaty quoted below, payments received as a consideration for the use or the right to use of patents, information concerning industrial, commercial or scientific experience (know-how), and copyright of literary, artistic or scientific work (to which the royalty fee for the use or the right to use of the Patents, Technology and Copyrights, are assimilated, respectively) are all considered royalties , thus: "3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work , including cinematographic films or films or tapes used for radio or television broadcasting, any patent trade mark, design or model, plan, secret formula or process, or other like right or property, or for information concerning industrial, commercial or scientific experience. The term 'royalties' also includes gains derived from the sale, exchange or other disposition of any such right or property which are contingent on the productivity, use, or disposition thereof." In the same manner, although lacking a separate paragraph for the definition of royalties in its article, paragraph 2(a), Article 12 of the Philippines-Czech tax treaty, as quoted above, provides that royalties arising from the use or the right to use of patents, information concerning industrial, commercial or scientific experience (know-how), and copyright of literary, artistic or scientific work, among others, are subject to income tax rate of 10% of the gross amount thereof. This being the case, the first condition for the most-favored-nation tax treatment of royalties is satisfied, which requires that royalties derived by a resident of the United States must be of the same kind as those derived by a resident of Czech. STADIH As regards the second condition, under paragraph 1, Article 23 of the Philippines-United States tax treaty below, the mechanism employed in mitigating the effects of double taxation of income derived from foreign sources is the ordinary credit method. It provides: "Article 23 RELIEF FROM DOUBLE TAXATION Double taxation of income shall be avoided in the following manner: 1. In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a citizen or resident of the United States as a credit against the United States tax the appropriate amount of taxes paid or accrued to the Philippines and, in the case of a United States corporation owning at least 10 percent of the voting stock of a Philippine corporation from which it receives dividends in any taxable year, shall allow credit for the appropriate amount of taxes paid or accrued to the Philippines by the Philippine corporation paying such dividends with respect to the profits out of which such dividends are paid. Such appropriate amount shall be based upon the amount of tax paid or accrued to the Philippines, but the credit shall not exceed the limitations (for the purpose of limiting the credit to the United States tax on income from sources within the Philippines or on income from sources outside the United States) provided by United States law for the taxable year. For the purpose of applying the United States credit in relation to taxes paid or accrued to the Philippines, the rules set forth in Article 4 (Source of Income) shall be applied to determine the source of income. For purposes of applying the United States credit in relation to taxes paid or accrued to the Philippines, the taxes referred to in paragraphs 1(b) and 2 of Article 1 (Taxes Covered) shall be considered to be income taxes. xxx xxx xxx" Under the ordinary credit method, the United States (as country of residence) would limit a taxpayer's allowable tax credit to that portion of the taxpayer's tax liability in the United States that is attributable to the income that is taxed in the Philippines (the country of source or country of situs). As a result of this limitation, if the Philippines has an effective tax rate that exceeds the effective tax rate of the United States on a particular income, the United States would not grant the taxpayer a full credit for the income tax imposed by the Philippines on such income. In the same manner, under paragraph 2, Article 22 of the Philippines-Czech tax treaty below, it can be seen that the mechanism employed by Czech in mitigating the effects of double taxation of income derived by its residents from foreign sources is also the ordinary credit method, thus: "Article 22 ELIMINATION OF DOUBLE TAXATION xxx xxx xxx 2. In the case of a resident of the Czech Republic, double taxation shall be eliminated as follows: a) The Czech Republic, when imposing taxes on its residents, may include in the tax base upon which such taxes are imposed the items of income which according to the provisions of this Convention may also be taxed in the Philippines, but shall allow as a deduction from the amount of tax computed on such a base an amount equal to the tax paid in the Philippines. Such deduction shall not, however, exceed that part of the Czech tax, as computed before the deduction is given, which is appropriate to the income which, in accordance with the provisions of this Convention, may be taxed in the Philippines . b) Where in accordance with any provision of the Convention income derived by a resident of the Czech Republic is exempt from tax in the Czech Republic, the Czech Republic may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income. xxx xxx xxx" This being the case, the second condition for the most-favored-nation tax treatment of royalties, which requires that the mechanism employed by the United States in mitigating the effects of double taxation of income derived by its residents from foreign sources must be the same with that employed by Czech, is also satisfied. In fine, by reason that the two conditions for the most-favored-nation tax treatment of royalties laid down by the Supreme Court in the S.C. Johnson case are both satisfied, the royalty fee to be paid by Cargill Philippines to CAN Technologies for the use or the right to use of the Patents, Technology and Copyrights, beginning January 1, 2004 , is subject to 10% income tax based on the gross amount thereof. (BIR Ruling No. DA-ITAD 127-06 dated October 23, 2006) On the other hand, the royalty fee paid by Cargill Philippines to CAN Technologies before January 1, 2004 is also subject to a most-favored-nation tax treatment but at the rate of 15% . For this purpose, we use the Netherlands as the third country, and accordingly, the Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (Philippines-Netherlands tax treaty) , which entered into force on September 20, 1991, and whose provisions on taxes apply on income derived or which accrued beginning January 1, 1992. Articles 12 and 22 of the Philippines-Netherlands tax treaty provide as follows: "Article 12 ROYALTIES 1. Royalties arising in one of the States and paid to a resident of the other State may be taxed in that other State. 2. However, such royalties may also be taxed in the State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed: a) 10 per cent of the gross amount of the royalties where the royalties are paid by an enterprise registered, and engaged in preferred areas of activities in that State; and b) 15 percent of the gross amount of the royalties in all other cases. 3. The competent authorities of the States shall by mutual agreement settle the mode of application of paragraph 2. 4. The term 'royalties' as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. xxx xxx xxx" "Article 22 ELIMINATION OF DOUBLE TAXATION 1. The Netherlands, when imposing tax on its residents, may include in the basis upon which such taxes are imposed the items of income which, according to the provisions of this Convention, may be taxed in the Philippines. 2. Without prejudice to the application of the provisions concerning the compensation of losses in the unilateral regulations for the avoidance of double taxation, where a resident of the Netherlands derives items of income which according to Article 6, Article 7, paragraph 6 of Article 10, paragraph 6 of Article 11, paragraph 5 of Article 12, paragraphs 1 and 2 of Article 13, Article 14, paragraph 1 of Article 15, paragraphs 1 and 3 of Article 16, paragraph 2 of Article 18 and Article 19 of this Convention may be taxed in the Philippines and are included in the basis referred to in paragraph 1, the Netherlands shall exempt such items of income by allowing a proportionate reduction of its tax. This reduction shall not, however, exceed that part of the Netherlands tax as computed before the reduction is given, which is otherwise due on the said items of income. 3. Further, the Netherlands shall allow a deduction from the Netherland tax so computed for the items of income which according to paragraph 2 of Article 8, paragraph 2 of Article 10, paragraph 2 of Article 11, paragraph 2 of Article 12 and Article 17 of this Convention may be taxed in the Philippines to the extent that these items are included in the basis referred to in paragraph 1. The amount of this deduction shall be equal to the tax paid in the Philippines on these items of income, but shall not exceed that part of the Netherlands tax which is otherwise due on the said items of income. 4. For the purposes of paragraph 3, where the Philippine tax actually paid on interest and royalties arising in the Philippines is lower than 15 per cent, then, the tax paid in the Philippines on these items of income shall be deemed to be 15 per cent. xxx xxx xxx" As to the first condition for the most-favored-nation tax treatment, we note that under Article 12 of the Philippines-Netherlands tax treaty, payments received as a consideration for the use or the right to use of patents, information concerning industrial, commercial or scientific experience (know-how), and copyright of literary, artistic or scientific work (to which the royalty fee for the use or the right to use of the Patents, Technology and Copyrights, are assimilated, respectively), among others, are all considered royalties , same with the classification of such payments in Article 13 of the Philippines-United States tax treaty. As such, the royalty fee to be paid by Cargill Philippines to CAN Technologies is subject to an income tax rate of 15% based on the gross amount thereof. The royalty fee cannot be subject to the lower rate of 10% because Cargill Philippines , the payer, is not an enterprise registered, and engaged in preferred areas of activities in the Philippines (for example, with the Board of Investments). As to the second condition for the most-favored-nation tax treatment, we note that under Article 22 of the Philippines-Netherlands tax treaty, the Netherlands, same with the United States, applies the ordinary credit method, but only to profits from the operation of ships and aircraft in international traffic, and dividends, interest and royalties to the extent they are not effectively connected to a permanent establishment or a fixed base, and income of artistes and athletes. (In addition, if the Philippine income tax on interest and royalties is lower than 15%, for example, 10% for interest and royalties paid under special circumstances, the Netherlands shall deem that the income tax on such interest and royalties is paid at 15%, the difference between 15% and the lower rate being the allowable tax sparing credit. The tax sparing credit provision does not apply to the royalty fee to be paid by Cargill Philippines to CAN Technologies because such royalties are subject to the rate of 15% and not lower than that.) On the other hand, the Netherlands applies the exemption method to all other types of income whereby the Netherlands exempts such income from Netherlands income tax. TAcSCH In fine, by reason that the two conditions for the most-favored-nation tax treatment of royalties laid down by the Supreme Court in the S.C. Johnson case are both satisfied, the royalty fee to be paid by Cargill Philippines to CAN Technologies for the use or the right to use of the Patents, Technology and Copyrights, before January 1, 2004 , is subject to 15% income tax based on the gross amount thereof. (BIR Ruling No. DA-ITAD 76-06 dated June 23, 2006) B. On value-added tax (VAT) Concerning VAT, the royalty fee to be paid under the Agreement in question is subject to VAT under Section 108 (A) of the National Internal Revenue Code of 1997 (Tax Code), to wit: "Section 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. . . . The phrase 'sale or exchange of services' shall likewise include: xxx xxx xxx (1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; xxx xxx xxx (3) The supply of scientific, technical, industrial or commercial knowledge or information ; xxx xxx xxx" 10 With regard to the procedures for withholding and paying the VAT, pursuant to Sections 4 and 6 of Revenue Regulations No. 4-2002, Section 3 of Revenue Regulations No. 8-2002, and Section 7 of Revenue Regulations No. 14-2002, Cargill Philippines shall be responsible for the withholding of VAT on the royalty fee before remitting it to CAN Technologies . In remitting to the Bureau of Internal Revenue the VAT withheld on the royalty fee, Cargill Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer, Cargill Philippines may use as documentary substantiation for its claim of input VAT the duly filed BIR Form No. 1600 and the proof of payment accompanying it. If a non-VAT-registered taxpayer, Cargill Philippines may include as part of the cost of the intangible properties licensed to it by CAN Technologies the VAT consequently shifted or passed on to it and may treat such VAT either as expense or asset, whichever is applicable. In addition, Cargill Philippines is required to issue in quadruplicate the Certificate of Final Tax Withheld at Source (BIR Form No. 2306), the first three copies for CAN Technologies and the fourth copy for Cargill Philippines as its file copy. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner, Legal Service Footnotes 1. Originally, AGX Services, Inc. 2. Signed on October 1, 1976, and became effective on January 1, 1983. 3. Animal Feeds means feed rations and/or supplements produced for dairy cows, beef cows, swine, poultry, horses, domesticated animals, shrimp, fish, goats, sheep, and any other animal for which Cargill Philippines is authorized to make or sell using the intellectual property licensed under the Agreement. 4. Patents means all original, provisional, CPA, utility, design, PCT, EP, divisional, continuation, continuation-in-part, reissue, and extension patent applications relating to animal feed compositions, processing, nutritional technology, and general business systems filed in the Philippines and all patents issuing therefrom that CAN Technologies may own or otherwise possess sublicensible rights thereto now or at any time during the term of the Agreement and may choose to make available thereunder. 5. Technology means all technical data, trade secrets, technical information, product standards, formulation systems, computer modeling programs for animal and feeding simulations, laboratory standards and data, new ingredient developments, manufacturing equipment advances, information which improves the processes and procedures for the manufacture of animal feeds, sales/marketing programs, systems developed for the delivery of proprietary technology and information, processes, techniques, compositions, specifications, know-how, equipment or other information, as well as conferences, training and seminars provided by or on behalf of CAN Technologies whether in tangible form or not, that are in the possession of CAN Technologies pertaining to animal feed compositions, their nutritional components, and their processing, production, use or sale that CAN Technologies may choose to make available under the Agreement. 6. Copyrights means any original works of authorship fixed in a tangible medium of expression, including without limitation any proprietary software, formulation, and operating manuals relating to the production of any animal feed formulations, nutritional compositions and general business systems in the Philippines, and any registration applications filed in the Philippines and registration certificates issuing therefrom that CAN Technologies may own or otherwise possess sublicensible rights thereto now or at any time during the duration of the Agreement and may choose to make available thereunder. For purpose of the Agreement, copyright "use" does not include the right to make derivative works. 7. Net Sales means actual gross sales of animal feeds, including sales by Cargill Philippines' authorized sublicensees of animal feeds (but only to the extent these sales are not already included in the definition of Consulting Revenue) and sales to independent or related parties, if any; less certain deductions. 8. Consulting Revenue means gross revenue from consulting fees that accrued through Cargill Philippines' use or application of CAN Technologies' information, technology and intellectual property where these uses are allowed by the terms of the Agreement. 9. G.R. No. 127105 dated June 25, 1999, Commissioner of Internal Revenue, petitioner, vs. S.C. Johnson and Son, Inc. and Court of Appeals, respondents . 10. Section 108 was amended by Republic Act No. 9337 (An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And 288 Of The National Internal Revenue Code Of 1997, As Amended, And For Other Purposes), which was signed into law on May 24, 2005 and became effective on November 1, 2005, to read as: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: Provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied. (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds one and one-half percent (1 1/2%); or (ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). . . . The phrase 'sale or exchange of services' shall likewise include: xxx xxx xxx (1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; xxx xxx xxx (3) The supply of scientific, technical, industrial or commercial knowledge or information; xxx xxx xxx" The VAT rate was increased to 12% on February 1, 2006, in accordance with the Memorandum of the Executive Secretary to the Secretary of Finance dated January 31, 2006, as circularized by Revenue Memorandum Circular No. 7-2006 (Publishing the Full Text of the Memorandum from Executive Secretary Eduardo R. Ermita dated January 31, 2006 Approving the Recommendation of the Secretary of Finance to Increase the Value Added Tax Rate from Ten Percent to Twelve Percent) dated January 31, 2006.