DA ITAD BIR Ruling No. 067-07

May 22, 2007 DA ITAD BIR RULING NO. 067-07 Article 11, Philippines-Netherlands Tax Treaty; BIR Ruling No. DA-ITAD 32-05 S. C. Johnson & Son, Inc. 6371 Estrella St., Guadalupe Viejo Makati City 1200 Attention: Ms. Teresita B. Latorre Finance/IS Director Gentlemen : This refers to your letter dated June 28, 2005 requesting confirmation that the interest payments of S. C. Johnson & Son, Inc. (SCJSI) to S. C. Johnson Europe B.V. (SCJEBV) are subject to the preferential tax rate of fifteen percent (15%) pursuant to Article 11 of the Philippines-Netherlands tax treaty. DHTECc It is represented that SCJEBV is a nonresident foreign corporation with registered office at P.O. Box 38, 3640 AA Mijdrecht, Netherlands and is a resident of The Netherlands according to the Philippines-Netherlands tax treaty, as certified by the Tax Authority of The Netherlands on July 14, 2005; that SCJEBV is not registered either as a corporation or as a partnership in the Philippines as confirmed by the Certification of Non-Registration issued by the Securities and Exchange Commission on June 2, 2003; that SCJSI, on the other hand, is a domestic company organized and existing under the laws of the Philippines with principal office at 6371 Estrella Street, Guadalupe Viejo, Makati City 1200; that in a Loan Agreement dated December 7, 2004, SCJEBV agreed to lend SCJSI an amount not to exceed JPY2,500,000,000.00 (Two Billion Five Hundred Million Japanese Yen) for the acquisition of certain assets; that the loan shall be due and payable by SCJSI on a date, which shall be the earlier of December 7, 2007, or at the election of SCJEBV, upon the occurrence of an Event of Default as defined in Article 4 of the Loan Agreement; that the loan shall bear interest which shall be computed on the basis of the actual number of days lapsed in a 365 day calendar year and shall accrue on the outstanding Principal Amount from the Effective Date at a rate not to exceed 1.5% per annum; and that on December 8, 2004, SCJSI received an inward remittance from Citybank Tokyo by order of SCJEBV the amount of Japanese Yen: One Billion Nine Hundred Twenty Six Million Nine Hundred Nine Thousand Eight Hundred Ninety Five only (JPY 1,926,909,895.00). In reply, please be informed that Article 11 of the Philippines-Netherlands tax treaty provides as follows: "Article 11 INTEREST 1. Interest arising in one of the States and paid to a resident on the other State may be taxed in that other State. 2. However, such interest may also be taxed in the State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed: (a) 10 per cent of the gross amount if such interest is paid: (i) in connection with the sale on credit of any industrial, commercial or scientific equipment, or (ii) on any loan of whatever kind granted by a bank, or any other financial institution, (iii) in respect of public issues of bonds, debentures or similar obligations. (b) 15 per cent of the gross amount of the interest in all other cases. xxx xxx xxx 5. The term 'interest' as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage but not carrying a right to participate in profits, and debt-claims of every kind as well as other income assimilated to income from money lent by the taxation law of the State in which the income arises. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article. xxx xxx xxx" As can be gleaned from the foregoing, SCJSI's interest payments to SCJEBV do not fall under the instances enumerated in Article 11 paragraph 2(a) which are subject to the withholding tax rate of 10% since the interests to be paid by SCJSI are not in connection with any sale on credit of any industrial, commercial or scientific equipment or paid on any loan of whatever kind granted by a bank, or any other financial institution, or paid in respect of public issues of bonds, debentures or similar obligations. Therefore, interest payments by SCJSI to SCJEBV are subject to the withholding tax rate of 15%, based on the gross amount thereof, pursuant to paragraph 2(b) of the said Article. (BIR Ruling No. DA-ITAD 32-05 dated April 13, 2005) Moreover, the Loan Agreement executed by and between them shall be subject to the documentary stamp tax imposed under Section 179 of the National Internal Revenue Code of 1997 (Tax Code), as amended. The same Tax Code also provides that the corresponding documentary stamp taxes shall be levied, collected and paid, for and in respect of the transactions so had or accomplished, by the person making, signing, issuing, accepting, or transferring the document, instrument or paper wherever the same is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines. Thus, the burden of paying the documentary stamp is placed upon the parties to the contract and leaves the tax to be paid indifferently by either party, and accordingly, the party assuming payment of said tax under the contract becomes directly liable therefor. But if for one reason or another, the said tax is not paid, either party to the contract may be made liable for the tax. In view thereof, the documentary stamp tax (including penalties thereto, if there are any) on the Loan Agreement must be paid and the corresponding return thereon be filed by either SCJSI or SCJEBV in accordance with the aforementioned provision of the Tax Code and Revenue Regulations No. 9-2000 (Mode of Payment and/or Remittance of the Documentary Stamp Tax (DST) under Certain Conditions). SAcaDE This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the 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