DA ITAD BIR Ruling No. 101-06

August 28, 2006 DA ITAD BIR RULING NO. 101-06 Philippines-Canada tax treaty; BIR Ruling No. 124-88 SyCip Salazar Hernandez & Gatmaitan SSHG Law Centre 105 Paseo de Roxas Makati City 1226 Metro Manila Philippines Attention: Mr. Vicente D. Gerochi IV Ms. Carmen Amparo P. Limgenco Gentlemen : This refers to your application for relief from double taxation dated January 4, 2006, on behalf of your client, Catalyst Paper Corporation (CPC), formerly known as Norske Skog Canada Limited (NSCL), requesting confirmation of your opinion that the dividends payable by NSC Holdings (Philippines), Inc . (NSC Holdings) to CPC are subject to the preferential tax rate of 15%, pursuant to Article X(2)(a) of the Philippines-Canada tax treaty. It is represented that CPC is a corporation duly organized and existing under the laws of Canada, with principal office address at 16th Floor, 250 Howe Street, Vancouver, British Columbia, Canada; that it is not doing business in the Philippines; that CPC and NSCL are not registered either as corporations or as partnerships in the Philippines per Certification dated December 29, 2005 and November 14, 2005, respectively, issued by the Securities and Exchange Commission; that NSC Holdings is a corporation duly organized and existing under the laws of the Philippines, with business address c/o 3rd Floor, SSHG Law Centre, 105 Paseo de Roxas, Makati City, Philippines; that as evidenced by a Certification dated January 4, 2006, issued by the Assistant Corporate Secretary of NSC Holdings, CPC is the legal and beneficial owner of Three Hundred Seven Thousand Nine Hundred Ninety Five (307,995) common shares and the beneficial owner of Five (5) common shares of the capital stock of NSC Holdings, with a par value of PhP100 per share or an aggregate par value of Thirty Million Eight Hundred Thousand Pesos (PhP30,800,000.00); that the total issued and outstanding capital stock of NSC Holdings is Three Hundred Eight Thousand (308,000) common shares. It is further represented that CPC is the beneficial owner of 100% of the shares of NSC Holdings; that at a special meeting held on November 15, 2002, the Board of Directors of NSC Holdings approved the declaration of cash dividends in the amount of Forty Nine Million Pesos (PhP49,000,000.00) in favor of all stockholders of record of NSC Holdings as of November 15, 2002, in proportion to their respective stockholdings; and that the issue/s or transaction subject of the above request for ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s involved. SDHAEC In reply, please be informed that Article X of the Philippines-Canada tax treaty provides as follows, viz : "Article X Dividends xxx xxx xxx 2. Dividends paid by a company which is a resident of the Philippines to a resident of Canada may be taxed in Canada. However, such dividends may also be taxed in the Philippines, but where the beneficial owner of the dividends is a resident of Canada the tax so charged shall not exceed: (a) 15 per cent of the gross amount of any dividend paid to a company which is a resident of Canada which controls at least 10 per cent of the voting power to the company paying the dividend; or (b) 25 per cent of the gross amount of the dividends in all other cases. xxx xxx xxx 4. The term 'dividends' as used in this Article means income from shares, 'jouissance' shares or 'jouissance' rights, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income assimilated to income from shares by the taxation law of the State of which the company making the distribution is a resident. xxx xxx xxx" Based on the above-cited provisions, the 15 percent (15%) preferential tax rate on dividends apply whenever the beneficial owner of the dividend controls at least 10 percent of the voting power of the paying company. In all other cases, the 25 percent (25%) preferential tax rate applies. Such being the case and considering that CPC is the owner of 100% percent of the voting shares of NSC Holdings, this Office is of the opinion and so holds that the dividend payments by NSC Holdings to CPC shall be subject to the preferential tax rate of 15 percent (15%), based on the gross amount of dividends, pursuant to Article X(2)(a) of the Philippines-Canada tax treaty. ( BIR Ruling No. 124-88 dated March 28, 1988 ) 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