DA ITAD BIR Ruling No. 169-06

December 22, 2006 DA ITAD BIR RULING NO. 169-06 Article 11 of the Philippines-Singapore tax treaty; BIR Ruling No. 142-95 Asahi Glass Philippines, Inc . Barrio Pinagbuhatan Pasig City Attention: Ms. Sarah C. Soriano Senior Manager Finance and Accounting Gentlemen : This refers to your application for relief from double taxation, on behalf of AG Investment (Singapore) Pte., Ltd. (AG Investment), on the Loan Agreement (Agreement) between Asahi Glass Philippines Inc. (Asahi) and AG Investment, pursuant to the Philippines-Singapore tax treaty. It is represented that AG Investment is a nonresident foreign corporation duly organized and existing under the laws of Singapore with office address at 460 Alexandra Road, #30-02 PSA Building, Singapore; that it is not registered either as a corporation or as a partnership in the Philippines per certification issued by the Securities and Exchange Commission dated October 4, 2005; that Asahi is a corporation organized and existing under the laws of the Philippines with office address at M.H. Del Pilar Street, Barrio Pinagbuhatan, Pasig City and duly registered with the Board of Investments with Certificate of Registration No. EP 88-675 dated October 6, 1988. It is further represented that on November 24, 2005, Asahi and AG Investments entered into a Loan Agreement commencing from the date of the said Agreement and ending on November 30, 2010 wherein AG Investment shall make available to Asahi a long term loan of aggregate principal amount not exceeding at any time of Thirty Million US Dollars (US$30,000,000.00) which shall bear interest at a rate equal to the prevailing procurement cost of AG Investment plus reasonable margin to be determined by AG Investment (currently 0.50%) for each calendar month, provided however, that such interest shall not exceed 3-month BBA LIBOR (British Banking Association London Inter Bank Offered Rates) plus 2% at any interest period. aDSHIC In reply, please be informed that Article 11 of the Philippines-Singapore tax treaty provides viz : "Article 11 INTEREST 1. Interest 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 interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest. The component authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 3. The term 'interest' as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises, including interest on deferred payment sales. Penalty charges for late payment shall not be regarded as interest for purposes of this Article." xxx xxx xxx" Based on the aforequoted provision, interest income arising in the Philippines and paid to a resident of Singapore is taxable in the Philippines at a preferential tax rate not exceeding 15% of the gross amount thereof if the recipient of such interest is the beneficial owner thereof. In view thereof, this Office is of the opinion and so holds that the interest payments made by Asahi to AG Investments, the beneficial owner of the interest under the Loan Agreement, are subject to the preferential tax rate of 15% based on the gross amount of interest, pursuant to Article 11 of the Philippines-Singapore tax treaty. (BIR Ruling No. 142-95 dated September 13, 1995) Moreover, the above Loan Agreement is subject to the documentary stamp tax imposed under Section 179 of the National Internal Revenue Code of 1997, as amended by Republic Act No. 9243, 1 at the rate of One peso (P1.00) for each Two Hundred Pesos (P200) or fractional part of the aggregate principal amount of the Loan Agreement. This ruling is issued on the basis of the foregoing 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. ITDSAE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Republic Act No. 9243 An Act Rationalizing The Provisions on the Documentary Stamp Tax of the National Internal Revenue Code of 1997, as amended and for Other purposes. (Effective date is March 20, 2004 per Revenue Regulations No. 13-2004)