Proposed Protocol Amending the Convention between the Republic of the Philippines and the Italian Republic on the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion

October 31, 2012 DOF OPINION Department of Foreign Affairs 2330 Roxas Boulevard Pasay City 1300 Attention: Hon. Elizabeth P. Buensuceso Assistant Secretary SUBJECT : Proposed Protocol Amending the Convention between the Republic of the Philippines and the Italian Republic on the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion Dear Assistant Secretary Buensuceso : This refers to your letter dated October 25, 2012 requesting for the comments and position of the Bureau of Internal Revenue (BIR) on the proposed Protocol Amending the Convention between the Republic of the Philippines and the Italian Republic on the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion (Protocol), particularly on the following matters raised in the letter dated 23 October 2012 from the Italian Ministry of Economy and Finance: a. Italy's position that the retention of Article 22, paragraph 4 of the proposed Protocol is a priority in their negotiation parameters considering the burden it may impose on the Italian Treasury. b. Italy's request for the Philippines' reconfirmation on the acceptability of its formulation of Article 25 on Exchange of Information. In recognition of the fiscal situation of Italy and the burden that Article 22, paragraph 4 of the Protocol may impose on Italy's Treasury, please be informed that the BIR has agreed to delete the tax sparing credit or matching credit provision from Article 22 of the Protocol. It also expressed its assent to the new wordings of Article 25 of the Protocol. Further, BIR reiterated that it is agreeable to the whole wordings of the Protocol pertaining to Article 2, paragraph 3 on Taxes Covered, and Article 3, paragraph 1 (i) (2) on General Definitions. Enclosed herewith is a copy of the BIR's letter dated 25 October 2012 for your reference. aSEHDA Thank you. Very truly yours, (SGD.) JEREMIAS N. PAUL, JR. Undersecretary and Officer-in-Charge ATTACHMENT Department of Finance October 30, 2012 Department of Foreign Affairs 2330 Roxas Boulevard Pasay City Attention: Ms. Elizabeth P. Buensuceso Assistant Secretary Office of European Affairs Madam, This refers to your letter dated October 25, 2012 informing us of Italy's non-acceptance of this Bureau's position (as contained in our letter dated August 15, 2012) to retain for ten years the provision on tax sparing credit or matching credit in paragraph 4, Article 22 of the Convention between the Government of the Republic of the Philippines and the Government of the Republic of Italy for the Avoidance of Double Taxation with Respect to Taxes on Income and to Prevent Fiscal Evasion ("Philippines-Italy tax treaty") . After careful consideration of Italy's position on the matter, we now fully agree to have the said tax sparing credit or matching credit provision deleted from Article 22 of the Philippines-Italy tax treaty from the time of the effectivity of the Protocol to amend the treaty. We recognize that due to the fiscal situation of Italy, the retention of the subject provision will continue to cause burden on Italy's treasury. Despite removing this provision, however, we trust that the Italian government will support the investment program of the Philippines. With respect to Article 25, we have previously informed you in our letter dated May 30, 2012 that the new wordings of this article are acceptable to us. In view of the foregoing, we reiterate that we are agreeable to the whole wordings of draft Protocol in relation to paragraph 3, Article 2 (Taxes Covered), paragraph 1 (i) (2), Article 3 (General Definitions), paragraph 4, Article 22 (Method for Elimination of Double Taxation), and Article 25 (Exchange of Information) of the Philippines-Italy tax treaty. STaAcC We hope this satisfies your request. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue