ITAD BIR Ruling No. 006-13

January 15, 2013 ITAD BIR RULING NO. 006-13 Article 12 (Interest), Philippines-Thailand tax treaty Enkei Philippines, Inc. 104 Industry Drive Carmelray Industrial Park Barangay Canlubang Calamba City, Laguna Attention: Mr. Tetsuya Ono Managing Director Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on August 25, 2011 requesting confirmation that interest paid by Enkei Philippines, Inc. ("Enkei Philippines") to Thanachart Bank Public Company Ltd. ("Thanachart Bank") is subject to income tax at the rate of 15 percent pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the Kingdom of Thailand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Thailand tax treaty") . Facts Thanachart Bank is a foreign corporation and a resident of Thailand based on the Certification issued by the Ministry of Commerce of Thailand on July 28, 2011, and its Certificate of Residence issued by the Revenue Department of Thailand on January 19, 2012. Thanachart Bank is located at 900 Tonson Tower, Ploenchit Road, Lumpini, Pathumwan, Bangkok, Thailand. It is not registered as a corporation or partnership in the Philippines based on the Certification of Non-registration of Company issued by the Securities and Exchange Commission on July 6, 2011. On the other hand, Enkei Philippines is a domestic corporation located at 104 Industry Drive, Carmelray Industrial Park, Canlubang, Laguna. On March 10, 2011, Enkei Philippines and Thanachart Bank entered into a Loan Agreement where Thanachart Bank granted Enkei Philippines a loan amounting 1,040,000,000.00 for the purpose of repaying Enkei Philippines' existing loans with its affiliates. The loan was drawn in two tranches on June 6, 2011 (510,000,000.00) and July 6, 2011 (530,000,000.00) by way of a notice of drawdown issued by Enkei Philippines to Thanachart Bank . The loan bears interest at the rate of 1.80 and 1.82 percent per annum, respectively. Based on Certificates of Inward Remittance of Foreign Exchange Nos. 2011-00368-0060 and 2011-00372-0060 issued by the Bank of Tokyo-Mitsubishi UFJ Manila Branch, 1 the proceeds of the loan were credited to Enkei Philippines' account on June 9, 2011 and July 12, 2011, respectively. EDSHcT Based on the Sworn Statement issued by Enkei Philippines on November 14, 2012, the loan will be repaid after one year from the date of each drawdown, and interest on the loan will be paid every six months from the date of the drawdown. Subsequently, in compliance with the collection billing issued by Thanachart Bank to Enkei Philippines , the latter paid interest to Thanachart Bank as follows: Date of Payment Principal Interest Period Interest Rate Interest (in Yen) (in Yen) December 7, 2011 2 510,000,000.00 June 8, 2011- 1.80 percent 4,667,717.77 December 7, 2011 January 11, 2012 530,000,000.00 July 11, 2011- 1.82 percent 4,937,588.25 January 10, 2012 Ruling Relative thereto, Article 12 of the Philippines-Thailand tax treaty provides: "Article 12 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 also be taxed in the Contracting 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 of interest if: (i) it arises in Thailand and is received by Philippine financial institutions (including insurance companies); ADTCaI (ii) it arises in the Philippines in respect of public issues of bonds, debentures or similar obligations. b) 15 per cent of the gross amount of interest if it arises in the Philippines; and c) 25 per cent of the gross amount of interest if it arises in Thailand." Under Article 12, interest arising in the Philippines and paid to a resident of Thailand may be taxed in the Philippines at a rate not to exceed: (a) 10 percent if it is paid in respect of public issues of bonds, debentures or similar obligations; and (b) 15 percent in all other cases. Accordingly, since the interest subject of the Loan Agreement between Enkei Philippines and Thanachart Bank is not paid in respect of public issues of bonds, debentures or similar obligations, such interest paid to Thanachart Bank shall be subject to income tax at the rate of 15 percent, pursuant to paragraph 2 (b), Article 12 of the Philippines-Thailand tax treaty. Furthermore, under Section 179 of the National Internal Revenue Code of 1997, as amended, the said Loan Agreement is subject to documentary stamp tax equivalent to P1.00 for every P200.00 (or a fraction thereof) of the amount of the loan (the Philippine peso equivalent of the loan of 1,040,000,000.00), to wit: "SEC. 179. Stamp Tax on All Debt Instruments . On every original issue of debt instruments, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos (P200), or fractional part thereof, of the issue price of any such debt instrument: Provided, That for such debt instruments with terms of less than one (1) year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its terms in number of days to three hundred sixty-five (365) days: Provided, further, That only one documentary stamp tax shall be imposed on either loan agreement, or promissory notes issued to secure such loan." ESHAcI 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, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Located at 15th Floor, 6788 Ayala Avenue, Makati City, Philippines. 2. Since the TTRA was filed on August 25, 2011 and the first interest payment is made later on December 7, 2011 , such interest paid on that date and thereafter shall be subject to relief (exemption from income tax or reduction of tax) pursuant to Section 14 of Revenue Memorandum Order No. 72-2010 (Guidelines on the Processing of Tax Treaty Relief Applications (TTRA) Pursuant to Existing Philippine Tax Treaties) ("RMO 72-2010") , to wit: " SEC. 14. WHEN AND WHERE TO FILE THE TTRA . All tax treaty relief applications (updated BIR Forms No. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Division (ITAD). If the forms or any necessary documents are submitted to any other BIR Office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event ." (Emphasis ours)