ITAD BIR Ruling No. 149-13

June 13, 2013 ITAD BIR RULING NO. 149-13 Article 11 (Interest) Philippines-Singapore tax treaty DataOne Asia (Philippines),Inc. 6th Floor, IBM Plaza Building Eastwood City Cyberpark E. Rodriguez Jr. Avenue Bagumbayan, Quezon City Attention: Mr. Cyril C. Rocke Chief Executive Officer Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on January 20, 2012 requesting confirmation that interest paid by DataOne Asia (Philippines),Inc. ("DataOne") to Cisco Systems Capital Asia Pte. Ltd. ("Cisco") is subject to income tax at the rate of 15 percent pursuant to the Convention between the Republic of the Philippines and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Singapore tax treaty") . Facts Cisco is a foreign corporation and a resident of Singapore based on its amended Memorandum and Articles of Association and Certificate of Residence issued by the Inland Revenue Authority of Singapore on September 9, 2011. Cisco is located at 1 Marina Boulevard, 28-00, Singapore. 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 October 21, 2011. On the other hand, DataOne is a domestic corporation located at 6th Floor, IBM Plaza Building, Eastwood City Cyberpark, E. Rodriguez Jr. Avenue, Bagumbayan, Quezon City, Philippines. Based on the Corporate Secretary's Certificate issued by DataOne on October 25, 2011, Cisco is not a stockholder of DataOne . On January 26, 2012, DataOne and Cisco entered into a Master Loan Agreement where Cisco granted DataOne a loan facility to finance the latter's purchase of information technology solutions from authorized suppliers. Cisco will make payment directly to the supplier to settle DataOne's outstanding invoices to that supplier. DataOne will repay each loan by successive installments plus applicable interests based on an agreed schedule of payments. Based on the Request for Borrowing and Facility Agreement, DataOne requested a loan from Cisco amounting US$301,141.40 which the latter approved. The loan will be drawn on February 21, 2012 and proceeds thereof will be paid directly to Trends and Technologies, Inc. 1 for goods and services it provided to DataOne in connection with DataOne 's Phase 2A Network Upgrade which had a cost of US$354,284.00. The proceeds will partially pay for the upgrade. The transaction was covered by Purchase Order No. 1171 dated July 29, 2011 issued by DataOne ;Sales Invoice No. 5775 dated November 23, 2011 issued by Trends and Technologies, Inc. ;and Delivery Receipt issued by Trends and Technologies, Inc. and received by DataOne on December 20, 2011. The loan will be paid quarterly for a period of 48 months and subject to an advance payment of principal and interest beginning from the drawdown date of the loan, to wit: Quarter Date of Payment Amortization Principal Interest (in US Dollars) (in US Dollars) (in US Dollars) 0 Feb. 21, 2012 21,181.50 18,821.34 2,360.16 1 May 21, 2012 21,181.50 18,821.34 2,360.16 2 Aug. 21, 2012 21,181.50 18,821.34 2,360.16 3 Nov. 21, 2012 21,181.50 18,821.34 2,360.16 4 Feb. 21, 2012 21,181.50 18,821.34 2,360.16 5 May 21, 2012 21,181.50 18,821.34 2,360.16 6 Aug. 21, 2012 21,181.50 18,821.34 2,360.16 7 Nov. 21, 2012 21,181.50 18,821.34 2,360.16 8 Feb. 21, 2012 21,181.50 18,821.34 2,360.16 9 May 21, 2012 21,181.50 18,821.34 2,360.16 10 Aug. 21, 2012 21,181.50 18,821.34 2,360.16 11 Nov. 21, 2012 21,181.50 18,821.34 2,360.16 12 Feb. 21, 2012 21,181.50 18,821.34 2,360.16 13 May 21, 2012 21,181.50 18,821.34 2,360.16 14 Aug. 21, 2012 21,181.50 18,821.34 2,360.16 15 Nov. 21, 2012 21,181.50 18,821.34 2,360.16 Total 338,904.00 301,141.40 37,762.60 ======== ======== ======== Accordingly, the following amounts were paid by DataOne to Cisco through telegraphic transfer: Quarter Date of Amortization Remitting Reference Receiving Payment Net of Bank Number Bank Withholding Tax (in US Dollars) Feb. 21 to May Feb. 21, 2012 20,827.48 Unionbank of S2371200000001 JP Morgan 20, 2012 the Philippines Chase Bank May to Aug. May 21, 2012 20,827.48 Unionbank of S2371200000014 Singapore 20, 2012 the Philippines Branch Aug. to Nov. Aug. 17, 2012 20,827.48 Banco de Oro 140204000050 20, 2012 Universal Bank Ruling In reply, please be informed that since the relevant TTRA was filed on January 20, 2012 ,and the first payment of interest subject thereof was made later on February 21, 2012 ,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") ,which provides: "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) Relative thereto, Article 11 of the Philippines-Singapore tax treaty provides relief to such income as follows: "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 competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation." Under Article 11, interest arising in the Philippines and paid to a resident of Singapore may be taxed in the Philippines at a rate not to exceed 15 percent in all cases. Accordingly, since Cisco is a resident of Singapore, such interest paid to it by DataOne under the Master Loan Agreement (and its attachments) shall be subject to income tax at the rate of 15 percent pursuant to paragraph 2, Article 11 of the Philippines-Singapore tax treaty. Moreover, under Section 179 of the National Internal Revenue Code of 1997, as amended, each Facility Agreement executed for the purpose of drawing loans under the Master Loan Agreement are subject to documentary stamp tax equivalent to P1.00 for every P200.00 (or a fraction thereof) of the amount of the loan (to date, the Philippine peso equivalent of US$301,141.40), 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." 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 105 HV dela Costa Street, Salcedo Village, Makati City, Philippines.