ITAD BIR Ruling No. 210-13

July 24, 2013 ITAD BIR RULING NO. 210-13 Article 11 (Interest), Philippines-Netherlands tax treaty Sycip Gorres Velayo and Co. 6760 Ayala Avenue Makati City Attention: Atty. Romulo S. Danao, Jr. Partner, Tax Services Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on April 27, 2012 requesting confirmation that interest paid by Platinum Group Metals Corporation ("Platinum Metals") to Amsterdam Trade Bank NV ("Amsterdam Bank") is subject to income tax at the rate of 10 percent pursuant to the Convention between the Kingdom of the Netherlands and the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Netherlands tax treaty") . DASEac Amsterdam Bank is a foreign corporation and a resident of the Netherlands based on its amended Articles of Association and Declaration of Residence issued by the Tax Administration of Rivierenland in the Netherlands on March 16, 2012. Based on the said Articles of Association, the objects of Amsterdam Bank is to be a financial institution, to render financial services and investment services, to engage in investment activities, and to administer the assets of third parties, among others. Amsterdam Bank is located at 469-475 Herengracht, Amsterdam, the Netherlands. It is not registered as a corporation or partnership in the Philippines based on the Certificate of Non-Registration of Company issued by the Securities and Exchange Commission on February 8, 2012. On the other hand, Platinum Metals is a domestic corporation located at the Penthouse, Corporate Business Center, 151 Paseo de Roxas corner Pasay Road, Makati City, Philippines. On October 6, 2011, Platinum Metals and Amsterdam Bank entered into a Facility Agreement where Amsterdam Bank granted Platinum Metals a loan facility of up to US$35,000,000.00 to finance the latter's working capital and capital expenditure requirements. Platinum Metals may utilize the facility by giving a duly completed utilization request to Amsterdam Bank at least three days before such utilization. The loan bears a floating rate of interest equivalent to the London Interbank Offer Rate or LIBOR for a period of six months in general plus a margin of 9.00 percent per annum and any other mandatory costs. Payment of the loan will be done for eight months in every year from April to November, and commencing on April 30, 2012 and ending on September 30, 2015. Based on the Transactions/Account Movements List published by Amsterdam Bank on April 4, 2012, the loan was deposited to Platinum Metals ' account in two tranches: $20,000,000.00 on November 25, 2011 and $15,000,000.00 on December 6, 2011. The loan will be repaid as follows: Date of Payment Amount of Loan: US$20,000,000.00 Amount of Loan: US$15,000,000.00 Principal Repaid Principal Subject Principal Repaid Principal Subject to Interest to Interest Apr. 27, 2012 666,666.67 20,000,000.00 500,000.00 15,000,000.00 May 31, 2012 666,666.67 19,333,333.33 500,000.00 14,500,000.00 Jun. 29, 2012 666,666.67 18,666,666.67 500,000.00 14,000,000.00 Jul. 31, 2012 666,666.67 18,000,000.00 500,000.00 13,500,000.00 Aug. 31, 2012 666,666.67 17,333,333.33 500,000.00 13,000,000.00 Sep. 28, 2012 666,666.67 16,666,666.67 500,000.00 12,500,000.00 Oct. 31, 2012 666,666.67 18,000,000.00 500,000.00 12,000,000.00 Nov. 29, 2012 666,666.67 15,333,333.33 500,000.00 11,500,000.00 Apr. 26, 2013 666,666.67 14,666,666.67 500,000.00 11,000,000.00 May 31, 2013 666,666.67 14,000,000.00 500,000.00 10,500,000.00 Jun. 28, 2013 666,666.67 13,333,333.33 500,000.00 10,000,000.00 Jul. 31, 2013 666,666.67 12,666,666.67 500,000.00 9,500,000.00 Aug. 30, 2013 666,666.67 12,000,000.00 500,000.00 9,000,000.00 Sep. 30, 2013 666,666.67 11,333,333.33 500,000.00 8,500,000.00 Oct. 31, 2013 666,666.67 10,666,666.67 500,000.00 8,000,000.00 Nov. 29, 2013 666,666.67 10,000,000.00 500,000.00 7,500,000.00 Apr. 29, 2014 666,666.67 9,333,333.33 500,000.00 7,000,000.00 May 30, 2014 666,666.67 8,666,666.67 500,000.00 6,500,000.00 Jun. 30, 2014 666,666.67 8,000,000.00 500,000.00 6,000,000.00 Jul. 31, 2014 666,666.67 7,333,333.33 500,000.00 5,500,000.00 Aug. 29, 2014 666,666.67 6,666,666.67 500,000.00 5,000,000.00 Sep. 30, 2014 666,666.67 6,000,000.00 500,000.00 4,500,000.00 Oct. 31, 2014 666,666.67 5,333,333.33 500,000.00 4,000,000.00 Nov. 28, 2014 666,666.67 4,666,666.67 500,000.00 3,500,000.00 Apr. 29, 2015 666,666.67 4,000,000.00 500,000.00 3,000,000.00 May 29, 2015 666,666.67 3,333,333.33 500,000.00 2,500,000.00 Jun. 30, 2015 666,666.67 2,666,666.67 500,000.00 2,000,000.00 Jul. 31, 2015 666,666.67 2,000,000.00 500,000.00 1,500,000.00 Aug. 28, 2015 666,666.67 1,333,333.33 500,000.00 1,000,000.00 Sep. 30, 2015 666,666.67 666,666.67 500,000.00 500,000.00 Total 20,000,000.00 - 15,000,000.00 - =========== =========== =========== =========== Based on the letters issued by Amsterdam Bank to Platinum Metals on October 23, the amounts of principal and interest paid by Platinum Metals to Amsterdam Bank on the loans as of September 28, 2012 are as follows: STcAIa Amount of Loan: US$20,000,000.00 Date Movement Amount Floating Rate Outstanding of Interest Principal Nov. 25, 2011 Loan commences 20,000,000.00 - 20,000,000.00 Nov. 25, 2011 Interest rate fixing - 9.50611 percent - Feb. 27, 2012 Interest paid 19,333,333.33 - - Feb. 27, 2012 Interest rate fixing - 9.49060 percent - Apr. 27, 2012 Principal repaid 666,666.67 - 19,333,333.33 May 28, 2012 Interest paid 474,354.25 - - May 29, 2012 Interest rate fixing - 9.46685 percent - May 31, 2012 Principal repaid 666,666.67 - 18,666,666.66 Jun. 29, 2012 Principal repaid 666,666.67 - 17,999,999.99 Jul. 31, 2012 Principal repaid 666,666.67 - 17,333,333.32 Aug. 24, 2012 Interest rate fixing - 9.42485 percent - Aug. 27, 2012 Interest paid 432,096.26 - - Aug. 31, 2012 Principal repaid 666,666.67 - 16,666,666.65 Sep. 28, 2012 Principal repaid 666,666.67 - 15,999,999.98 Amount of Loan: US$15,000,000.00 Date Movement Amount Floating Rate Outstanding of Interest Principal Dec. 6, 2011 Loan commences 15,000,000.00 - 15,000,000.00 Dec. 6, 2011 Interest rate fixing - 9.52833 percent - Mar. 6, 2012 Interest paid 361,282.51 - - Mar. 6, 2012 Interest rate fixing - 9.47575 percent - Apr. 27, 2012 Principal repaid 500,000.00 - 14,500,000.00 May 31, 2012 Principal repaid 500,000.00 - 14,000,000.00 Jun. 6, 2012 Interest paid 357,183.13 - - Jun. 6, 2012 Interest rate fixing - 9.46685 percent - Jun. 29, 2012 Principal repaid 500,000.00 - 13,500,000.00 Jul. 31, 2012 Principal repaid 500,000.00 - 13,000,000.00 Aug. 31, 2012 Principal repaid 500,000.00 - 12,500,000.00 Sep. 6, 2012 Interest paid 323,976.64 - - Sep. 6, 2012 Interest rate fixing - 9.41185 percent - Sep. 28, 2012 Principal repaid 500,000.00 - 12,500,000.00 Ruling In reply, please be informed that under 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") , any availment of tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed at the International Tax Affairs Division of this Bureau before the payment of such income, 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. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect of disqualifying the TTRA under this RMO ." (Emphasis ours) Accordingly, since the relevant TTRA was filed on April 27, 2012 , and there were payments of interest made by Platinum Metals to Amsterdam Bank prior to such date, particularly, on February 27, 2012 for the first tranche of the loan and on March 6, 2012 for the second tranche of the loan, this Office hereby DENIES relief on such interests pursuant to Section 14 of RMO 72-2010. Accordingly, these interests shall be subject to income tax at the rate of 20 percent under Section 28 (B) (5) (a) of the National Internal Revenue Code of 1997 (" Tax Code "), as amended, to wit: DcITaC "SEC. 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Nonresident Foreign Corporation . (5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation . (a) Interest on Foreign Loans . A final withholding tax at the rate of twenty percent (20%) is hereby imposed on the amount of interest on foreign loans contracted on or after August 1, 1986." On the other hand, interests paid to Amsterdam Bank on April 28, 2012 and thereafter are subject to relief under Article 11 of the Philippines-Netherlands tax treaty, which provides: "Article 11 Interest 1. Interest arising in one of the States and paid to a resident of the other State may be taxed in that other State. 2. However, such interest may also be taxed in the 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 if such interest is paid: (i) in connection with the sale on credit of any industrial, commercial or scientific equipment, or (ii) on any loan of whatever kind granted by a bank, or any other financial institution, (iii) in respect of public issues of bonds, debentures or similar obligations. b) 15 per cent of the gross amount of the interest in all other cases." Under Article 11, interest arising in the Philippines and paid to a resident of the Netherlands may be taxed in the Philippines at a rate not to exceed (a) 10 percent if the interest is paid in connection with the sale on credit of any industrial, commercial or scientific equipment; on any loan of whatever kind granted by a bank, or any other financial institution; or in respect of public issues of bonds, debentures or similar obligations, and (b) 15 percent in all other cases. ADaSEH Accordingly, since one of the objects of Amsterdam Bank (as mentioned in its Articles of Association) is to function as a financial institution , such interests paid by Platinum Metals to Amsterdam Bank under the Facility Agreement and made on April 28, 2012 and thereafter shall be subject to income tax at the rate of 10 percent pursuant to paragraph 2 (a) (ii), Article 11 of the Philippines-Netherlands tax treaty. Furthermore, under Section 179 of the Tax Code, the Facility Agreement, being a debt instrument, is subject to documentary stamp tax equivalent to P1.00 for every P200.00 (or a fraction thereof) of the total amount of the loan (the Philippine peso equivalent of US$35,000,000.00), 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." 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