ITAD BIR Ruling No. 335-13

December 6, 2013 ITAD BIR RULING NO. 335-13 Article 11 (Interest), Philippines-Netherlands tax treaty Sycip Gorres Velayo and Co. 6760 Ayala Avenue Makati City 1226 Attention: Atty. Fidela I. Reyes Partner, Tax Services Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on December 23, 2011 requesting confirmation that interest paid by Hoya Glass Disk Philippines, Inc. ("Hoya Philippines") to Hoya Holdings (Asia) BV ("Hoya") is subject to income tax at the rate of 15 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") . Facts Hoya is a foreign corporation and a resident of the Netherlands based on its Articles of Incorporation and Declaration of Residence issued by the Tax Administration of Arnhem in the Netherlands on February 11, 2011. Hoya is located at Amsterdamseweg 29, 1422 AC Auithoorn, 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 January 16, 2012. On the other hand, Hoya Philippines is a domestic corporation located at 111 East Main Avenue, Special Export Processing Zone, Laguna Technopark, Bian, Laguna, Philippines. Hoya Philippines and Hoya entered into several Loan Agreements where Hoya granted loans to Hoya Philippines to finance its ordinary business and for the expansion of its business. The date of agreement, amount of loan, date of remittance, and rate of interest of the loan are as follows: Date of Loan Amount Rate of Interest Date of Receiving Bank (in US Dollars) Per Annum Remittance April 27, 2011 10,000,000.00 1.0673 percent April 27, 2011 Bank of Tokyo- Mitsubishi UFJ Manila Branch 1 April 29, 2011 7,000,000.00 1.0586 percent April 29, 2011 Mizuho Corporate Bank Ltd. Manila Branch 2 May 16, 2011 4,500,000.00 1.0008 percent May 16, 2011 Mizuho Corporate Bank Ltd. Manila Branch July 27, 2011 7,500,000.00 0.9403 percent July 27, 2011 Mizuho Corporate Bank Ltd. Manila Branch August 24, 2011 5,000,000.00 0.9581 percent August 24, 2011 Mizuho Corporate Bank Ltd. Manila Branch September 27, 2011 40,000,000.00 0.9458 percent September 27, 2011 Bank of Tokyo- Mitsubishi UFJ Manila Branch November 25, 2011 3,000,000.00 1.0610 percent November 25, 2011 Mizuho Corporate Bank Ltd. Manila Branch Total 77,000,000.00 ============ The loans will be repaid as follows: Date of Loan Amount Date of Amount of Amount of (in US Dollars) Payment Principal Principal Subject Repaid to Interest (in US Dollars) (in US Dollars) April 27, 2011 10,000,000.00 December 28, 2012 10,000,000.00 10,000,000.00 April 29, 2011 7,000,000.00 January 31, 2013 7,000,000.00 7,000,000.00 May 16, 2011 4,500,000.00 February 28, 2013 4,500,000.00 4,500,000.00 July 27, 2011 7,500,000.00 July 31, 2012 - 7,500,000.00 April 30, 2013 7,500,000.00 7,500,000.00 August 24, 2011 5,000,000.00 December 27, 2012 5,000,000.00 5,000,000.00 September 27, 2011 40,000,000.00 July 2, 2012 3 10,000,000.00 40,000,000.00 October 1, 2012 10,000,000.00 30,000,000.00 December 28, 2012 10,000,000.00 20,000,000.00 March 28, 2013 10,000,000.00 10,000,000.00 November 25, 2011 3,000,000.00 November 25, 2013 3,000,000.00 3,000,000.00 Ruling In reply, please be informed that Article 11 of the Philippines-Netherlands tax treaty 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 of the Philippines-Netherlands tax treaty, 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, to wit: * Accordingly, since the interest subject of the Loan Agreements between Hoya Philippines and Hoya is not 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, nor in respect of public issues of bonds, debentures or similar obligations, such interest paid to Hoya shall be subject to income tax at the rate of 15 percent pursuant to paragraph 2 (b), Article 11 of the Philippines-Netherlands tax treaty. Furthermore, under Section 179 of the National Internal Revenue Code of 1997, as amended, the Loan Agreements, being debt instruments, are subject to documentary stamp tax of P1.00 for every P200.00 (or a fraction thereof) of the amount of the loans (the Philippine peso equivalent of $77,000,000.00), 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 Footnotes 1. Located at 15th Floor, 6788 Ayala Avenue, Makati City, Philippines. 2. Located at 26th Floor, Citibank Tower, Valero corner Villar Streets, Salcedo Village, Makati City, Philippines. 3. Since the first payment of interest on the loans is due on July 2, 2012 which is made after the filing of the TTRA on December 23, 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)