ITAD Ruling No. 010-99

June 22, 1999 ITAD RULING NO. 010-99 RP-Netherlands Article 11 Mr. Ayasamy Ramajillu Financial Controller and Vice President Philips Semiconductors Phils., Inc. Cabuyao, Laguna PHILIPPINES S i r : This pertains to your letters dated 26 January 1999 and 26 March 1999 requesting for three (3) year extension of the approval issued to you by this Office dated 10 June 1998 granting the 15 percent preferential tax rate on interest payments by your Company to Koninklije Philips Electronics N.V. of the Kingdom of the Netherlands in accordance with the Philippines-Netherlands Tax Treaty. Documents disclosed that Koninklije Philips Electronics N.V. (KPEN) is a non-resident foreign corporation organized and existing under the laws of the Netherlands with principal address at Groenewoudsewg 1, 5621 BA Eindhoven, Netherlands; that it has no permanent establishment in the Philippines as evidenced by its Certificate of Non-Registration from the Securities and Exchange Commission dated 24 February 1999; that it renewed its Term Loan Agreement dated 3 January 1999 with its subsidiary, Philips Semiconductors Phils., Inc. (PSPI), a domestic corporation organized and existing under the laws of the Philippines with principal address at LISP-EPZA, Bo. Diezmo, Cabuyao, Laguna in the amount of Two Hundred and Fifty Million US Dollars (US$ 250,000,000.00); that the loan has a life of three (3) years effective from 31 January 1999 to 30 January 2002; and that the proceeds of the loan shall be used by PSPI to finance its capital equipment investment. prcd In reply thereto, please be informed that your application for an extension of 3 years of a preferential tax rate of 15 percent final withholding tax on interest payments under the Term Loan Agreement dated 3 January 1999 is hereby granted, in accordance with paragraphs 2(b) and 5 of the Philippines-Netherlands Tax Treaty, as follows: "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. llcd 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. 3. . . . 4. . . . 5. The term "interest" as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage but not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article". This approval shall be valid for the interest paid during the life of the Agreement with expiry date on 30 January 2002, unless otherwise earlier revoked by this Office. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group