ITAD Ruling No. 020-00

January 28, 2000 ITAD RULING NO. 020-00 RP-Singapore Article 11 142-95 Joaquin Cunanan & Co. 14TH Floor Multinational Bancorporation Center Building 6785 Ayala Avenue, Makati City Attention: Mr . Alexander B . Cabrera Partner Gentlemen : This refers to your letter dated May 7, 1999 requesting confirmation of your opinion that the interest payments of Daiho (Phils.), Inc. (DPI) to Asia Daiho Pte. Ltd. (Asia Daiho) is subject to the preferential tax treaty rate of 15% withholding tax pursuant to the provisions of Article 11 of the RP-Singapore Tax Treaty. prcd It is represented that Asia Daiho is a non-resident foreign corporation organized and existing under the laws of Singapore with principal office at No. 14 Woodlands Loop, Woodlands East Industrial Estate, Singapore; that Asia Daiho has no permanent establishment in the Philippines as evidenced by Certificate of Non-Registration from Securities and Exchange Commission dated 10 May 1999; that DPI is a corporation duly organized and existing under the laws of the Philippines; that on January 26,1999, DPI entered into a Loan Agreement with Asia Daiho for the amount of US$2,325,000.00; that the loan has a term of five (5) years effective from 26 January 1999 to 26 January 2004; that the interest rate shall be seven percent (7%) per annum; and that said loan will be used mainly to finance DPI procurement of additional machinery and equipment. In reply, please be informed that Article 11 of the RP-Singapore Tax Treaty, provides, viz:- " 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 Contacting 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. 3) The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises, including interest on deferred payment sales. Penalty charges for late payment shall not be regarded as interest for the purposes of this Article." Accordingly, your opinion that the interest payments made by DPI to Asia Daiho are subject only to the 15% preferential tax rate is hereby confirmed. (BIR Ruling No. 142-95 dated September 13, 1995). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group