ITAD Ruling No. 026-01

March 12, 2001 ITAD RULING NO. 026-01 NIRC, Sections 23 and 25 126 97 Hunt-Universal Robina Corp . CFC Building, E. Rodriguez Jr. Avenue Bagong Ilog, Pasig City Attention: Mr . Jorge Q . Concepcion Managing Partner Gentlemen : This refers to our letters dated October 3, 2000 and November 21, 2000, requesting confirmation of your opinion that the director's fees to be paid to Mr. Glen A. Smith (Mr. Smith) are not subject to Philippine income tax pursuant to the RP-US Tax Treaty. It is represented that Mr. Smith is the President of the Board of Directors of Hunt-Universal Robina Corporation (Hunt Phil), representing the Hunt-Wesson Foods International (Hunt USA); that Hunt Phil is a Board Of Investments (BOI) registered corporation duly organized and existing under Philippine laws; that Hunt USA is a non-resident foreign corporation duly organized and existing under the laws of the United States of America with principal office address at 1645 West Valencia Drive, Fullerton California, USA; that it is not registered as a corporation/partnership licensed to do business in the Philippines as per certification dated March 7, 2000 issued by the Securities and Exchange Commission; that Hunt USA, together with its nominees, owns 1,400,000 shares with a par value of PHP10.00 per share representing fifty percent (50%) of the outstanding capital stock of Hunt Phil; and that Mr. Smith only comes and stays in the Philippines to attend the regular annual meeting in a period of not more than seven days. In reply, please be informed that the RP-US Tax Treaty does not contain an Article on Director's Fees. Nonetheless, since the income of Mr. Smith in the form of director's fees is derived from sources within the Philippines, the Philippines has taxing jurisdiction over the same. (Section 23 of the Tax Code of 1997) Moreover, Section 25(B) of the Tax Code of 1997 provides, viz: (B) Nonresident Alien Individual Not Engaged in Trade or Business Within the Philippines . There shall be levied, collected and paid for each taxable year upon the entire income received from all sources within the Philippines by every non-resident alien individual not engaged in trade or business within the Philippines as interest, cash and/or property dividends, rents, salaries, wages, premiums, annuities, compensation, remuneration, emoluments, or other fixed or determinable annual or periodic or casual gains, profits, and income, and capital gains, a tax equal to twenty-five percent (25%) of such income. Capital gains realized by a nonresident alien individual not engaged in trade or business in the Philippines from the sale of shares of stock in any domestic corporation and real property shall be subject to the income tax prescribed under Subsections (C) and (D) of Section 24." Based on the foregoing, the income derived by a nonresident alien individual not engaged in trade or business in the Philippines from sources within the Philippines shall be subject to Philippine income tax equal to twenty-five percent (25%) of such income. Such being the case, and since Mr. Smith will stay in the Philippines for less than 180 days in the given calendar year, he is considered a nonresident alien not engaged in trade or business in the Philippines and his income shall be subject to 25% final withholding tax pursuant to Section 25(B) of the Tax Code of 1997 as implemented by Revenue Regulations No. 2-98, Section 2.57.1(C)(1). ITSacC This ruling is 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.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group