Kuok Philippine Properties, Inc. (KPPI)

February 2, 2000 ITAD RULING NO. 033-00 P-Malaysia Article 11 057-97 142-95 Joaquin Cunanan & Co. 14th Floor, Multinational Bancorporation Center 6805 Ayala Avenue Makati City 1226 SUBJECT : Kuok Philippine Properties, Inc . (KPPI) Gentlemen : This refers to your letter dated March 29, 1999, requesting for confirmation that interest payments on convertible bond issued by Kuok Philippines Properties, Inc. (KPPI) in favor of Rhinestone Limited (Rhinestone) are subject to the preferential tax rate of 15% pursuant to the RP-Malaysia Tax Treaty. It is represented that KPPI is a realty corporation organized and existing under the laws of Philippines; that Rhinestone is non-resident foreign corporation organized and existing under the laws of Malaysia, without a permanent establishment in the Philippines per Securities and Exchange Commission Certification of Non-Registration dated March 23, 1999; that on January 26, 1999, KPPI and Rhinestone entered into a subscription agreement wherein KPPI issued convertible unsecured bonds in favor of Rhinestone amounting to US $50,000,000.00 which shall be due in the year 2002; that the said bonds are subject to the payment of interest at the rate of 12% per annum of which 8% per annum is payable to quarterly in arrears and the balance of 4% per annum is accrued and compounded quarterly in arrears and payable upon conversion or redemption of the bonds, whichever is earlier. The subscription agreement provides that they are in registered form in unit denominations of US$1,000; that the bonds may be transferred by delivery of the certificate of bonds which are duly completed , signed and registered with the office of KPPI; and that the Bonds may, upon request of Rhinestone, be listed on the Philippine Stock Exchange or such other internationally recognized stock exchange. In reply, please be informed that Article 11 of the RP-Malaysia Tax Treaty, provides as follows: "Article 11 "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 Contracting State in which it arises, and according to the laws of the 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. "3. . . . "4. . . . "5. . . . "6. The term "interest" as used in this Article means income from Government securities, bonds and debentures, whether or not secured by mortgage and whether or 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 according to the taxation laws of the Contracting State in which the income arises. xxx xxx xxx" Accordingly, your opinion that the interest payments on the convertible unsecured bonds issued by KPPI in favor of Rhinestone shall be subject to the preferential tax rate of 15% pursuant to the aforementioned provisions of the RP-Malaysia Tax Treaty is hereby confirmed. However, with respect to the taxation of the interest income derived by subsequent bond holders who are residents of other countries where (a) the Philippines has no tax treaties, the same shall be governed by the pertinent provisions of the NIRC; or (b) the Philippines has a tax treaty, the same shall be subject to the tax rate provided in the said treaty. In addition, the bonds shall be subject to the documentary stamp tax imposed under Section 180 of the Tax Code, as amended. 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