ITAD Ruling No. 042-99

November 3, 1999 ITAD RULING NO. 042-99 RP-Netherlands Article 11 057-97 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 4, 1999 requesting confirmation of your opinion that the interest payments of EL PASO PHILIPPINES HOLDING COMPANY, INC. (EPPH) to HOLLANDSCHE BANK-UNIE N.V. (HBU) is subject to the preferential tax treaty rate of 10% withholding tax pursuant to the RP-Netherlands Tax Treaty. It is represented that HBU is a non-resident foreign corporation organized and existing under the laws of the Netherlands; that HBU has no permanent establishment in the Philippines as evidenced by Certificate of Non-Registration issued by the Securities and Exchange Commission dated April 27, 1999; that EPPH is a corporation duly organized and existing under the laws of the Philippines; that on January 27,1999, EPPH obtained a dollar denominated loan from HBU amounting to US$52,500,000.00; that said loan will be used mainly to finance the acquisition of shares in East Asia Power Resources Corporation; that the said loan is subject to the payment of interest at the rate equal to LIBOR plus 4% margin per annum. In reply, please be informed that under Article 11 of the RP-Netherlands Tax Treaty, provides, viz: "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. 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." Accordingly, your opinion that interest payment made by EPPH to HBU are subject only to the 10% preferential tax rate is hereby confirmed. (BIR Ruling No. 057-97 dated May 15, 1997) 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