ITAD Ruling No. 045-99

December 2, 1999 ITAD RULING NO. 045-99 RP-Netherlands Article 12 BIR Ruling [DA-118-3-20-97] Trevi Foundation Phils. Inc. Unit 5-D Country Space 1 Building Sen. Gil Puyat Ave., Salcedo Village Makati City, Philippines Attention: Mr . Aurelio Leonetti VP-Finance Gentlemen : This is in connection with your application for relief from double taxation dated March 25, 1999, on behalf of TREVI CONTRACTORS BV , requesting for a preferential tax rate of 15% to be withheld on royalty remittances by your client, TREVI FOUNDATIONS PHILS. INC ., pursuant to the RP-Netherlands Tax Treaty. LexLib It is represented that TREVI CONTRACTORS BV is a non-resident foreign corporation duly organized and existing under the laws of Netherlands, with principal office at Fred. Roeskestraat 123, 1st Floor, 1076 EE Amsterdam, The Netherlands; that TREVI CONTRACTORS BV has no permanent establishment in the Philippines as evidenced by the Certificate of Non-Registration from the Securities and Exchange Commission dated March 23, 1999; that TREVI CONTRACTORS BV entered into a "License and Service Agreement" with TREVI FOUNDATIONS PHILS. INC . , a corporation duly registered with the Securities and Exchange Commission with office address at Unit 5-D Country Space 1 Building, Sen. Gil Puyat Ave., Salcedo Village, Makati City; that in the said agreement TREVI CONTRACTORS BV granted TREVI FOUNDATION PHILS. INC . the license to use the "TREVI Rights" which, shall mean the use of intellectual property rights related to the trade-name "TREVI" and the provision for a technical assistance service; and in consideration of the said services TREVI FOUNDATION PHILS. INC . shall pay TREVI CONTRACTORS BV an amount equivalent to 12.5% of TREVI FOUNDATION PHILS. INC . 's net sales; and that the "License and Service Agreement" is duly registered with the Intellectual Property Office of the Department of Trade and Industry under Certificate of Registration No. 2054 dated November 27, 1997. In reply, please be informed that Article 12 of the Philippine-Netherlands Tax Treaty, provides, viz: "Article 12 "1) Royalties 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 royalties may also be taxed in the State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed: "(a) 10 per cent of the gross amount of the royalties where the royalties are paid by an enterprise registered, and engaged in preferred areas of activities in that State; and "(b) 15 per cent of the gross amount of the royalties in all other cases. xxx xxx xxx "4) The term " royalties " as used in this Article means payment of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or tapes for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience. prcd xxx xxx xxx" In view thereof, your application for tax treaty relief is hereby approved at the final withholding tax rate of fifteen per cent (15%) of the gross amount of the royalties. (BIR Ruling [DA-118-3-20-97]) However, TREVI FOUNDATIONS PHILS. INC . shall be responsible for the payment of value-added tax on such rentals and/or royalties in behalf of TREVI CONTRACTORS BV by filing a separate VAT declaration/return pursuant to Section 4.102-1(b) of Revenue Regulations No. 7-95. 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. llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group