ITAD Ruling No. 047-00

February 4, 2000 ITAD RULING NO. 047-00 Ericsson Telecommunication, Inc. 10th Floor Octagon Building, San Miguel Avenue Ortigas Center, Pasig City 1600 Attention: Atty . Maria Theresa B . Ramos Tax Specialist Finance Division M a d a m : This refers to your letter dated August 4, 1999, requesting for a confirmation of your opinion that interest payments to a resident of Singapore is subject to the preferential withholding tax rate of 15% as provided under the RP-Singapore Tax Treaty. It is represented that Ericsson Treasury Services Asia Pte. Ltd (ETS) is a foreign corporation organized and existing under the laws of Singapore without a permanent establishment in the Philippines; that it is not registered either as a corporation/partnership nor licensed to do business in the Philippines as per certification dated August 4, 1999 issued by the Securities and Exchange Commission; that Ericsson Telecommunication, Inc. (ETI) is a corporation organized and existing under the laws of the Philippines; that by virtue of a Loan Agreement made by and between ETS and ETI dated June 1, 1999, ETS made a loan to ETI in the amount of P700,000,000 to finance ETI's projects and other business operations; and that repayments on the loan will be made on the 1st of June 2000 subject to interest at a rate of 50bp plus lenders funding cost. LexLib In reply, please be informed that Article 11 of the RP-Singapore Tax Treaty provides as follows: "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 Contracting 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 percent 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 purposes of this Article. cdlex xxx xxx xxx" Such being the case, the interest income to be remitted by ETI to ETS relative to the aforementioned loan shall be subject to the preferential tax rate of 15% Philippine income tax based on the gross amount of the interest. (BIR Ruling Nos. 534-98, 142-95) 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 null and void. llcd Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group