ITAD Ruling No. 082-05

August 16, 2005 ITAD RULING NO. 082-05 Art. 22 of the Philippines-Korea Tax Treaty Samsung Electro-Mechanics Philippines Corporation Blk. 5 Calamba Premier International Park Brgy. Batino, Prinza, Calamba, Laguna Attention: Mr. Dae Sik Choi General Manager Gentlemen : This refers to your letter dated July 29, 2003, requesting for a ruling for the correct treatment of the Guarantee Fee paid by Samsung Electro-Mechanics Philippines Corporation (Samsung-Philippines) to Samsung Electro-Mechanics Co. Ltd. (Samsung-Korea) pursuant to the Philippines-Korea tax treaty. It is represented that Samsung-Korea is a corporation organized and existing under the laws of Korea with principal address at 314 Maetan 3-Dong, Paldal-Gu, Suwon-Si, Kyunggi-Do, Korea; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated August 18, 2003; that Samsung-Philippines is a Philippine Economic Zone Authority (PEZA)-registered corporation organized and existing under the laws of the Philippines with principal address at Blk. 5 Calamba Premiere International Park, Brgy. Batino Prinza, Calamba Laguna; that Samsung-Philippines obtained loans from the following Philippine resident banks: Standard Chartered Bank, Citibank N.A., and Bank of America; that the said loans were guaranteed by Samsung-Korea under an Agreement for Payment of Fee for Guaranty, executed by and between Samsung-Phil and Samsung-Korea, on each of the said loans; and that under each of the said Agreements, Samsung-Phil agreed to pay Samsung-Korea a Guarantee Fee for the latter's agreement to guaranty the said loans. In reply thereto, please be informed that Article 22 of the Philippines-Korea tax treaty provides: "Article 22 " Other Income " "1. Items of income of a resident of a Contracting State wherever arising, not dealt with in the foregoing Articles of this convention shall be taxable only in that State." DTSaIc "2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income being a resident of a Contracting State carries on business in the other Contracting State through a Permanent Establishment situated therein, or performs in that other State independent personnel services form a fixed a base situated therein, and the right or property in respect of which the income is paid is effectively connected with such Permanent Establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply." "xxx xxx xxx" Based on the aforequoted, income of a resident of Korea shall be taxable in Korea, when the type of income earned is one which is not dealt with under provisions of the Philippines-Korea tax treaty other than Article 22. Accordingly, since the guarantee fees paid by Samsung-Philippines to Samsung-Korea under their Guaranty Agreement are income which are not covered by provisions of the Philippines-Korea tax treaty other than Article 22 (Other Income), the same shall be taxable only in Korea. This ruling is issued on the basis of the facts as represented and is rendered only for the purpose of determining whether Samsung-Korea is entitled to the benefits of the RP-Korea tax treaty. The determination on whether your request for tax refund should be given due course is upon the Office which will be conducting the investigation for that purpose. Thus, the docket pertaining thereto (including a copy of this ruling) shall be endorsed to the proper office for processing and investigation. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue