ITAD Ruling No. 086-00

August 1, 2000 ITAD RULING NO. 086-00 Art. 11 RP-Singapore BIR Ruling 127-98 ITAD Ruling 30-99 ITAD Ruling 20-00 Joaquin Cunanan & Co. 14th Floor Multinational Bancorporation Centre 6805 Ayala Ave., 1226 Makati City Attention: Atty . George J . Lavadia Principal Tax and Corporate Services Gentlemen : This refers to your application, on behalf of your client Sony Electronics (Singapore) Pte. Ltd. (SES), to avail of the 15% preferential rate relative to the interest payment on the loan obtained by Sony Philippines, Inc. (SPI) from Sony International (Singapore) (SONIS), a division of SES, pursuant to the RP-Singapore Tax Treaty. It is represented that SES is a non-resident foreign corporation organized and existing under and by virtue of the laws of the Republic of Singapore with business address at No. 1 Tuas Road Singapore 638481; that SES has a division company, SONIS, with principal address at #10 Hoe Chiang Road #23-00 Keppel Towers, Singapore 089315; that SPI is a domestic corporation organized and existing under and by virtue of Philippine laws with business address at Solid House Building 2285 Lumbang Street Corner Pasong Tamo Extension, Makati City; that on December 8, 1999, SPI entered into a Loan Agreement with SONIS whereby SONIS agreed to lend SPI the sum of US$ EIGHTEEN AND A HALF MILLION (US$18,500,000.00) with an interest rate of 6.6328% per annum and payable on or before February 15, 2000. In reply, please be informed that Article 11 (1) and (2) of the RP-Singapore Tax Treaty states: "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 per cent 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." (Emphasis supplied) "2. 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 and 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. xxx xxx xxx" Based on the above-quoted provisions of the RP-Singapore Tax Treaty, the applicable withholding tax rate shall be 15% of the gross amount of the interest payment since SES is the beneficial owner of the interest income received from SPI. (BIR Ruling 127-98, ITAD Rulings 30-99 and 20-00) This ruling is being issued on the basis of the foregoing representations. However, if upon investigation, it will be disclosed or discovered that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LILIAN B. HEFTI OIC, Deputy Commissioner Legal & Inspection Group