ITAD Ruling No. 092-02

May 16, 2002 ITAD RULING NO. 092-02 Art. 13, RP-France Sec. 108, NIRC BIR Ruling No. DA-ITAD-108-01 Transitions Optical Philippines, Inc. Blk 4, Lot 1, Star Avenue Laguna International Industrial Park Mamplasan, Bian, 4024 Laguna Attention: Suzanne B. Mondonedo Finance Manager Gentlemen : This refers to your letter dated August 9, 2001 requesting confirmation of your opinion that the royalty payments by your company to Essilor International (Essilor) are subject to the preferential withholding tax rate of fifteen percent (15%) pursuant to the RP-France tax treaty. It is represented that Essilor is a non-resident foreign corporation duly organized and existing under the laws of France with principal office address at 147 Rue de Paris F-94227 Charenton, Cedex, France; that Pittsburgh Plastic Glass Industries, Inc. (PPG) and Transitions Optical Inc. ("TOI") are non-resident foreign corporations duly organized and existing under the laws of the States of Pennsylvania and Delaware, U.S.A., respectively; that Essilor, PPG and TOI are not registered either as a corporation or as a partnership licensed to do business in the Philippines per certifications dated July 3, 2001 issued by the Securities and Exchange Commission; that Transitions Optical Philippines, Inc. (TOPI) is a domestic corporation duly organized and existing under the laws of the Philippines and duly registered with the Philippine Economic Zone Authority (PEZA) per Certificate of Registration No. 98-060 dated October 15, 1998, that on July 31, 1990, Essilor, PPG, and TOI entered into a Technology License and Technical Assistance Agreement ("Technology Agreement") whereby PPG and Essilor conveyed to TOI rights in certain technical data and patents; that on February 01, 1999, in Addendum to the Technology Agreement was entered into between Essilor, TOI and TOPI whereby the joinder of TOPI was agreed upon such that in every provision where the term "Company" appears in the Technology Agreement, the term "Company" shall include TOPI; and that TOPI shall pay royalties to Essilor in consideration for the rights granted by the latter. In reply, please be informed that Article 12 of the RP-France tax treaty as amended by its superseding Protocol provides as follows: "Article 12 "Royalties 1. Royalties 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 royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 15 percent of the gross amount of the royalties . (emphasis supplied) 3. The term "royalties" as used in this Article means payments 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 cinematographic films and works recorded for broadcasting or television, any patent, trade mark, 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." Therefore, since Essilor is the beneficial owner of the royalty payments, this Office is of the opinion and so holds that the royalty payments by TOPI to PBS are subject to the preferential tax rate of 15 percent pursuant to Article 12(2) of the RP-France tax treaty. (BIR Ruling No. DA-ITAD-108-01 dated October 30, 2001) This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service