ITAD Ruling No. 110-01

October 30, 2001 ITAD RULING NO. 110-01 Charter of ADB-Section 56 Agreement of ADB and RP-Section 34 H & Q Philippine Venture, Inc. 22nd Floor, Equitable PCIBank Tower 2 Makati Avenue, Makati City Attention: Ms. Mel Evangelista Gentlemen : This refers to your letter dated March 23, 2001, requesting confirmation of your opinion that the cash dividend to be paid by H & Q Philippine Venture, Inc. (H&Q) to Asian Development Bank (ADB) is exempt from Philippine tax under the Tax Code, as amended. It is represented that ADB is an international financing institution and is not registered as a corporation or partnership licensed to do business in the Philippines as evidenced by a Certification of Non-Registration issued by the Securities and Exchange Commission dated March 27, 2001; that H&Q is a domestic corporation with business address at 22 nd Floor, PCIB Tower II, Makati Ave., corner H.V. dela Costa Street, Makati City; that ADB is a subscriber of 1,411,635 preferred shares (inclusive of nominee shares) of H&Q based on the list of shareholders as certified by H&Q's Corporate Secretary dated March 15, 2001; that on March 15, 2001, the Board of Directors of H&Q approved the transfer of the amount of P56,000,000.00 from the restricted retained earnings to the unrestricted retained earnings; and that H&Q declared cash dividend of the same amount or P224.00 per share in favor of all common shareholders and P4.0727272727 per share in favor of all redeemable preferred shareholders of record as of March 15, 2001 out of H&Q's unrestricted retained earnings as of December 31, 1997, payable on or before April 18, 2001. In reply, please be informed that Article 56 of the Charter of ADB provides, viz : "Article 56 "The Bank, its assets, property, income and its operations and transactions, shall be exempt from all taxation and all customs duties. The Bank shall also be exempt from any obligation for the payment, withholding or collection of any tax or duty. xxx xxx xxx" On the other hand, Section 34 of the Agreement between ADB and the Government of the Republic of the Philippines regarding the headquarters of ADB likewise provides, viz: "Section 34 "The Bank, its property and its operations and transactions shall be exempt from: "(a) all taxation and any obligation for the payment, withholding or collection of any tax or duty. The Bank will not claim exemption from taxes or charges which are no more than payments for public utility services; "(b) all customs duties and other levies on any goods, articles, including motor vehicles spare parts and publications imported or exported by the Bank for its official use, and any obligation for the payment, withholding or collection of any customs duties. The goods and articles, including vehicles, spare parts and publications imported under such exemption will not be sold in the Republic of the Philippines except under conditions agreed upon with the Government; and "(c) all prohibitions and restrictions on imports and exports in respect of goods or articles, including motor vehicles, spare parts and publications intended for the official use of the Bank." Based on the above, ADB is exempt from all taxation and any obligation for payment, withholding or collection of any tax or duty in the Philippines. Therefore, the dividends to be paid by H&Q to ADB shall be exempt from tax pursuant to the aforequoted provisions of the Charter of ADB and the Agreement between the ADB and the Philippines. This ruling is 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. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue