ITAD Ruling No. 114-02

June 4, 2002 ITAD RULING NO. 114-02 RP-Israel, Article 11 NIRC, Sec. 180 BIR Ruling No. DA-ITAD-43-02 Philexcel Industrial Park 1961st Area M. Roxas Highway Clark Special Economic Zone, Pampanga Attention: Ian G. Packham General Manager Gentlemen : This refers to your letter dated July 1, 2001 requesting confirmation of your opinion to the effect that the interest payments made by your company, Philexcel Industrial Park (Philexcel), to Mrs. Ariella Nasser Moskovitz (Mrs. Moskovitz) are subject to the preferential withholding tax rate of 10 percent pursuant to the RP-Israel tax treaty. It is represented that Mrs. Moskovitz is a resident and a citizen of Israel with principal address at Hyarkon Street, 238 Apt' 3, Tel-Aviv 63405, Israel; that she is not engaged in trade or business in the Philippines; that Philexcel is a domestic corporation duly organized and existing under Philippine laws and a Clark Special Economic Zone (CSEZ) enterprise engaged in the business of developing and constructing an industrial park and sublease the same to other persons or entities; that on February 9, 2001, a Loan Agreement was entered into by and between Mrs. Moskovitz and Philexcel whereby the former agreed to lend the latter the amount of One Million United States Dollars (US$1,000,000.00) payable within a period of five (5) years at an interest rate of twelve percent (12%) per annum. In reply, please be informed that Article 11 of the RP-Israel 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 also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 10 percent of the gross amount of the interest. "xxx xxx xxx" 5. 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 laws 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 the purpose of this Article. "xxx xxx xxx" Considering that the recipient of interest, Ms. Moskovitz, is a resident of Israel within the meaning of the RP-Israel tax treaty and is the beneficial owner of the interest arising in the Philippines, the interest payments made by Philexcel are subject to Philippine income tax at the rate of 10 percent of the gross amount of interest. (BIR Ruling No. ITAD-43-02 dated April 5, 2002) Moreover, the Loan Agreement entered into by and between Ms. Moskovitz and Philexcel dated February 09, 2001 is subject to the documentary stamp tax imposed under Section 180 of the National Internal Revenue Code of 1997. 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