ITAD Ruling No. 116-03

August 1, 2003 ITAD RULING NO. 116-03 Article 11, RP-Singapore BIR Ruling No. ITAD 006-03 Laya Mananghaya & Co. Certified Public Accountants & Management Consultants 22 Floor Philamlife Tower 8767 Paseo de Roxas Makati City 1226 Attention: Remigio A. Noval, Partner, Tax & Corporate Services Rommel I. Quebengco, Manager, Tax & Corporate Services Gentlemen : This refers to your letter dated April 30, 2003 requesting confirmation of your opinion that the interest to be paid on the installment sale by Singapore Power International Pte, Ltd (SPI) of its shares of stock in Alsing Power Holdings Inc. (APH) to Alsons Consolidated Resources, Inc. (ACR), is subject to the preferential tax rate of 15% pursuant to the RP-Singapore tax treaty. It is represented that SPI is a non-resident foreign corporation duly organized and existing under the laws of Singapore with business address at 111 Somerset Road #04-01 Singapore 238164; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated April 15, 2003; that ACR is a domestic corporation with principal office at Alsons Bldg. 2286 Pasong Tamo Extension, Makati City, Philippines; that on March 31, 2003, SPI and ACR entered into a Deed of Absolute Sale covering 791,045 shares of stock of SPI in APH for which a certificate of exemption from capital gains tax has been issued by this Bureau under reference number CGT-03-0027 dated May 20, 2003; and likewise subjected to the documentary stamp tax under Section 176 of the 1997 Tax Code; that the terms and conditions of the Deed of Absolute Sale include, among others, the following: a) For valuable consideration in the sum of Five Million Two Hundred Thousand US Dollars (US$5,200,000) called as the "Purchase Price" being the purchase price for the Seven Hundred Ninety One Thousand Forty Five (791,045) shares, the buyer acknowledges that the sum of US$600,000 is due on March 31, 2003; and b) The balance of the Purchase Price of US$4,600,000 is payable in four (4) consecutive installments of US$1,500,000 each, together with interest accrued at 1% above LIBOR from the date hereof. The first installment is payable on or about June 30, 2003. In reply, please be informed that Article 11 of the RP-Singapore 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 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. CEASaT "3. 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 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" Interest is generally taken to mean remuneration on money lent being remuneration coming within the category of income from movable capital. The term designates, in general, income from debt claims of any kind, whether or not secured by mortgage and whether or not carrying rights to participate in profits. The term "debt claim of every kind" obviously embraces cash deposits and security in the form of money, as well as government securities and bonds and debentures, although the three latter are especially mentioned because of their importance and of certain peculiarities that they may present. (OECD; Model Tax Convention) Such being the case, the interest income to be remitted by ACR to SPI relative to the aforementioned agreement shall be subject to the preferential tax rate of 15% of the gross amount of the interest. ( BIR Ruling No. DA-ITAD-6-03 dated January 16, 2003 ) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service