ITAD Ruling No. 120-03

August 8, 2003 ITAD RULING NO. 120-03 Article 11, RP-Singapore Sec. 180, NIRC BIR Ruling No. DA-ITAD-25-03 J. Neri & Associates Law Firm 7th Floor Ayala LIFE-FGU Center Mindanao Avenue cor Biliran Road Cebu Business Park, Cebu City Attention: Atty. Evelyn T. Nuez Gentlemen : This refers to your letter dated March 17, 2003, on behalf of your client AURUM HOLDINGS, INC. (AHI), applying for tax treaty relief pursuant to the provisions of the RP-Singapore tax treaty. It is represented that AURUM INVESTMENTS PTE. LTD. (AIP) is a non-resident foreign corporation duly organized and existing under the laws of Singapore with office address at 1 Fifth Avenue, #03-01 Guthrie House, Singapore; that it is not registered either as a corporation or as a partnership and is not licensed to engage in business in the Philippines per certification issued by the Securities and Exchange Commission dated March 12, 2003; that, on the other hand, AHI is a domestic corporation duly organized and existing under and by virtue of the Philippine laws with business address at Veterans Drive, Nivel Hills, Lahug, Cebu City; that it is registered with the Bureau of Internal Revenue District Office No. 043 and that its transfer to Revenue District Office No. 081 is being processed due to the transfer of the operations of its subsidiary companies in the latter district; that, in pursuance of the purposes of the corporation, AHI obtained several loans from AIP at an interest rate of ten percent (10%) per annum, as evidenced by the following submitted Promissory Notes, to wit: No. Date Promissory Note Amount Reference No. (Singapore Dollars) 1 June 7, 1999 AHI/AII 99003 S$993,000.00 2 September 3, 1999 AHI/AII 99005 S$500,000.00 3 October 21, 1999 AHI/AII 99006 S$400,000.00 4 December 9, 1999 AHI/AII 99007 S$250,000.00 5 December 22, 1999 AHI/AII 99008 S$50,000.00 6 January 27, 2001 AHI-AII-00-009 S$50,000.00 7 December 17, 1999 AHI-AII-99010 S$150,000.00 8 June 29, 2000 AHI/AII-2000-014 S$230,000.00 9 September 30, 2000 AHI/AIPL/2000-011 S$1,072,459.60 10 October 30, 2000 AHI/AII/2000-012a S$100,000.00 11 November 24, 2000 AHI/AII/2000-012b S$100,000.00 12 December 11, 2000 AHI/AII/2000-012c S$200,000.00 13 December 26, 2000 AHI/AII/2000-015 S$176,500.00 14 January 22, 2001 AHI/AII/2001-017 S$181,500.00 15 February 1, 2001 AHI/AII/2001-018 S$18,150.00 16 February 5, 2001 AHI/AII/2001-019 S$71,600.00 17 February 23, 2001 AHI/AII/2001-020 S$183,400.00 18 February 28, 2001 AHI/AII/2001-021 S$72,400.00 19 March 20, 2001 AHI/AII/2001-023 S$54,810.00 20 March 26, 2001 AHI/AII/2001-024 S$368,125,61 21 April 17, 2001 AHI/AII/2001-025 S$100,000.00 22 April 26, 2001 AHI/AII/2001-026 S$100,000.00 23 May 22, 2001 AHI/AII/2001-027 S$100,000.00 24 May 29, 2001 AHI/AII/2001-028 S$100,000.00 25 June 29, 2001 AHI/AII/2001-030 S$292,740.00 26 July 25, 2001 AHI/AII/2001-029 S$100,000.00 27 September 26, 2001 AHI/AII/2001-031 S$250,000.00 28 December 26, 2001 AHI/AII/2001-032 S$50,000.00 29 January 23, 2002 AHI/AII/2002-033 S$80,000.00 30 May 21, 2002 AHI/AII/2001-034 S$139,080.00 31 June 26, 2002 AHI/AII/2001-035 S$594,678.00 32 September 28, 2000 AHI/AII/2000-036 S$174,100.00 33 November 24, 2000 AHI/AII/2000-037 S$100,000.00 34 January 22, 2001 AHI/AII/2001-038 S$52,170.00 35 February 23, 2001 AHI/AII/2001-039 S$59,017.00 Total S$7,513,731.12 =========== Based on the above, it is your opinion that the interest payments of AHI to AIP are subject to the preferential tax rate of fifteen percent (15%) of the gross amount of interest, pursuant to Article 11 of the RP-Singapore tax treaty. In reply, please be informed that Article 11 of the RP-Singapore tax treaty provides, viz : aEcADH "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) "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 Based on the afore-cited provisions, interest income which arises in the Philippines and paid to a resident of Singapore is taxable in the Philippines at the preferential tax rate not exceeding 15% of the gross amount of the interest if the recipient of such interest is also the beneficial owner thereof. In view thereof, this Office confirms your opinion and so holds that the interest payments by AHI to AIP, the beneficial owner of the interest on the above loans, are subject to the preferential tax rate of 15% based on the gross amount of interest, pursuant to Article 11 of the RP-Singapore tax treaty. ( BIR Ruling No. DA-ITAD-25-03 dated January 30, 2003 ) In addition, the Loan Agreements executed by and between AHI and AIP covering the above loans shall be subject to documentary stamp tax under Section 180 of the National Internal Revenue Code of 1997 (NIRC). 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, this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service