ITAD Ruling No. 128-00

September 1, 2000 ITAD RULING NO. 128-00 RP-Singapore Article 11 534-98 142-95 Murata Electronics Philippines Inc. Panorama Building 5, Block 5 Lot 9, PEZA LIIP Bian, Philippines Attention: Mr . Hiroyuki Miyoshi President Gentlemen : This refers to your application for relief from double taxation, dated September 2, 1999, on behalf of Murata Electronics Singapore (PTE) Ltd. (MURATA-SINGAPORE), requesting for the availment of the preferential tax rate on interest pursuant to the Philippine-Singapore Tax Treaty. It is represented that MURATA-SINGAPORE is a foreign corporation organized and existing under the laws of Singapore without a permanent establishment in the Philippines; that it is not registered as a corporation/partnership nor licensed to do business in the Philippines as per certification dated September 3, 1999 issued by the Securities and Exchange Commission; that Murata Electronics Philippines (MEP) is a corporation organized and existing under the laws of the Philippines; that by virtue of a Loan Agreement made by and between MURATA-SINGAPORE and MEP dated June 1, 1999, MEP made a loan to MURATA-SINGAPORE in the amount of $1,500,000.00 (US$ One Million Five Hundred Thousand Only); that the proceeds of the loans will be used for MEP working capital and to complement for its shortage; and that repayments on the loan will be made on the 1st of June 2000 subject to interest at a rate of 50bp plus lender's funding cost. 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 percent 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. cADTSH 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-claims" 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 MEP to MURATA-SINGAPORE relative to the aforementioned loan shall be subject to the preferential tax rate of 15% Philippine income tax based on the gross amount of the interest. However, the Loan Agreement executed by and between them shall be subjected to the documentary stamp tax imposed under Section 180 of the Tax Code of 1997. (BIR Ruling Nos. 534-98, 142-95) This ruling is being 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 null and void. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group