ITAD Ruling No. 136-05

November 15, 2005 ITAD RULING NO. 136-05 Article 11, Philippines-United States tax treaty BIR Ruling No. DA ITAD 215-02 Intel Philippines Mfg., Inc . 1321 Apolinario St. Makati 1233 Metro Manila Attention: Mr. Marc Paul B. Tan Tax, Licensing and Customs Gentlemen : This refers to your application for tax treaty relief dated March 2, 2005, on behalf of Intel Corporation (IC), formerly Intel Delaware Corporation, requesting confirmation that the dividend remittance by Intel Philippines Manufacturing, Inc. (IPMI) to IC is subject to the 20% withholding tax, pursuant to Article 11 of the Philippines-United States of America tax treaty (RP-US tax treaty). It is represented that IC is a nonresident foreign corporation organized and existing under the laws of the United States of America (USA) with office address at 2200 Mission College Building, Santa Clara, CA 95052, USA; that it was licensed to establish its regional or area headquarters (RHQ) in the Philippines on March 22, 1978 per Certificate of Corporate Filing/Information dated February 23, 2005 issued by the Securities and Exchange Commission (SEC); that it decided not to operate the RHQ and as such, it has not performed any business activity in the Philippines; that per Certification dated March 08, 2005 issued by Marc Paul B. Tan, Authorized Representative of Intel Corporation, said RHQ has no participation whatsoever in the dividend income of IC from IPMI; that IPMI is registered with the Board of Investments (BOI) with office address at 1321 Apolinario St., Bangkal, Makati City, Metro Manila, Philippines; that IC owns 99.99% of IPMI's shares as of January 1, 2003, January 1, 2004 and March 1, 2005 per certifications issued by the Corporate Secretary dated September 26, 2005, September 6, 2005 and March 1, 2005, respectively; that during the regular meeting of the Board of Directors of IPMI held on February 22, 2005, it was resolved that out of IPMI's unrestricted retained earnings as of December 31, 2004 in the aggregate amount of Fifty Million US Dollars (US$50,000,000.00), net of final withholding tax, be declared as cash dividends in favor of all common shareholders; and that the dividends so declared have been remitted to IC by IPMI on March 22, 2005. In reply, please be informed that Article 11 of the RP-US tax treaty provides as follows: CTEacH "Article 11 DIVIDENDS 1. Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. 2. The rate of tax imposed by one of the Contracting States on dividends derived from sources within that Contracting State by a resident of the other Contracting State shall not exceed: a) 25 percent of the gross amount of the dividend; or b) When the recipient is a corporation, 20 percent of the gross amount of the dividend if during the part of the paying corporation's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year (if any), at least 10 percent of the outstanding shares of the voting stock of the paying corporation was owned by the recipient corporation. xxx xxx xxx 5. The term "dividends" as used in this Convention means income from shares, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights assimilated to income from shares by the taxation law of the State of which the corporation making the distribution is a resident. xxx xxx xxx" In view of the foregoing, and since IC, which is the recipient of the dividends, owns more than 10% of the outstanding shares of the voting stock of IPMI, the paying corporation, during the part of the latter's taxable year which precedes the date of payment and during the whole of its prior taxable year, your opinion that the dividend remittance of IPMI to IC is subject to the preferential withholding tax rate of 20% pursuant to Article 11 of the RP-US tax treaty is hereby confirmed. (BIR Ruling No. DA-ITAD 215-02 dated December 11, 2002) 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service