ITAD Ruling No. 150-00

October 23, 2000 ITAD RULING NO. 150-00 RP-Australia Article 11 BIR Ruling DA-534-11-26-98; UN-234-6-28-95 Joaquin Cunanan & Co. 14TH Floor, Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Atty . Alexander B . Cabrera Partner, Tax Services Gentlemen : This refers to your letter dated December 23, 1998 requesting confirmation of your opinion that the interest paid by your client, LEPANTO CONSOLIDATED MINING CO. (LEPANTO) to N.M. ROTHSCHILD AND SONS (AUSTRALIA) LIMITED (ROTHSCHILD) and DRESDNER BANK AG (DRESDNER) is subject to the final income tax at the preferential rate of 15% of the gross amount of interest payments pursuant to the RP-Australia Tax Treaty. caHASI It is represented that both ROTHSCHILD and DRESDNER are foreign corporations organized and existing under the laws of Australia with office address at Level 16, 1 O' Connel Street, Sydney New South Wales, Australia and Level 20, 2 Market Street, Sydney, New South Wales, Australia respectively; that LEPANTO is a domestic corporation with office address at the Bank of America-Lepanto Building, 8747 Paseo de Roxas, Makati City; that on December 28, 1998, LEPANTO entered into an Omnibus Agreement, Volume 2 of which is a Loan and Hedging Facility Agreement with ROTHSCHILD and DRESDNER for the amount of Thirty Million Dollars (US$30,000,000.00); that LEPANTO must repay the loan according to the following schedule: Repayment Date US$, Principal Repayment Amount 30 June 2000 US$ 3,750,000.00 30 December 2000 3,750,000.00 30 June 2001 7,500,000.00 30 December 2001 7,500,000.00 30 June 2002 3,750,000.00 30 December 2002 3,750,000.00 and that the rate of interest for each Interest Period is the rate of interest per annum equal to the sum of London Interbank Offering Rate for the Interest Period and the Margin. In reply, please be informed that Article 11 of the RP-Australia Tax Treaty states: "Article 11 Interest "1. Interest arising in one of the Contracting States, being interest to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. DIcTEC "2. Such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the interest. "3. The term "interest" in this Article includes interest from Government securities or from bonds or debentures and interest from any other form of indebtedness (whether or not secured by mortgage and whether or not carrying a right to participate in profits) as well as all other income assimilated to interest by the taxation law of the Contracting State in which the income arises. "xxx xxx xxx" Based on the foregoing, interest arising in the Philippines may be subject to Philippine tax at a rate not to exceed 15 per cent of the gross amount of the interest. Such being the case, your opinion that the interest payments made by LEPANTO to ROTHSCHILD and DRESDNER shall be subject to the preferential tax rate of 15% of the gross amount of interest is hereby confirmed. (BIR Ruling DA-531-11-96-98; UN-234-6-28-95) Further, the loan agreement executed by and between them shall be subject to documentary stamp tax imposed under Section 180 of the Tax Code of 1997. This ruling is being issued based on the foregoing facts as represented. However, if upon investigation, it shall be disclosed or discovered that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group