ITAD Ruling No. 156-03

October 17, 2003 ITAD RULING NO. 156-03 Art. 11, RP-Netherlands BIR Ruling No. DA-ITAD 073-02 S.C. Johnson & Son, Inc. 6371 Estrella Street, Guadalupe Viejo Makati City Attention: Teresita B. Latorre Finance/IS Director Gentlemen : This refers to your letter dated June 10, 2003 requesting for confirmation of your opinion that the interest payments of S.C. Johnson & Son, Inc. (S.C. Johnson-Phil) to S.C. Johnson Europe B.V. (S.C. Johnson Netherlands) are subject to 15% preferential tax rate pursuant to Article 11 of the RP-Netherlands tax treaty. It is represented that S.C. Johnson-Netherlands is a non-resident foreign corporation duly organized and existing under the laws of Netherlands with principal address at Groot Mijdrechstraat 81, 3641 RV Mijdrecht, Netherlands; 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 dated June 2, 2003 issued by the Securities and Exchange Commission; that S.C. Johnson-Phil is a domestic corporation duly organized and existing by virtue of the laws of the Philippines with principal office located at 6371 Estrella Street, Guadalupe Viejo, Makati City; that on December 20, 2002, by virtue of a Loan Agreement, S.C. Johnson-Phil borrowed from S.C. John-Netherlands the amount of US$23,500,000 with an interest of 5.35% per annum. In reply, please be informed that Article 11 of the RP-Netherlands tax treaty provides, viz: "Article 1 INTEREST 1. Interest arising in one of the States and paid to a resident of the State may be taxed in that other State. 2. However, such interest may also be taxed in the State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed: a) 10 per cent of the gross amount if such interest is paid: (i) in connection with the sale on credit of any industrial, commercial or scientific equipment, or (ii) on any loan of whatever kind granted by a bank, or any other financial institution, (iii) in respect of public issues of bonds, debentures or similar obligations. b) 15 per cent of the gross amount of the interest in all other cases. xxx xxx xxx 5. The term "interest" as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage but not carrying a right to participate in profits, and debt-claims of every kind as well as all other income arises. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article. "xxx xxx xxx." Based on the afore-quoted provisions, interest payments in connection with the sale on credit of any industrial, commercial or scientific equipment, or on any loan of whatever kind granted by a bank or any other financial institution or in respect of Government securities, or bonds or debentures will be taxed at a preferential rate of ten per cent (10%) of the gross amount of interest and fifteen per cent (15%) of the gross amount of the interest in all other cases. STEacI Such being the case, the Office is of the opinion and so holds that the interest payments of S.C. Johnson-Phil to S.C. Johnson-Netherlands are subject to the preferential tax rate of 15% based on the gross amount of the interest pursuant to Article 11(2)(b) of the RP-Netherlands tax treaty ( BIR Ruling No. DA-ITAD-073-02 dated April 30, 2002 ) Moreover, the Loan Agreement executed by S.C. Johnson-Phil and S.C. Johnson-Netherlands is subject to documentary stamp tax imposed under Section 180 of the Tax Code of 1997. 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service