ITAD Ruling No. 204-02

November 25, 2002 ITAD RULING NO. 204-02 Article 11, RP-Singapore BIR Ruling No. ITAD-128-00 Associated Swedish Steels Philippines, Inc. 3 E. Rodriguez Jr. Avenue, Bagong Ilog Pasig City Attention: Angelito Soliman Financial Controller Gentlemen : This refers to your application for relief from double taxation dated January 25, 2002, requesting confirmation of your opinion that the interest payment to be made by Associated Swedish Phils., Inc. (ASSPI) to Assab Pacific Pte. Ltd. (APPL) is subject to the fifteen percent (15%) preferential tax rate pursuant to the RP-Singapore tax treaty. It is represented that APPL is a non-resident foreign corporation duly organized and existing under the laws of Singapore with office address at 171 Chin Swee Road #07-02 San Centre Singapore 169877; 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 February 26 2002 issued by the Securities and Exchange Commission; that ASSPI is a corporation duly organized and existing under the laws of the Philippines with office address at No. 3 E. Rodriguez Jr., Avenue, Pasig; Philippines; that APPL holds Ten Thousand Two Hundred (10,200) shares equivalent to Ten Million Two Hundred Thousand Pesos (P10,200,000) representing eighty five percent (85%) of the capital stock of ASSPI as of December 31, 2001; that on April 26, 2001, APPL granted a loan to ASSPI in the amount of One Hundred Fifty Thousand US Dollars (US$150,000) due and payable on October 25, 2001 with an interest rate of 5.25% per annum. 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 the 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 this limitation. "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. SDEHCc 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 may be present. (OECD Model Tax Convention) Such being the case, the interest income to be remitted by ASSPI to APPL 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 pursuant to the RP-Singapore tax treaty. Moreover, the Loan Agreement executed by and between them shall be subject to the documentary stamp tax imposed under Section 180 of the Tax Code of 1997. (BIR Ruling No. ITAD 128-00). This ruling is issued based on 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 parties herein are concerned. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service