Approving the Amendments to the PEZA Guidelines on the Registration and Administration of Incentives to TEZ Developers and Locator Enterprises

January 16, 2003 ITAD RULING NO. 007-03 RP-Singapore, Article 10 BIR Ruling No. ITAD 119-00 Nera (Philippines) Inc . 8th Floor Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Mr. Zayber B. Protacio Gentlemen : This refers to your application for relief from double taxation dated August 1, 2002, requesting confirmation of your opinion that the cash dividend to be paid by Nera (Philippines) Inc. (Nera Phils) to its parent company, Nera Telecommunication Ltd of Singapore (Nera Singapore), is subject to the preferential tax rate of 15% pursuant to the RP-Singapore tax treaty. It is represented that Nera Singapore is a corporation organized and existing under the laws of Singapore with business address at 10 Collyer Quay #19-08, Ocean Building, Singapore 049315; that Nera Singapore is not registered either as a corporation or as partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated July 29, 2002; that Nera Phils is a corporation organized and existing under the laws of the Philippines with business address at 8th Floor Multinational Bancorporation Centre, 6805 Ayala Avenue, Makati City; that as of December 31, 2001, Nera Singapore owns 99.93% of the issued and outstanding shares of stocks of Nera Phils equivalent to 252,493 shares amounting to Twenty Five Million Two Hundred Forty Nine Thousand Three Hundred Pesos (P25,249,300.00); that on July 4, 2002, Nera Phils' Board of Director confirms a cash dividend declaration equivalent to 30% of its net income before tax of the corporation for CY2001 or an amount of Five Million One Hundred Forty Four Thousand Eight Hundred Sixty and 20/100 (P5,144,860.20), and which cash dividend shall be distributed on or before 31 July 2002 to all stockholders of record of the corporation as of 28 December 2001. In reply, please be informed that Article 10 of the RP-Singapore tax treaty provide as follows: "Article 10 DIVIDENDS "1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State. "2. However, such dividends may be taxed in the Contracting State of which the company paying the dividends is a residents, and according to the law of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed: a) 15 per cent of the gross amount of the dividends if the recipient is a company (including partnership) and during the part of the paying company'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 15 per cent of the outstanding shares of the voting stock of the paying company was owned by the recipient company; and b) in all other cases, 25 per cent of the gross amounts of the dividends. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. Based on the above, the Philippines may tax the dividends paid by a Philippine company to a Singaporean company at the preferential tax rate of 15 per cent of the gross amount of the dividends if the latter holds at least 15 per cent of the outstanding shares of the voting stock of the paying company during the part of the paying company's taxable year which precedes the date of payment of the dividend and during the whole of its prior taxable year, if any, and 25% of the gross amount of the dividends in all other cases. Considering that Nera Singapore holds 99.93% of the capital stock of Nera Phils during the part of its taxable year preceding the date of payment of dividends and during the whole of its prior taxable year, the dividends to be paid and remitted by Nera Phils to Nera Singapore are subject to the 15 percent preferential tax rate pursuant to Article 10(2)(a) of the RP-Singapore tax treaty. ( BIR Ruling No . ITAD 119-00 ) HEAcDC 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