Bir Itad Ruling No. Da-065-07

Copyright 1994-2012 CD Technologies Asia, Inc. Taxation 2011 1

May 16, 2007

DA ITAD BIR RULING NO. 065-07

Section 23 (F) in relation to Section42 (A) (3) of the National InternalRevenue Code, as Amended; BIR

Ruling No. DA-ITAD 105-05

Punongbayan & Araullo20th Floor, Tower 1The Enterprise Center6766 Ayala Avenue1200 Makati City

Attention: Atty. Fulvio D. DawilanPartner, Tax Advisory and Compliance

Gentlemen :

This refers to your letter dated July 11, 2006 requesting confirmation thatthe marketing fees paid by KMP Engineering, Inc. (KMP) to T-Net Japan Co.,Ltd. (T-Net) are exempt from Philippine income tax and from value-added tax(VAT) pursuant to the pertinent sections of the National Internal Revenue Code of1997 (Tax Code of 1997) and the Philippines-Japan tax treaty. tax2007

It is represented that T-Net is a nonresident foreign corporation taxableunder the laws of Japan with business address at 930-10, Nariai-Cho,Takamatsu-Shi, Kagawa-Ken, 761-8081 Japan and Tax Reference Number00230286, as certified by the District Director of Takamatsu Tax Office in Japanon April 6, 2006; that T-Net is not registered either as a corporation or as apartnership in the Philippines as confirmed by the Certificate of CorporateFiling/Information issued by the Securities and Exchange Commission CebuExtension Office on June 28, 2006; that KMP, on the other hand, is a domesticcorporation with principal office at Salvage Road, Looc, Lapu-Lapu City, Cebu;that KMP is engaged in the manufacture of pre-fabricated steel structure.

It is further represented that on April 1, 2006, KMP entered into aMarketing Agreement (Agreement) with T-Net; that under the said Agreement,


T-Net shall provide the following services to KMP:

1. Promotion or marketing of the products of KMP in Japan and otherneighboring countries;

2. Assistance to KMP in developing marketing strategies and specificmarketing activities outside the Philippines;

3. Representation of KMP in various marketing activities outside thePhilippines; and

4. Undertaking of such other incidental marketing activities as may berequested by KMP to promote the latter's product in other countries.

That the foregoing services shall in no case involve the transfer of T-Net'stechnology, know-how or other intellectual property rights; that the employees andpersonnel of T-Net shall exclusively perform the services for KMP in Japan or inother countries outside the Philippines; that as compensation for the serviceperformed by T-Net, KMP shall pay Japanese Yen: Seven Hundred FiftyThousand (JPN750,000.00) per month to T-Net; and that the issue or transactionsubject of the above application is not under investigation, on-going audit,administrative protest, claim for refund or issuance of a tax credit certificate,collection proceedings, or a judicial appeal.

In reply, please be informed that Section 23 (F) of the Tax Code of 1997, asamended, provides:

"Section 23. General Principles of Income Taxation in the Philippines. —Except when otherwise provided in this Code:

xxx xxx xxx

(F) A foreign corporation, whether engaged or not in trade or businessin the Philippines, is taxable only on income derived from sourceswithin the Philippines.

xxx xxx xxx"

According to Section 23 (F), a foreign corporation like T-Net is taxableonly on income derived from sources within the Philippines. In the case of incomefrom the provision of services, such income is considered derived from sourceswithin the Philippines if the services are performed in the Philippines, as stated inSection 42 (A) (3) of the Tax Code of 1997, as amended, below:

"Section 42. Income from Sources Within the Philippines. —

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A. Gross Income From Sources Within the Philippines. — Thefollowing items of gross income shall be treated as gross incomefrom sources within the Philippines:

xxx xxx xxx

(3) Services. — Compensation for labor or personalservices performed in the Philippines;

xxx xxx xxx"

Such being the case and since the subject services will be carried outentirely in Japan and other countries, the marketing fees to be paid by KMP toT-Net, being income not derived from sources within the Philippines by a foreigncorporation, are exempt from Philippine income tax. (BIR Ruling No. DA-ITAD105-05 dated August 24, 2005)

Lastly, since it is represented that the said services will be rendered in Japanand other countries, the marketing fees to be paid by KMP to T-Net will not besubject to VAT pursuant to Sec. 4.108-2 of the Revenue Regulations (RR) No.16-2005, 1(1) as amended which states that:

"Sec. 4.108-2. Meaning of 'Sale or Exchange of Services'. The term'sale or exchange of services' means the performance of all kind ofservices in the Philippines for others for a fee, remuneration orconsideration, whether in kind or in cash, including those performed orrendered by the following; . . ." cSIADH

This ruling is issued on the basis of the facts as represented. However, ifupon investigation it shall be disclosed that the actual facts are different, then thisruling shall be without force and effect insofar as the herein parties are concerned.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDANAssistant Commissioner

Legal Service


Footnotes

1. Consolidated Value-Added Tax Regulations of 2005.

May 16, 2007


Art. 12, Philippines-Malaysia TaxTreaty; BIR Ruling No.

DA-ITAD-28-04

Punongbayan & Araullo20th Flr., Tower 1 The Enterprise Center6766 Ayala Avenue, 1200 Makati City

Attention: Maria Victoria C. EspañoTax Partner

Gentlemen :

This refers to your letter dated October 4, 2006, requesting confirmation ofyour opinion that the license fees paid by ISC Consolsys Corporation(Consolsys-Philippines) to Consolsys Sdn Bhd (Consolsys-Malaysia) are subjectto the 25% preferential tax rate provided under the Philippines-Malaysia tax treaty.

It is represented that Consolsys-Malaysia is a nonresident foreigncorporation and a resident of Malaysia under tax number C 1876318-09 as shownin the Certificate of Status of Tax Residence For the Year of Assessment 2005dated June 12, 2006 issued by the International Tax Department, Policy Divisionof the Inland Revenue Board, Malaysia; that its principal office is located at the9th Floor, Menara Getah Asli, 148, Jalan Ampang, 50450 Kuala Lumpur,Malaysia; that Consolsys is not registered either as a corporation or as apartnership in the Philippines as confirmed by the Certification ofNon-Registration dated May 31, 2006 issued by the Securities and Exchange


Commission; that Consolsys-Philippines is a domestic company with principaloffice address located at 5th Floor, Century Tower Bldg., Tordesillas corner H.V.dela Costa Streets, Salcedo Village, Makati City.

It is further represented that on January 1, 2005, Consolsys-Malaysia andConsolsys-Philippines entered into a Terms of Relationship (Agreement) whichoutlines the relationship between the two parties regarding the licensing of theproducts (referred to in the Agreement as CS Products) as listed below:

1. Signature Verification System (SVS)

2. Fingerprint Authentication System (FAS)

3. Controlled Document Inventory System (CDIS)

4. CS-IP Concentrator (CS-IPC)

5. CS-Java IP Concentrator (CS-JIPC)

6. Consolsys Software Distribution System (CSDS)

7. Business Performance Analysis System (BPAS)

8. Tezauri Data Warehousing & Business Intelligence System

9. Cheque Processing Solutions (CPS)

— Outward ChequeClearing System (OCCS)

— Inward ChequeClearing System (ICCS)

10. Open Systems Financial Architecture (OSFA)

11. Conventional Core Banking Systems

12. Islamic Core Banking Systems

13. Consolsys Middleware

14. Other new products as end when release by Consolsys R & DDepartment

That Consolsys-Philippines is authorized to sell, deliver and support Consolsys'CS Products software products in the Philippines; that Consolsys-Malaysia grantsConsolsys-Philippines the right to sublicense CS Products to end-users; thatConsolsys-Philippines is granted a non-exclusive, non-transferable, non-assignable


license to sublicense the software listed as CS Products only toConsolsys-Philippines customers; that Consolsys-Philippines shall not provide theSoftware in any form to third parties other than properly sublicensed customers ofConsolsys-Philippines; that in consideration of Consolsys-Philippines' payment ofthe required annual license and support fee, it will receive the Software Supportconsisting in:

1. The right to permit to use its customers the Software during theperiod covered by the annual licensee fee and the right to distributeto its customers any applicable Software version upgradessubsequently developed by Consolsys-Malaysia for applicablerelease level of Software. Any new release of Software must beseparately licensed and are not included as part of the annual licensefee. CTAIDE

2. The right to have Consolsys-Malaysia correct or replace anyprogramming errors in the Software. Consolsys-Philippines mustnotify Consolsys-Malaysia of the problem and provide reasonablydetailed description of the problem

• Provide CS Products development environment.

• Provide technical support to Consolsys-Philippines technicalstaff.

• Provide marketing and sales support including:

Periodic on-site sales support

RFP response support

Product Literature/Sales Brochures

Arrange and support customer visits

Maintain customer Information List

• Provide CS Products Demonstration Software and Script

• Offer and conduct regularly scheduled technical trainingcourses at discounted rates. Courses are offered at the KualaLumpur Training Center.

• Offer periodic sales training


That the Agreement is effective as of January 2005; that an Addendum Agreementwas also executed providing that the Philippine taxes on all payments relating tothe technology transfer arrangement shall be borne by Consolsys-Malaysia; andthat the issue or transaction subject of above application is not under investigation,on-going audit, administrative protest, claim for refund or issuance of a tax creditcertificate, collection proceedings, or a judicial appeal.

In reply, please be informed that the license fees paid byConsolsys-Philippines to Consolsys-Malaysia for the use of the software productsare royalties for the use or the right to use of a copyright under Article 12,paragraph (4) (a) of the Philippines-Malaysia tax treaty and in RevenueMemorandum Circular No. 77-2003 dated November 18, 2003, to wit:

Philippines-Malaysia tax treaty:

"4.a) The term 'royalties' as used in this Article means payments of anykind received as consideration for:

(i) the use of, or the right to use, any patent, trademark, design or model, plan, secret formula orprocess, any copyright of literary, artistic orscientific work, or for the use of, or the right to use,industrial, commercial, or scientific equipment, orfor information concerning industrial, commercialor scientific experience;

(ii) the use of, or the right to use, cinematograph films,or tapes for radio or television broadcasting."

Revenue Memorandum Circular No. 77-2003:

"Software is generally assimilated as a literary, artistic or scientific workprotected by the copyright laws of various countries including thePhilippines; thus, payments in consideration for the use of, or the right touse, a copyright or a copyrighted article relating to software are generallyroyalties."

Being royalties, the subject license fees are subject to the preferentialincome tax rate under paragraph (2) (b) (ii) of the Philippines-Malaysia tax treaty,to wit:

"Article 12

ROYALTIES

1. Royalties arising in a Contracting State and paid to a resident of


the other Contracting State may be taxed in that other State, if suchresident is the beneficial owner of the royalties. cDCaTS

2. Such royalties may also be taxed in the Contracting State in whichthey arise, and according to the laws of that State. However, if therecipient is the beneficial owner of the royalties:

a) in the case of Malaysia:

(i) the tax so charged shall not exceed 15 percent of the gross amount of the royalties; and

(ii) approved industrial royalties derived fromMalaysia by a resident of the Philippinesshall be exempt from tax.

b) in the case of the Philippines:

the tax so charged shall not exceed:

(i) 15 per cent of the gross amount of theroyalties where the royalties are paid by aregistered enterprise as well as royaltiesdefined in paragraph 4(a)(ii); and

(ii) 25 per cent of the gross amount of theroyalties in all other cases.

xxx xxx xxx"

Based on the aforequoted provisions, such royalties may be taxed in thePhilippines at the rate of 15 percent if paid by a registered enterprise or if suchconsideration is for the use of, or the right to use, cinematograph films, or tapes forradio or television broadcasting; or 25 percent in all other cases.

Since Consolsys-Philippines is not a registered enterprise and since thepayment of the license fees is not for the use of, or the right to use, cinematographfilms, or tapes for radio or television broadcasting, this Office is of the opinion andso holds that said license fees paid by Consolsys-Philippines toConsolsys-Malaysia under the subject Agreement are subject to 25 percent of thegross amount of the royalties pursuant to Article 12, paragraph 2 (b) (ii) of thePhilippines-Malaysia tax treaty. (BIR Ruling No. DA-ITAD 28-04 dated March29, 2004)

Finally, as regards value-added tax (VAT), the royalties for the right tosublicense the Consolsys' CS Products to be paid by Consolsys-Philippines toConsolsys-Malaysia are subject to VAT under Section 108 (A) (1) of the National


Internal Revenue Code of 1997 (Tax Code), as amended, to wit:

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease ofProperties. —

(A) Rate and Base of Tax. — There shall be levied, assessed andcollected, a value-added tax equivalent to ten percent (10%) ofgross receipts derived from the sale or exchange of services,including the use or lease of properties.

. . . The phrase 'sale or exchange of services' shall likewiseinclude:

(1) The lease or the use of or the right or privilege touse any copyright, patent, design or model, plan,secret formula or process, goodwill, trademark,trade brand or other like property or right;

xxx xxx xxx" 1(2)

With regard to the procedures for withholding and paying the VAT,Sections 4 and 6 of Revenue Regulations No. 4-2000, Section 3 of RevenueRegulations No. 8-2002, and Section 7 of Revenue Regulations No. 14-2002,provide that Consolsys-Philippines shall be responsible for the withholding of theVAT on the royalties before remitting them to Consolsys-Malaysia. In remitting tothe Bureau of Internal Revenue the VAT withheld on the royalties,Consolsys-Philippines shall use BIR Form No. 1600 (Monthly Remittance Returnof VAT and Other Percentage Taxes Withheld). If a VAT-registered taxpayer,Consolsys-Philippines may use as documentary substantiation for its claim ofinput VAT the duly filed BIR Form No. 1600 and the proof of paymentaccompanying it. If a non-VAT-registered taxpayer, Consolsys-Philippines mayinclude as part of the cost of the software products licensed to it byConsolsys-Malaysia the VAT consequently shifted or passed on to it and may treatsuch VAT either as an expense or as an asset, whichever is applicable. In addition,Consolsys-Philippines is required to issue in quadruplicate the Certificate of FinalTax Withheld at Source (BIR Form No. 2306), the first three copies forConsolsys-Malaysia and the fourth copy for Consolsys-Philippines as its file copy.

This ruling is issued on the basis of the facts as represented. However, ifupon investigation it shall be disclosed that the actual facts are different, then thisruling shall be without force and effect insofar as the herein parties are concerned.

Very truly yours,



By:


Legal Service

Footnotes

1. Republic Act No. 9337 (An Act Amending Sections 27, 28, 34, 106, 107, 108,109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And288 Of The National Internal Revenue Code Of 1997, As Amended, And ForOther Purposes), which was signed into law on May 24, 2005 and becameeffective on November 1, 2005, amended Section 108 (A) to read as:


(A) Rate and Base of Tax. — There shall be levied, assessed and collected, avalue-added tax equivalent to ten percent (10%) of gross receipts derived from thesale or exchange of services, including the use or lease of properties selling priceor gross value in money of the goods or properties sold, bartered or exchanged,such tax to be paid by the seller or transferor: Provided that the President, uponthe recommendation of the Secretary of Finance, shall, effective January 1, 2006,raise the rate of value-added tax to twelve percent (12%), after any of thefollowing conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product(GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 1/2%).

. . . The phrase 'sale or exchange of services' shall likewise include: (1) The lease or the use of or the right or privilege to use any copyright, patent,

design or model, plan, secret formula or process, goodwill, trademark, trade brandor other like property or right;

xxx xxx xxx" The VAT rate was increased to 12% on February 1, 2006, in accordance

with the Memorandum of the Executive Secretary to the Secretary of Financedated January 31, 2006, as circularized by Revenue Memorandum Circular No.7-2006 (Publishing the Full Text of the Memorandum from Executive SecretaryEduardo R. Ermita dated January 31, 2006 Approving the Recommendation of theSecretary of Finance to Increase the Value Added Tax Rate from Ten Percent toTwelve Percent) dated January 31, 2006.


May 15, 2007


Arts. 5 & 7, Philippines-Singaporetax treaty; BIR Ruling No.

DA-ITAD 231-02

Heinz UFC Philippines, Inc.12F Centerpoint CondominiumGarnet Road Cor. Julia Vargas AvenueOrtigas Center, Pasig City 1600

Attention: Salvador B. VirayTax Manager

Gentlemen :

This refers to your letter dated December 14, 2005, 1(3) applying for a rulingthat the service fees paid by Heinz UFC Philippines, Inc. (Heinz-Philippines) toHeinz Singapore PTE Ltd. (Heinz-Singapore) are exempt from Philippine incometax and from value-added tax (VAT) pursuant to the pertinent provisions of thePhilippines-Singapore tax treaty.

It is represented that Heinz-Singapore is a nonresident foreign corporationtaxable under the laws of Singapore with office address at 501 Orchard Rd., #13-01, Wheelock Place, Singapore 238880 as confirmed by the Certificate issuedby Sabina H B Cheong (Mrs), Assistant Commissioner, Corporate Tax Divisionfor Comptroller of Income Tax of the Authority of Singapore; thatHeinz-Singapore is not registered either as a corporation or as a partnershiplicensed to engage in business in the Philippines as confirmed by the Certificate ofNon-Registration of Corporation/Partnership issued by the Securities andExchange Commission on September 15, 2005; that Heinz-Philippines, on theother hand, is a company organized and existing under the laws of the Philippineswith principal office at 9F Centerpoint Bldg., Garnet Road Cor. Julia Vargas Ave.,Ortigas Center, Pasig City; that its primary purpose is to engage in, operate,conduct and maintain the business of manufacturing, importing, buying, selling,


distributing or otherwise dealing in, at wholesale, food products, such as but notlimited to sauces and condiments which are banana-based, tomato-based orchili-based, infant feeding products (excluding infant milk formula), pet food, tunaproducts, frozen foods, corned beef, convenience meals and food service products,and brewed soy sauce. SCEHaD

It is further represented that in 2002, Heinz Singapore and HeinzPhilippines entered into a Services Agreement with a commencement date onApril 1, 2002 (clause 3) and termination date (clause 6), whereby Heinz-Singaporeshall provide the following services to Heinz-Philippines:

I. Business Advice

• Analysis of market and business opportunities

• Development of budget and review of performance againstbudget targets

• Assistance with business growth through acquisition

• Development of strategic plans to build brand awareness

• Supporting due diligence and commercial assessment ofprospective JVs or acquisitions

• Development and training associated with business continuityplans and crisis management

II. Finance/Legal

• Assistance with budgeting and planning

• Assistance with major capital expenditure

• Business development (e.g. financial analysis, forecasting,assessment)

• Special project (e.g. taxation planning, incorporation,reporting)

• Development and maintenance of reporting IT infrastructure

• Provision of general legal advice, insurance management,contract drafting


III. Treasury

• Monitoring of cash requirements

• Monitoring of regional funding requirements

• Transactional banking and corporate debt services

• Monitoring of working capital and controllable assets

• Accounting, budgeting and forecasting of FX, debt andstructured finance solutions

• FX risk management

• Business process reviews and due diligence processes

IV. Human Resources

• Administration of personnel related issues of affiliates

• Recruiting and staffing

• Administration of salaries and benefits

• Monitoring of WHQ benefits programs

• Administration of expatriate assignments, organizationalstructure, career and leadership development process

• Performance management

V. Marketing

• Assistance with the development, administration andimplementation of marketing plans and strategies

• Coordination of transfer across the region of new products,knowledge, best practice, etc.

• Representation of local entities on the Global CategoryManagement terms

VI. Food Services

• Monitoring of sales to quick service restaurants such as


McDonalds, Tricon and Burger King

• Development of food service marketing and sales strategies

• Support of development of affiliate foodservice plans andprograms

• Coordination of regional quick service restaurants pricing

• Training of regional foodservice sales and marketingpersonnel

• Assistance with acquisitions related to foodservices

VII. Manufacturing

• Identification and justification of key manufacturing projects

• Strategic administration of manufacturing projects

• Development of operation and manufacturing plans

• Establishment of manufacturing strategies

• Administrative assistance with implementation of operationalimprovements

• Assistance with manufacturing issues in respect of duediligence process with potential acquisitions

• Assistance with implementation of safety process andenvironmental monitoring systems

• Provision of training for environment, health and safety(EHS) managers

• Provision of advice on business and regulatory risk related toEHS issues

VIII. IT

• Provision of computer and network infrastructure support andrelated services

• Development of regional guidelines

• Development of local and regional IT initiatives for business


development

IX. Research and Development

• Assistance, review and implementation of quality andcompliance systems and policies

• Assistance with the development and implementation ofproducts/process development or cost reduction projects

• Assistance with handling of quality assurance, quality control,R&D, engineering and external affairs issues (e.g. consumercomplaints)

• Investigation and technical assistance with new businessopportunities

• Technical support and coordination of technical activities

X. Procurement

• Development of Asia Pacific purchasing strategy

• Identification of Asia Pacific partners for sourcing of keycomponents

• Advice/assistance on make/buy decisions

• Negotiation of pricing and terms on supply contracts

• Provision of Asia Pacific commodity hedgingrecommendations

• Recommendations and maintenance on vendor supply base

That the nature of the Services required by Heinz-Philippines may, from time totime, require employees of Heinz-Singapore to be present in the Philippines forshort periods of time; that the said Services Agreement shall continue withoutlimitation as to time unless and until terminated by the parties; that no technicalservices were rendered by Heinz-Singapore for the Philippine operations fromApril 1, 2003 to March 31, 2004 per certification dated November 12, 2005 issuedby Ms. Lana B. Parungao, HR & OD Griuo Head of Heinz-Philippines; and thatthe Services provided will be invoiced to Heinz-Philippines at a fee calculated atCost plus an arm's length mark-up.

In reply, please be informed of that Article 7 of the Philippines-Singapore


tax treaty provides as follows:

"Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxableonly in that State unless the enterprise carries on business in theother Contracting State through a permanent establishment situatedtherein. If the enterprise carries on or has carried on business asaforesaid, the profits of the enterprise may be taxed in the otherState but only so much of them as is attributable to that permanentestablishment.

xxx xxx xxx."

In view of the foregoing, the profits of a Singapore enterprise shall betaxable only in Singapore unless such enterprise carries on business in thePhilippines through a permanent establishment situated therein. If the Singaporeenterprise carries on business as aforesaid, the profits of such enterprise may betaxed in the Philippines but only so much of them as is attributable to thatpermanent establishment. Applying this to the instant case, the service feesreceived by Heinz-Singapore for the services rendered in the Philippines shall betaxable in the Philippines only if it has a permanent establishment in thePhilippines to which said fees may be attributed.

In relation thereto, Article 5 of the Philippines-Singapore tax treatyprovides:

"Article 5

PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term "permanentestablishment" means a fixed place of business in which thebusiness of the enterprise is wholly or partly carried on.

2. The term "permanent establishment" includes specially but is notlimited to:

a) A seat of management;

b) A branch;

c) An office;

d) A store or other sales outlet;


e) A factory;

f) A workshop;

g) A warehouse, in relation to a person providingstorage facilities for others;

h) A mine, quarry, or other place of extraction ofnatural resources;

i) A building site or construction or assembly projector installation project or supervisory activities inconnection therewith, provided such site, project oractivity continues for a period more than 183 days;and

j) The furnishing of services, including consultancyservices, by a resident of one of the ContractingStates through employees or other personnel,provided activities of that nature continue (for thesame or a connected project) within the otherContracting State for a period or periodsaggregating more than 183 days.

xxx xxx xxx."

Inasmuch as it is represented that the Services Agreement shall continueuntil terminated by either party, the whole of such Agreement, including itscontinuance, upon its automatic renewal, shall be regarded as being the "same orconnected project" for the purpose of counting the aggregate period of 183 days.In other words, the 183 day period shall be counted based on the total number ofdays the services are rendered in the Philippines upon effectivity of the subjectServices Agreement on its commencement date, April 1, 2002, including allperiods resulting from its automatic renewal and not only within any 12-monthperiod or a taxable year. Accordingly, for as long as the employees or agents ofHeinz-Singapore do not stay in the Philippines for a period or periods aggregatingmore than 183 days in the course of their rendition of services toHeinz-Philippines for the "same or connected project" starting April 1, 2002 untilterminated, then Heinz-Singapore is deemed not to have a permanentestablishment in the Philippines to which payment of the service fees may beattributed to and therefore, exempt from Philippine income tax. (BIR Ruling No.DA-ITAD 231-02 dated December 27, 2002)

Moreover, while the compensation for services rendered outside thePhilippines is not subject to VAT, the fees paid for that portion of the services of


Heinz-Philippines which are rendered in the Philippines are, however, subject tovalue-added tax (VAT) pursuant to Section 108 2(4) of the Tax Code of 1997, asamended by Republic Act No. 9337. Accordingly, Heinz-Philippines, being theresident withholding agent and payor in control of payment shall be responsiblefor the withholding of the 10% final VAT on such fees before making anypayment to Heinz-Singapore. In remitting the VAT withheld, Heinz-Singaporeshall use the BIR Form No. 1600 (Monthly Remittance Return of Value-AddedTax & Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 andproof of payment thereof shall serve as documentary substantiation for the claimof input tax to be applied against the output tax that may be due fromHeinz-Philippines if it is a VAT-registered taxpayer. In case Heinz-Philippines is anon-VAT registered taxpayer, the passed-on VAT withheld shall form part of thecost of the service purchased or treated as an "expense" or as an "asset", whicheveris applicable. In addition, Heinz-Philippines is required to issue in quadruplicatethe relevant Certificate of Creditable Tax Withheld at Source (BIR Form No.2307) in quadruplicate, the first three copies for Heinz-Singapore and the fourthcopy for Heinz-Philippines as its file copy. (Sections 4 & 6, Revenue Regulations(RR) No. 4-2002; Section 3 of RR 8-2002; Section 7 of RR 14-2002)

This ruling shall apply to payments for services for the period starting April1, 2002 onwards and is issued on the basis of the facts as represented. However, ifupon investigation it shall be disclosed that the facts are different, then this rulingshall be without force and effect insofar as the herein parties are concerned.

Very truly yours,


By:


Legal Service

Footnotes

1. Received by this Office on January 2, 2006. 2. Effective February 1, 2006, the rate is 12% pursuant to Revenue Memorandum

Circular No. 7-2006 — [Publishing the full text of the memorandum issued byExecutive Secretary Eduardo R. Ermita informing the Secretary of Finance thathis recommendation to increase the Value-Added Tax rate from 10% to 12%effective February 1, 2006 has been approved by the President].


December 20, 2006


Article 10, Philippines-Japan tax treaty;BIR Ruling No. DA-ITAD-122-04

Ideal World CorporationTres Cruses Rd.Bgy. de OcampoTrece Martires CityCavite

Attention: Mr. Mario M. GuyChief Finance Officer

Gentlemen :

This refers to your application for tax treaty relief dated September 30,2005, requesting confirmation that the dividend payments of Ideal WorldCorporation (IWC) to Happy World Incorporated (HWI) are subject to the 10%preferential withholding tax rate pursuant to Article 10 of the Philippines-Japantax treaty.

It is represented that HWI is a nonresident foreign corporation organizedand existing under the laws of Japan with Business Registration No.0110-01-018814 and with office address at Jingumae Happy Bldg., 6-19-14Jingumae Shibuya-ku, Tokyo, Japan; that it is not registered either as a corporationor as a partnership licensed to do business in the Philippines per Certificationdated September 14, 2005 issued by the Securities and Exchange Commission;that IWC is a domestic corporation organized and existing under the laws of thePhilippines, with office address at Tres Cruses Rd., Bgy. de Ocampo, TreceMartires City, Cavite, Philippines.


It is further represented that as of March 16, 2005 to September 16, 2005,HWI owned Twenty One Thousand Eight Hundred (21,800) shares amounting toTwo Million One Hundred Eighty Thousand Pesos (PhP2,180,000.00),representing 36.3% of the total shares in IWC; that on July 30, 2005, the Board ofDirectors of IWC resolved and approved the declaration of cash dividends of FivePesos (PhP5.00) per share amounting to Three Hundred Thousand Pesos(PhP300,000.00) from the corporation's unrestricted retained earnings, payable tostockholders of record as of June 30, 2005, distributable on September 16, 2005.SAaTHc

In reply, please be informed that Article 10 of the Philippines-Japan taxtreaty provides as follows:

"Article 10

(1) Dividends paid by a company which is a resident of aContracting State to a resident of the other Contracting State may be taxedin that other Contracting State.

(2) However, such dividends may also be taxed in theContracting State of which the company paying the dividends is a resident,and according to the laws of that Contracting State, but if the recipient isthe beneficial owner of the dividends the tax so charged shall not exceed:

(a) 10 per cent of the gross amount of thedividends if the beneficial owner is a company which holdsdirectly at least 25 per cent either of the voting shares of thecompany paying the dividends or of the total shares issuedby that company during the period of six monthsimmediately preceding the date of payment of thedividends;

(b) 25 per cent of the gross amount of thedividends in all other cases.

xxx xxx xxx

(4) The term 'dividends' as used in this Article means incomefrom shares or other rights, not being debt-claims, participating in profits,as well as income from other corporate rights assimilated to income fromshares by the taxation laws of the Contracting State of which the companymaking the distribution is a resident.

xxx xxx xxx"

Based on the aforequoted provisions, the Philippines may tax the dividends


paid by a Philippine company to a company which is a resident of Japan at a ratenot exceeding 10% of the gross amount of dividends if the latter holds at least25% either of the voting shares or of the total shares of the issuing companyduring the period of six (6) months immediately preceding the date of payment ofthe dividends. In all other cases, the 25% preferential tax rate on gross dividendsshall apply.

Considering that as of March 16, 2005 and up to September 16, 2005. HWIheld 36.3% of the outstanding capital stock of IWC, as shown in the Certificationissued by the Corporate Secretary of IWC dated June 2, 2006, the dividends paidto HWI by IWC are subject to the 10% preferential tax rate, pursuant to Article10(2)(a) of the Philippines-Japan tax treaty. (BIR Ruling No. DA-ITAD-122-04dated November 3, 2004)

This ruling is issued based on the facts as represented. However, if uponinvestigation it shall be disclosed that the actual facts are different, then this rulingshall be without force and effect insofar as the herein parties are concerned. DTCAES

Very truly yours,


By:


Legal Service


Endnotes

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1. Consolidated Value-Added Tax Regulations of 2005.

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1. Republic Act No. 9337 (An Act Amending Sections 27, 28, 34, 106, 107, 108,109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 151, 236, 237 And288 Of The National Internal Revenue Code Of 1997, As Amended, And ForOther Purposes), which was signed into law on May 24, 2005 and becameeffective on November 1, 2005, amended Section 108 (A) to read as:


(A) Rate and Base of Tax. — There shall be levied, assessed and collected, avalue-added tax equivalent to ten percent (10%) of gross receipts derived from thesale or exchange of services, including the use or lease of properties selling priceor gross value in money of the goods or properties sold, bartered or exchanged,such tax to be paid by the seller or transferor: Provided that the President, uponthe recommendation of the Secretary of Finance, shall, effective January 1, 2006,raise the rate of value-added tax to twelve percent (12%), after any of thefollowing conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP)of the previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National government deficit as a percentage of GDP of the previous yearexceeds one and one-half percent (1 1/2%).

. . . The phrase 'sale or exchange of services' shall likewise include: (1) The lease or the use of or the right or privilege to use any copyright, patent,

design or model, plan, secret formula or process, goodwill, trademark, trade brandor other like property or right;

xxx xxx xxx" The VAT rate was increased to 12% on February 1, 2006, in accordance

with the Memorandum of the Executive Secretary to the Secretary of Financedated January 31, 2006, as circularized by Revenue Memorandum Circular No.7-2006 (Publishing the Full Text of the Memorandum from Executive SecretaryEduardo R. Ermita dated January 31, 2006 Approving the Recommendation of theSecretary of Finance to Increase the Value Added Tax Rate from Ten Percent toTwelve Percent) dated January 31, 2006.

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1. Received by this Office on January 2, 2006.


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2. Effective February 1, 2006, the rate is 12% pursuant to Revenue MemorandumCircular No. 7-2006 — [Publishing the full text of the memorandum issued byExecutive Secretary Eduardo R. Ermita informing the Secretary of Finance thathis recommendation to increase the Value-Added Tax rate from 10% to 12%effective February 1, 2006 has been approved by the President].

Documents

Bir Itad Ruling No. Da-065-07