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Gentlemen :
This refers to your letter dated February 14, 2002 requesting confirmation
of your opinion that the royalty payments by your client, Energizer Philippines,
Inc. (Energizer), to Eveready Battery Company, Inc. (Eveready) are subject to the
preferential tax rate of fifteen percent (15%) pursuant to the "most favored nation"
clause of the RP-US tax treaty in relation to the RP-Netherlands tax treaty.
In reply, please be informed that Article 13 of the RP-US tax treaty reads as
follows:
"Article 13
"ROYALTIES
"(2) However, the tax imposed by that other Contracting State shall
not exceed —
(a) ...
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"xxx xxx xxx"
"Article 12
ROYALTIES
"2. However, such royalties may also be taxed in the State in which
they arise, and according to the laws of that State, but if the recipient is the
beneficial owner of the royalties the tax so charged shall not exceed.
In the case of Commissioner of Internal Revenue vs. S.C. Johnson and Son,
Inc., and Court of Appeals, G.R. No. 127105 promulgated on June 25, 1999, the
Supreme Court interpreted the "most-favored-nation" clause, particularly the
phrase "paid under similar circumstances," as referring to the manner of payment
or taxes and not to the subject matter of the tax which is royalties. Hence, the
"most-favored-nation" clause of the RP-US tax treaty must be interpreted not only
Copyright 2014 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2014 3
in relation to Article 12 of the RP-Netherlands tax treaty but also in connection
with the provisions on the elimination of double taxation of both.
Such being the case, and since Energizer is not registered and engaged in
preferred areas of activities in the Philippines, this Office is of the opinion and so
holds that the royalty payments by Energizer to Eveready are subject to the
preferential tax rate of 15% of the gross amount of royalties pursuant to the
"most-favored-nation" provision of the RP-US tax treaty in relation to the
RP-Netherlands tax treaty. (BIR Ruling No. ITAD-54-00 dated March 7, 2000)
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Commissioner of Internal Revenue
By:
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