Bir Ruling

November 24, 2004
BUREAU OF INTERNAL REVENUE

BIR National Office Building
Diliman, Quezon City
Attention: International Tax Administration Division
Gentlemen:
Re: FMC Marine Colloids Phils., Inc.

- Confirmation of applicability of
preferential tax rate on interest
payments
in favor of FMC Finance BV of
The Netherlands
On behalf of our client, FMC Marine Colloids, Inc.,

we respectfully request for confirmation of our position that
its interest payments to FMC Finance BV for the loan
granted by the latter is subject to withholding tax at the
preferential rate of 10% pursuant to Article 11 of the RP-
Netherlands Tax Treaty.
FMC Finance BV is a corporation organized and

existing as financial institution under the laws of The
Netherlands with principal place of business at
Strawinskylaan 3105, 1077 ZX Amsterdam, The
Netherlands. FMC Finance BV does not have a permanent
establishment in the Philippines and in fact, it is not
registered either as a corporation or as a partnership and
has not been licensed to do business in the Philippines.
2
FMC Marine Colloids Phils., Inc, on the other hand, is

a corporation organized and existing under the laws of the
Republic of the Philippines with principal place of business
at Looc, Mandaue City. It is primarily engaged in the
business of manufacturing and selling of carrageenan .
Both corporations are wholly owned by FMC

Corporation, a corporation organized and existing under the
laws of the United States of America.
In November 2004, FMC Finance BV and FMC Marine

Colloids Phils., Inc. entered into an Intercompany Credit
Agreement whereby the latter is granted by the former a
credit line which it may avail of from time to time in the
aggregate amount of USD 5,000,000.00 (Five Million
Dollars) with a repayment date on October 1, 2007. FMC
Marine Colloids Phils., Inc., is required to pay interest at the
rate of 6-month LIBOR plus 50 basic points (.50%) at the
time of each borrowing, every 1st of April and 1st of October
of each year that the agreement is in force. Initially, USD
4,000,000.00 has been released to FMC Marine Colloids
Phils., Inc. by FMC Finance BV.
Considering the foregoing circumstances, it is our

considered opinion that the interest payments received by
the beneficial owner, FMC Finance BV, a financial institution
which is a resident of The Netherlands and does not have a
permanent establishment in the Philippines, shall be taxed
at a preferential rate not exceeding ten percent (10%) of the
gross amount of interest pursuant to Article 11 of the RP-
Netherlands Tax Treaty, which we herein quote as follows:
“ARTICLE 11
INTEREST
3
1. Interest arising in one of the States and

paid to a resident of the other 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.
x x x
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 other income assimilated to
4
income from money lent by the taxation law of

the State in which the income arises. Penalty
charges for late payment shall not be regarded as
interest for the purpose of this Article.
x x x.” (Emphasis ours)
Our position is consistent with your opinion in ITAD

Ruling No. 168-02 dated September 30, 2002, which we
herein quote in part, to wit:
“Based on the foregoing, the interest

income received by the beneficial owner of
the interest who is a resident of the
Netherlands and does not have a permanent
establishment in the Philippines will be
taxed at a preferential rate not exceeding
ten percent (10%) of the gross amount of
interest if, among others, the loan (of
whatever kind) was granted by a bank or any
other financial institution.
Such being the case, the interest

income to be remitted by APO to CEMEX, a
registered financial institution, relative to
the aforementioned Loan Agreement shall
be subject to the preferential tax rate of ten
percent (10%) of the gross amount of the
interest, pursuant to Article 11(2)(a)(ii) of
the RP-Netherlands tax treaty. (BIR ITAD-25-
02 dated March 26, 2002).”
In compliance with Revenue Memorandum No. 1-00,

we enclose the pertinent documents, to wit:
5
1. A certified copy of the Articles of Incorporation of

FMC Finance BV;
2. Original copy of the certification issued by the
Securities and Exchange Commission that FMC
Finance BV is not registered to engage business in
the Philippines.
3. Original copy of the Director’s Certificate of FMC
Finance BV authorizing FMC Marine Colloids Phils.,
Inc. to file application for relief from double
taxation.
4. Secretary Certificate issued by the Corporate
Secretary of FMC Marine Colloids Phils., Inc. on its
ownership structure.
5. Secretary Certificate executed by the Corporate
Secretary of FMC Marine Colloids Phils., Inc.
attesting to the fact that the corporation is not
registered with the BOI.
6. Certified Copy of the Intercompany Credit
Agreement.
7. Certified Copy of the proof of inward remittance of
foreign loan.
We trust that you will find the foregoing documents to

be in order and look forward to your giving immediate
attention and favorable consideration of our request.
Very truly yours,
REGINO B. TAMBAGO, JR.

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November 24, 2004

BUREAU OF INTERNAL REVENUE

Attention: International Tax Administration Division

Re: FMC Marine Colloids Phils., Inc.

On behalf of our client, FMC Marine Colloids, Inc.,

FMC Finance BV is a corporation organized and

FMC Marine Colloids Phils., Inc, on the other hand, is

Both corporations are wholly owned by FMC

In November 2004, FMC Finance BV and FMC Marine

Considering the foregoing circumstances, it is our

1. Interest arising in one of the States and

2. However, such interest may also be

a) 10 per cent of the gross amount if

(i) in connection with the sale on credit of

(ii) on any loan of whatever kind

(iii) in respect of public issues of bonds,

b) 15 per cent of the gross amount of the

5. The term "interest" as used in this

income from money lent by the taxation law of

x x x.” (Emphasis ours)

Our position is consistent with your opinion in ITAD

“Based on the foregoing, the interest

Such being the case, the interest

In compliance with Revenue Memorandum No. 1-00,

1. A certified copy of the Articles of Incorporation of

We trust that you will find the foregoing documents to

Very truly yours,

REGINO B. TAMBAGO, JR.

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