Premium on health card paid by the employer under group insurance are part of non-taxable benefits subject to Php 90,000 cap

Revenue Memorandum Circular No. 50-2018

Q7: What is the treatment for the Premium on Health Card paid by the employer for the "rank and file" employees, as well as for those employees holding  "managerial or supervisory" function?

A7: Premium on Health Card paid by the employer, whether rank and file or managerial/supervisor, under a group insurance shall be included as part of other benefits of these employees which are subject to the P90,000 threshold. However, individual premiums (not part of group insurance) paid for selected employees holding managerial or supervisory functions are considered "fringe benefits" subject to fringe benefit tax.

Philippines- Malaysia Tax Treaty - Tax on Business Profits and Personal Services

November 3, 2004

ITAD RULING NO. 121-04

Articles 5 (Permanent Establishment), 7 (Business Profits) & 14 (Personal Services), Philippines-Malaysia tax treaty BIR Ruling No. DA-ITAD-152-02

Joaquin Cunanan & Co.

29th Floor, Philamlife Tower

8767 Paseo de Roxas Avenue

Makati City

Attention: Mr. Alexander B. Cabrera

Partner, Tax Services

Gentlemen :

This refers to your request for ruling dated July 7, 2004, on behalf of your client, Visionex Management SDN BHD (Visionex), regarding the fees to be paid by Robinsons Savings Bank (Robinsons Bank) for the former's supply of software and services to the latter under a Treasury System Agreement entered into between them, pursuant to the pertinent provisions of the Philippines-Malaysia tax treaty. In your follow-up letter dated August 2, 2004, however, you requested that a separate ruling on the above supply of services, be given due course, and that the portion for the supply of software be set aside, to be resolved later.  

It is represented that Visionex is a nonresident foreign company organized and existing under the laws of Malaysia with principal office at Lot 5.01 5/F, Menara 1, Faber Towers, Jalan Desa Bahagia Taman Desa, 58100 Kuala Lumpur, Malaysia as confirmed by the Certification of Incorporation of Private Company issued by the Registry of Companies of Malaysia on December 6, 1999; that Visionex is not registered either as a corporation or as a partnership licensed to engage in business in the Philippines as confirmed by the Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on June 7, 2004; that one of its objectives is to carry on all or any of the business of Multimedia, Internet and Electronic commerce providers and facilitators, including but not limited to Internet Service Provider, Network and Hosting services, electronic commerce and information technology activities, venture capital, research and development, consultancy and other related activities, including the provision of goods and services, education, information, website design and consultancy, supply chain management, media and entertainment, trading, financial and business services, software, hardware and computer related activities and including sales and marketing via electronic payment systems; that Robinsons Bank, on the other hand, is a domestic company organized and existing under the laws of the Philippines with principal office at L3 Expansion Mall, Robinsons Galleria, EDSA cor. Ortigas, Pasig City, Philippines; that, on March 30, 2004, Visionex and Robinsons Bank entered into a Treasury System Agreement wherein Visionex agreed, among others, to: (1) provide training in accordance with the training plan; (2) provide maintenance for the system after the acceptance date; (3) give sufficient notice and provide enhancements to licensed modules of the Visionex product; that the foregoing services, were performed in the Philippines and for an aggregate period not exceeding 183 days; and that, in consideration thereof, Robinsons Bank shall pay Visionex fees for the above services, in US dollars according to the payment schedule set out under the Agreement.  

In reply, we rule on the supply of services portion of the aforementioned Treasury Systems Agreement as follows:

The portion of the fees to be paid by Robinsons Bank to Visionex designated under the Treasury System Agreement as fees for Implementation Services in consideration for the above-mentioned services are business profits taxable under paragraph 1, Article 7 (Business Profits) in relation to Article 5 (Permanent Establishment), both of the Philippines-Malaysia tax treaty, and quoted as follows:

"Article 7

BUSINESS PROFITS

"1.        The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much thereof as is attributable to that permanent establishment.  

"xxx                    xxx                    xxx"

"Article 5

PERMANENT ESTABLISHMENT

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

"2.        The term "permanent establishment" shall include especially:

a)         a place of management;

b)         a branch;

c)         an office;

d)         a factory;

e)         a workshop;

f)          a mine, an oil or gas well, a quarry or other place of extraction of natural resources including timber or other forest produce;

g)         a farm or plantation;

h)         a building site or construction, installation or assembly project which exists for more than 6 months.

xxx                    xxx                    xxx

"4.        An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if:

a)         it carries on supervisory activities in that other State for more than 6 months in connection with a construction, installation or assembly project which is being undertaken in that other State; or

b)         substantial equipment is in that other State being used or installed by, for or under contract with, the enterprise."

"xxx                    xxx                    xxx"

Applying paragraph 1 of Article 7 above to the instant case, the Philippines is allowed to tax the business profits of an enterprise which is a resident of Malaysia if it has a permanent establishment situated in the Philippines but only so much of such profit that is attributable to that permanent establishment. Hence, service fees to be paid by Robinsons Bank to Visionex may be taxed in the Philippines if such fees are attributable to a permanent establishment which Visionex has in the Philippines. A permanent establishment, as defined in paragraphs 1 and 2 of Article 5 (Permanent Establishment) of the Philippines-Malaysia tax treaty, means "a fixed place of business in which the business of the enterprise is wholly or partly carried on," and includes for example, a place of management, a branch, an office, a factory, a workshop, etc.  

Accordingly, since Visionex does not have a fixed place of business in the Philippines, the Implementation Services fees to be paid to Visionex by Robinsons Bank under the Treasury System Agreement for the above services are therefore exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 81-04 dated August 5, 2004)

Moreover, remuneration of the personnel who will come to the Philippines to personally carry out the above services is generally subject to Philippine income tax, unless the conditions set forth in paragraph 2, Article 14 (Personal Services) of the Philippines-Malaysia tax treaty are all complied with, to wit:

"Article 14

PERSONAL SERVICES

"1.        Subject to the provisions of Articles 15, 17, 18, 19 and 20, salaries, wages and similar remuneration or income derived by a resident of a Contracting State in respect of professional services or other activities of a similar character, shall be taxable only in that State unless the services or activities are exercised or performed in the other Contracting State. If the employment, services or activities are so exercised or performed, such remuneration or income as is derived therefrom may be taxed in the other State.  

"2.        Notwithstanding the provisions of paragraph 1, remuneration or income derived by a resident of a Contracting State in respect of an employment, services or activities exercised or performed in any calendar year in the other Contracting State shall be taxable only in the first-mentioned State, if:

a)         the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned, and

b)         the services or activities are exercised or performed for or on behalf of a person who is a resident of the first-mentioned State, and

c)         the remuneration or income is not borne by a permanent establishment which the person paying the remuneration has in the other State.

"xxx                    xxx                    xxx"

Paragraph 2 above states that the subject remuneration will be exempt from tax if: (a) the personnel (taken individually) are present in the Philippines for an aggregate period or periods not exceeding 183 days in the calendar year concerned, (b) the services or activities are exercised or performed for or on behalf of an employer who is a resident of Malaysia and (c) the remuneration is not borne by a permanent establishment which the employer has in the Philippines.

Based on the representations made herein, all the three conditions required in paragraph 2 above are satisfied considering that (a) the length of stay in the Philippines of the concerned personnel of Visionex did not exceed 183 days; (b) the services or activities are exercised or performed for or on behalf of Visionex, who is a resident of Malaysia; and (c) the remuneration is not borne directly by a permanent establishment which Visionex has in the Philippines. This being so, the subject remuneration of the concerned personnel are not subject to Philippine income tax.  

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

Tax Treaty - Philippines - Malaysia

April 27, 1982     January 1, 1985

AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES AND THE GOVERNMENT OF MALAYSIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME

The Government of the Republic of the Philippines and the Government of Malaysia,

Desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income,  

Have agreed as follows:

ARTICLE 1

Personal Scope

This Agreement shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2

Taxes Covered

1.            This Agreement shall apply to taxes on income imposed by a Contracting State, irrespective of the manner in which they are levied.

2.            The taxes which are the subject of this Agreement are:

(a)          in Malaysia:

(i)            the income tax and excess profit tax;

(ii)           the supplementary income taxes, that is, tin profits tax, development tax and timber profits tax; and

(iii)          the petroleum income tax;

(hereinafter referred to as "Malaysian tax");

(b)          in the Philippines:

the income taxes, including the corporate development tax and the branch profit remittance tax, imposed under Title II of the National Internal Revenue Code of the Philippines, as amended, and all other taxes on income imposed by the Government of the Republic of the Philippines (hereinafter referred to as "Philippine tax").

3.            The Agreement shall also apply to any identical or substantially similar taxes on income which are imposed after the date of signature of this Agreement in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of important changes which have been made in their respective taxation laws.

ARTICLE 3

General Definitions

1.            In this Agreement, unless the context otherwise requires:

(a)          the term "Malaysia" means the Federation of Malaysia and includes any area adjacent to the territorial waters of Malaysia which in accordance with international law has been or may hereafter be designated under the laws of Malaysia concerning the Continental Shelf as an area within which the rights of Malaysia with respect to the sea bed and sub-soil and their natural resources may be exercised;

(b)          the term "Philippines" means the Republic of the Philippines and when used in a geographical sense means the national territory comprising the Republic of the Philippines;

(c)           the terms "a Contracting State" and "the other Contracting State" mean Malaysia or the Philippines, as the context requires;

(d)          the term "person" includes an individual, an estate, a trust, a company and any other body of persons which is treated as an entity for tax purposes;

(e)          the term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes;

(f)           the terms "enterprise of a Contracting State" and "enterprise of the other Contracting State" mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(g)          the term "tax" means Malaysian tax or Philippine tax, as the context requires;

(h)          the term "national" means:

(i)            any individual possessing the citizenship of a Contracting State;

(ii)           any legal person, partnership, association and any other entity deriving its status as such from the laws in force in a Contracting State;

(i)            the term "international traffic" means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;

(j)           the term "competent authority" means:

(i)            in the case of Malaysia, the Minister of Finance or his authorized representative;

(ii)           in the case of the Philippines, the Minister of Finance or his authorized representative.

2.            In the application of the Agreement by a Contracting State, any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to the taxes which are the subject of the Agreement.

ARTICLE 4

Resident

1.            For the purposes of this Agreement, the term "resident of a Contracting State" means:

(a)          in the case of Malaysia, a person who is resident in Malaysia for the purposes of Malaysian tax; and

(b)          in the case of the Philippines, a person who is resident in the Philippines for the purpose of Philippine tax.

2.            Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:

(a)          he shall be deemed to be a resident of the State in which he has a permanent home available to him. If he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests);

(b)          if the State in which he has his centre of vital interests cannot be determined, or if he has a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode;

(c)           if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national;

(d)          if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

3.            Where, by reason of paragraph 1, a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavor to settle the question having regard to its day-to-day management, the place where it is incorporated or otherwise constituted and any other relevant factors.

ARTICLE 5

Permanent Establishment

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

2.            The term "permanent establishment" shall include especially:

(a)          a place of management;

(b)          a branch;

(c)           an office;

(d)          a factory;

(e)          a workshop;

(f)           a mine, an oil or gas well, a quarry or other place of extraction of natural resources including timber or other forest produce;

(g)          a farm or plantation;

(h)          a building site or construction, installation or assembly project which exists for more than 6 months.

3.            The term "permanent establishment" shall not be deemed to include:

(a)          the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(b)          the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

(c)           the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d)          the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise;

(e)          the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise.

4.            An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if:

(a)          it carries on supervisory activities in that other State for more than 6 months in connection with a construction, installation or assembly project which is being undertaken in that other State; or

(b)          substantial equipment is in that other State being used or installed by, for or under contract with, the enterprise.

5.            A person (other than a broker, general commission agent or any other agent of an independent status to whom paragraph 6 applies) acting in a Contracting State on behalf of an enterprise of the other Contracting State shall be deemed to be a permanent establishment in the first-mentioned State, if:

(a)          he has, and habitually exercises in the first-mentioned State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise;

(b)          he maintains in the first-mentioned State a stock of goods or merchandise belonging to the enterprise from which he regularly delivers goods or merchandise on behalf of the enterprise;

(c)           he manufactures or processes in the first-mentioned State for the enterprise goods or merchandise belonging to the enterprise.

6.            An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. 

However, when the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise, he shall not be considered as agent of an independent status if the transactions between the agent and the enterprise were not made under arm's length conditions.

7.            The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

ARTICLE 6

Income from Immovable Property

1.            Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State.

2.            For the purposes of this Agreement, the term "immovable property" shall be defined in accordance with the laws of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, oil or gas wells, quarries and other places of extracting of natural resources including timber or other forest produce. Ships, boats and aircraft shall not be regarded as immovable property.

3.            The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.

4.            The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of professional services.

ARTICLE 7

Business Profits

1.            The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only on so much thereof as is attributable to that permanent establishment.

2.            Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

3.            In determining the profits of a permanent establishment, there shall be allowed as deductions all expenses including executive and general administrative expenses, which would be deductible if the permanent establishment were an independent enterprise, insofar as they are reasonably allocable to the permanent establishment, whether incurred in the State in which the permanent establishment is situated or elsewhere.

4.            Notwithstanding the provisions of paragraph 3, there shall not be allowed any deduction for payments by that permanent establishment to the head office or any other part of the enterprise, by way of royalties, fees or other similar payments for the use of patents or other rights, by way of commission for specific services performed or for management or (except in the case of a banking enterprise) by way of interest on moneys lent to the permanent establishment, unless such payments reimburse expenses actually incurred by the enterprise.

5.            Notwithstanding the provisions of paragraphs 1 and 2, in determining the profits of a permanent establishment amounts receivable by the permanent establishment from the head office or any other part of the enterprise by way of royalties, fees or other similar payments for the use of patents or other rights, by way of commission for specific services performed or for management or (except in the case of a banking enterprise) by way interest on moneys lent to the head office or any other part of the enterprise shall not be included in the receipts of the permanent establishment, except insofar as they represent reimbursement of expenses which it has actually incurred.

6.            No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

7.            Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

ARTICLE 8

Shipping and Air Transport

1.            The tax payable in a Contracting State by a resident of the other Contracting State in respect of profits from the operation of ships or aircraft in international traffic shall not exceed the lesser of:

(a)          1 1/2 per cent of the gross revenue derived from sources in that State; and

(b)          the lowest rate of Philippine tax that may be imposed on profits of the same kind derived under similar circumstances by a resident of a third State.

2.            Paragraph 1 shall also apply to the share of the profits from the operation of ships or aircraft derived by a resident of a Contracting State through participation in a pool, a joint business or an international operating agency.

ARTICLE 9

Associated Enterprises

Where

(a)          an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

(b)          the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in their case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

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.            Dividends paid by a company which is a resident of the Philippines to a resident of Malaysia who is subject to tax in Malaysia in respect thereof, may be taxed in the Philippines in accordance with the laws of the Philippines 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;

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

3.            Dividends paid by a company which is a resident of Malaysia to a resident of the Philippines who is the beneficial owner thereof and is subject to Philippine tax in respect thereof shall be exempt from any tax in Malaysia which is chargeable on dividends in addition to the tax chargeable in respect of the income of the company: Provided that nothing in this paragraph shall affect the provisions of the Malaysian law under which the tax in respect of a dividend paid by a company which is a resident of Malaysia from which Malaysian tax has been, or has been deemed to be, deducted may be adjusted by reference to the rate of tax appropriate to the Malaysian year of assessment immediately following that in which the dividend was paid.

4.            The provisions of paragraph 1, 2 and 3 shall not apply if the recipient of the dividends, being a resident of a Contracting State, has in the other Contracting State in which the company paying the dividends is a resident, a permanent establishment with which the holding by virtue of which the dividends are paid is effectively connected. In such a case, the provisions of Article 7 shall apply.

5.            Where a company which is a resident of a Contracting State derives income or profits from the other Contracting State, that other State may not impose any tax on the dividends paid by the company to persons who are not residents of the other State, or subject the company's undistributed profits to a tax on undistributed profits, even if the dividends paid the undistributed profits consist wholly or partly of income or profits arising in that other State.

6.            The term "dividends" as used in this Article means income from shares or other rights (not being debt-claims) participating in income or profits, as well as income from other corporate rights assimilated to income from shares according to the taxation laws of the Contracting State of which the company making the distribution is a resident.

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 laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent the gross amount of the interest. 

3.            Notwithstanding the provisions of paragraph 2, interest paid to a resident of the Philippines on an approved loan or a long-term loan shall be exempt from Malaysian tax.

4.            Notwithstanding the provisions of paragraphs 2 and 3, the Government of a Contracting State shall be exempt from tax in the other Contracting State in respect of interest derived by the Government from that other State.

5.            For purposes of paragraph 4, the term "Government":

(a)          in the case of Malaysia means the Government of Malaysia and shall include:

(i)            the governments of the states;

(ii)           the local authorities;

(iii)          the Bank Negara Malaysia;

(iv)         such institutions, the capital of which is wholly owned by the Government of Malaysia or the governments of the states or the local authorities, as may be agreed from time to time between the competent authorities of the Contracting State;

(b)          in the case of the Philippines means the Government of the Republic of the Philippines and shall include:

(i)            the Central Bank of the Philippines;

(ii)           such institutions, the capital of which is wholly owned by the Government of the Republic of the Philippines, as may be agreed upon from time to time between the competent authorities of the Contracting States.

6.            The term "interest" as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent according to the taxation laws of the Contracting State in which the income arises.

7.            The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such a case, the provisions of Article 7 shall apply.

8.            Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or statutory body thereof, or a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid as incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated.

9.            Where, by reason of a special relationship between the payer and the recipient or between both of them and some other person, the amount of the interest paid, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

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 such resident is the beneficial owner of the royalties.

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

(a)          in the case of Malaysia:

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

(ii)           approved industrial royalties derived from Malaysia by a resident of the Philippines shall 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 the royalties where the royalties are paid by a registered enterprise as well as royalties defined in paragraph 4(a)(ii); and

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

3.            Royalties derived by a resident of the Philippines, being royalties that, as film rentals, are subject to the cinematograph film-hire duty in Malaysia, shall not be liable to Malaysian tax.

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

(i)            the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, any copyright of literary, artistic or scientific work, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience;

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

(b)          The term "approved industrial royalties" as used in this Article means royalties included in the definition in subparagraph 4(a)(i) which are approved and certified by the competent author of Malaysia as payable for the purpose of promoting industrial development in Malaysia and which are payable by an enterprise which is wholly or mainly engaged in activities falling within one of the following classes:

(i)            manufacturing, assembling or processing;

(ii)           construction, civil engineering or ship-building; or

(iii)          electricity, hydraulic power, gas or water supply.

(c)           The term "registered enterprise" as used in this Article means an enterprise registered with the Philippine Board of Investments and engaged in preferred areas of activities.

5.            The provisions of paragraphs 1 and 2 shall not apply of the recipient of the royalties, being a resident of a Contracting State, has in the other Contracting State in which the royalties arise a permanent establishment with which the right or property giving rise to the royalties is effectively connected. In such a case, the provisions of Article 7 shall apply.

6.            Royalties shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political subdivision, a local authority or statutory body thereof or a resident of that State. Where, however, the person paying such royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment, then such royalties shall be deemed to arise in the State in which the permanent establishment is situated.

7.            Where, owing to a special relationship between the payer and the recipient or between both of them and some other person, the amount of the royalties paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such a case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

ARTICLE 13

Gains from the Alienation of Property

1.            Gains from the alienation of immovable property, as defined in paragraph 2 of Article 6, may be taxed in the Contracting State in which such property is situated.  LLphil

2.            Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing professional services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base may be taxed in the other State. However, gains from the alienation of ships or aircraft operated by an enterprise of a Contracting State in international traffic and movable property pertaining to the operation of such ships or aircraft shall be taxable only in the State of which the enterprise is a resident.

3.            Gains from the alienation of shares of a company, the property of which consists principally or immovable property situated in a Contracting State, may be taxed in that State. Gains from the alienation of an interest in a partnership or a trust, the property of which consists principally of immovable property situated in a Contracting State, may be taxed in that State.

4.            Gains from the alienation of any property or assets, other than those mentioned in paragraphs 1, 2 and 3 of this Article shall be taxable only in the Contracting State of which the alienator is a resident.

ARTICLE 14

Personal Services

1.            Subject to the provisions of Articles 15, 17, 18, 19 and 20, salaries, wages and similar remuneration or income derived by a resident of a Contracting State in respect of professional services or other activities of a similar character, shall be taxable only in that State unless the services or activities are exercised or performed in the other Contracting State. If the employment, services or activities are so exercised or performed, such remuneration or income as is derived therefrom may be taxed in the other State.

2.            Notwithstanding the provisions of paragraph 1, remuneration or income derived by a resident of a Contracting State in respect of an employment, services or activities exercised or performed in any calendar year in the other Contracting State shall be taxable only in the first-mentioned State, if

(a)          the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned, and

(b)          the services or activities are exercised or performed for or on behalf of a person who is a resident of the first-mentioned State, and

(c)           the remuneration or income is not borne by a permanent establishment which the person paying the remuneration has in the other State.

3.            The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

4.            Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised on board a ship or aircraft operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that State.

ARTICLE 15

Directors' Fees

1.            Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State, may be taxed in that other State.

2.            The remuneration which a person to whom paragraph 1 applies derives from the company in respect of the discharge of day-to-day functions of a managerial or technical nature may be taxed in accordance with the provisions of Article 14.

ARTICLE 16

Artistes and Athletes

1.            Notwithstanding the provisions of Article 14, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

2.            Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Articles 7 and 14 be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised. pred

3.            The provisions of paragraphs 1 and 2 shall not apply to remuneration or profits derived from activities exercised in a Contracting State if the visit to that State is directly or indirectly supported wholly or substantially from the public funds of the other Contracting State, a political subdivision, a local authority or statutory body thereof.

ARTICLE 17

Pensions and Annuities

1.            Subject to the provisions of Article 18, any pension or other remuneration for past employment or any annuity arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in the first-mentioned State.

2.            Pensions or other remuneration for past employment shall be deemed to arise in a Contracting State if the payer is that State itself, a political subdivision or local authority thereof, or a resident of the State. Where, however, the person paying such income, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment, and such income is borne by the permanent establishment, then the income shall be deemed to arise in the State in which the permanent establishment is situated.

3.            The term "annuity" includes a stated sum payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth.

ARTICLE 18

Government Service

1.            (a) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to any individual in respect of services rendered to that State or political subdivision or local authority thereof shall be taxable only in that State.

(b)          However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the recipient is a resident of that State who:

(i)            is a national of that State; or

(ii)           did not become a resident of that State solely for the purpose of performing the services.

2.            Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to any individual in respect of services rendered to that State or political subdivision or local authority thereof may be taxed in the other Contracting State.  liblex

3.            The provisions of Articles 14, 15 and 17 shall apply to remuneration or pensions in respect of services rendered in connection with any trade or business carried on by a Contracting State or a political subdivision or a local authority thereof.

ARTICLE 19

Students and Trainees

1.            An individual who is a resident of a Contracting State immediately before making a visit to the other Contracting State and is temporarily present in the other State solely as a student at a recognized university, college, school or other similar recognized educational institution in that other State or as a business or technical apprentice therein, for a period not exceeding 5 years from the date of his first arrival in that other State in connection with that visit, shall be exempt from tax in that other State on:

(a)          all remittances from abroad for the purposes of his maintenance, education or training; and

(b)          any remuneration not exceeding five thousand Malaysian ringgit or the equivalent in Philippine currency per annum for personal services rendered in that other State with a view to supplementing the resources available to him for such purposes.

2.            An individual who is a resident of a Contracting State immediately before making a visit to the other Contracting State and is temporarily present in the other State for the purposes of study, research or training solely as a recipient of a grant, allowance or award from the Government of either State or from a scientific, educational, religious or charitable organization or under a technical assistance programme entered into by the Government of either State for a period not exceeding 2 years from the date of his first arrival in that other State in connection with that visit shall be exempt from tax in that other State on:

(a)          the amount of such grant, allowance or award;

(b)          all remittances from abroad for the purposes of his maintenance, education or training; and

(c)           any remuneration not exceeding five thousand Malaysian ringgit or the equivalent in Philippine currency per annum in respect of services in that other State provided the services are performed in connection with his study, research or training or are incidental thereto.

3.            An individual who is a resident of a Contracting State immediately before making a visit to the other Contracting State and is temporarily present in the other State solely as an employee of, or under contract with, the Government or an enterprise of the first-mentioned State solely for the purpose of acquiring technical, professional or business experience for a period not exceeding 12 months from the date of his first arrival in that other State in connection with that visit shall be exempt from tax in that other State on:

(a)          all remittances from abroad for the purposes of his maintenance, education or training; and

(b)          any remuneration not exceeding six thousand Malaysian ringgit or the equivalent in Philippine currency per annum for personal services rendered in that other State provided such services are in connection with his studies or training or are incidental thereto.

4.            For the purposes of this Article the term "Government" shall have the same meaning as in paragraph 5 of Article 11.

5.            The amounts referred to in paragraphs 1, 2 and 3 of this Article may be reviewed and agreed upon by the competent authorities of both Contracting States from time to time.

ARTICLE 20

Teachers and Researchers

1.            An individual who is a resident of a Contracting State immediately before making a visit to the other Contracting State, and who, at the invitation of any university, college, school or other similar educational institution, which is recognized by the competent authority in that other State, visits that other State for a period not exceeding two years solely for the purpose of teaching or research or both at such educational institution shall be exempt from tax in that other State on any remuneration for such teaching or research.

2.            This Article shall not apply to income from research if such research is undertaken primarily for the private benefit of a specific person or persons.

ARTICLE 21

Income Not Expressly Mentioned

Items of income of a resident of a Contracting State which are not expressly mentioned in the foregoing Articles of this Agreement may be taxed in the State where the income arises.

ARTICLE 22

Elimination of Double Taxation

1.            Subject to the laws of Malaysia regarding the allowance as a credit against Malaysian tax of tax payable in any country other than Malaysia, Philippine tax payable in respect of income derived from the Philippines shall be allowed as a credit against Malaysian tax payable in respect of that income. Where such income is a dividend paid by a company which is a resident of the Philippines to a company which is a resident of Malaysia and which owns not less than 15 per cent of the voting shares of the company paying the dividend, the credit shall take into account Philippine tax payable by that company in respect of its income out of which the dividend is paid. The credit shall not, however, exceed that part of the Malaysian tax, as computed before the credit is given, which is appropriate to such item of income.

2.            For the purposes of paragraph 1, the term "Philippine tax payable" shall be deemed to include the amount of Philippine tax which would have been paid if the Philippine tax had not been exempted or reduced in accordance with this Agreement and

(a)          the special incentive laws designed to promote economic development in the Philippines so far as they are in force on the date of signature of this Agreement; or

(b)          any other provisions which may subsequently be introduced in the Philippines in modification of, or in addition to, the existing special incentive laws so far as they are agreed by the competent authorities of the Contracting States to be of a substantially similar character.

3.            Subject to the laws of the Philippines regarding the allowance as a credit against Philippine tax of tax payable in any country other than the Philippines, Malaysian tax payable in respect of income derived from Malaysia shall be allowed as a credit against the Philippine tax payable in respect of that income. Where such income is a dividend paid by a company which is a resident of Malaysia to a company which is a resident of the Philippines and which owns not less than 15 per cent of the voting shares of the company paying the dividend, the credit shall take into account Malaysian tax payable by that company in respect of its income out of which the dividend is paid. The credit shall not, however, exceed that part of the Philippine tax, as computed before the credit is given, which is appropriate to such item of income.

4.            For the purposes of paragraph 3, the term "Malaysian tax payable" shall be deemed to include Malaysian tax which would, under the laws of Malaysia and in accordance with this Agreement, have been payable on:

(a)          any income derived from sources in Malaysia had the income not been taxed at a reduced rate or exempted from Malaysian tax in accordance with:

(i)            sections 54A and 60A and Schedule 7A of the Income Tax Act, 1967 of Malaysia; or

(ii)           sections 21, 22, 26, and 30Q of the Investment Incentives Act, 1968 of Malaysia;  

so far as they were in force on the date of signature of this Agreement; and

(iii)          any other provisions which may subsequently be introduced in Malaysia in modification of, or in addition to, the investment incentives laws so far as they are agreed by the competent authorities of the Contracting States to be of a substantially similar character;

(b)          interest to which paragraph 3 of Article 11 applies had that interest not been exempted from Malaysian tax in accordance with that paragraph; and

(c)           approved industrial royalties to which paragraph 2(a)(ii) of Article 12 applies had those royalties not been exempted from Malaysian tax in accordance with that paragraph.

5.            For the purposes of paragraph 3, where royalties derived by a resident of the Philippines are, as film rentals, subject to cinematograph film-hire duty in Malaysia, that duty shall be deemed to be Malaysian tax.

ARTICLE 23

Non-Discrimination

1.            The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.

2.            The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favorably levied in that State than the taxation levied on enterprises of that other State carrying on the same activities.

3.            Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first-mentioned State are or may be subjected.

4.            Nothing in this Article shall be construed as obliging:

(a)          Contracting State to grant to individuals who are resident of the other Contracting State any personal allowances, reliefs and reductions for tax purposes on account of civil status or family responsibilities which it grants to its own residents;

(b)          Malaysia to grant to nationals of the Philippines not resident in Malaysia those personal allowances, reliefs and reductions for tax purposes which are by law available on the date of signature of this Agreement only to nationals of Malaysia who are not resident in Malaysia.

5.            Nothing in this Article shall be construed so as to prevent either Contracting State from limiting to its nationals the enjoyment of tax incentives designed to promote economic development in that State.

6.            Nothing in this Agreement shall be construed as preventing the Philippines from taxing its citizens who are residents of Malaysia, in accordance with it domestic legislation. No credit shall be given by Malaysia for such taxes paid. 

7.            In this Article, the term "taxation" means taxes which are the subject of this Agreement.

ARTICLE 24

Mutual Agreement Procedure

1.            Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with this Agreement, he may, notwithstanding the remedies provided by the taxation laws of those States, present his case to the competent authority of the State of which he is a resident or, if his case comes under paragraph 1 of Article 23, to that of the State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Agreement.

2.            The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Agreement.

3.            The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement. They may also consult together for the elimination of double taxation in cases not provided for in the Agreement.

4.            The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. 

ARTICLE 25

Exchange of Information

1.            The competent authorities of the Contracting States shall exchange such information as is necessary for the carrying out of this Agreement or for the prevention or detection of evasion or avoidance of taxes covered by this Agreement. Any information so exchanged shall be treated as secret and shall not be disclosed to any persons or authorities other than those (including a Court or reviewing authority) concerned with the assessment, collection or enforcement of the taxes which are the subject of the Agreement or the determination of appeals in relation thereto.

2.            In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:

(a)          to carry out administrative measures at variance with the laws or the administrative practice of that or of the other State;

(b)          to supply particulars which are not obtainable under the laws or in the normal course of the administration of that or of the other State;

(c)           to supply information which would disclose any trade, business, industrial, commercial or professional secret, trade process, or information the disclosure of which would be contrary to public policy.

ARTICLE 26

Diplomatic and Consular Officers

Nothing in this Agreement shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements.

ARTICLE 27

Entry Into Force

1.            This Agreement shall be ratified and the instruments of ratification shall be exchanged at Kuala Lumpur as soon as possible.

2.            This Agreement shall enter into force upon the exchange of the instruments of ratification and shall have effect: 

(a)          in respect of tax withheld or deducted at source on income paid to non-residents on or after the 1st day of January in the calendar year following that in which the exchange of instruments of ratification takes place; and

(b)          in all other cases, in respect of tax for the taxation year or year of assessment beginning on the 1st day of January of the calendar year immediately following the year in which the exchange of instruments of ratification takes place, and subsequent taxation years or years of assessment.

ARTICLE 28

Termination

This Agreement shall remain in effect indefinitely, but either Contracting State may terminate the Agreement, through diplomatic channels, by giving to the other Contracting State written notice of termination on or before June 30 in any calendar year from the fourth year from the year in which the Agreement entered into force. In such an event the Agreement shall cease to have effect:

(a)          in respect of tax withheld or deducted at source on income paid to non-residents on or after the 1st day of January in the calendar year following that in which the notice is given; and

(b)          in all other cases, in respect of tax for the taxation year or year of assessment beginning on the 1st day of January of the calendar year following that in which the notice is given.

IN WITNESS whereof the undersigned, duly authorized thereto, by their respective Governments, have signed this Agreement.

DONE in duplicate at Manila this 27th day of April 1982 each in Bahasa, Malaysia and to English language, both texts being equally authentic.

                On behalf of the Government of              On behalf of the Government

                the Republic of the Philippines: of Malaysia:

                ___________________________        ___________________________

                CESAR E. A. VIRATA         TENGKU RAZALEIGH HAMZAH

 PROTOCOL

1.            At the time of signing the Agreement between the Government of the Republic of the Philippines and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, both Governments have agreed that the following provisions shall form an integral part of the Agreement:

2.            In connection with Article 7 "Business Profits":

Nothing in this Agreement shall affect the operation of any law of a Contracting State relating to the taxation income or profits from any insurance business provided that if the relevant law in force in either Contracting State at the date of signature of this Agreement is amended (otherwise than in minor respects so as not to affect its general character) the States shall consult with each other with a view to agreeing to any amendment of this paragraph that may be appropriate.

3.            In connection with Article 10 "Dividends":

A.            The Philippine tax on remittances of profits of a branch to its head office shall not exceed 15 per cent of the amount remitted.

B.            Article VII of the Agreement between the Government of Malaysia and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income signed in Singapore on 26th December, 1968, shall be taken into consideration.

4.            In connection with Article 11 "Interest": The term "approved loan" means any loan or other indebtedness approved by the competent authority of Malaysia as being made or incurred for the purpose of financing development projects or for the purchase of capital equipment for development projects in Malaysia. The term "long-term loan" means any loan made or funds deposited as defined in Section 2 of the Income Tax Act, 1967 of Malaysia.

IN WITNESS whereof the undersigned, duly authorized thereto, by their respective Governments, have signed this Protocol.

DONE in duplicate at Manila this 27th day of April, 1982 each in Bahasa, Malaysia and the English language, both texts being equally authentic.

               

 On behalf of the Government of              On behalf of the Government

                the Republic of the Philippines: of Malaysia:

                _________________________             ______________________________

                CESAR E. A. VIRATA         TENGKU RAZALEIGH HAMZAH

Tax Treaty - Philippines - Australia

May 11, 1979            January 1, 1980

AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES AND THE GOVERNMENT OF AUSTRALIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME

The Government of the Republic of the Philippines and the Government of Australia, 

Desiring to conclude an Agreement for the avoidance of double taxation and the prevention of Fiscal evasion with respect to taxes on income.   

Have agreed as follows: 

CHAPTER I

Scope of the Agreement

ARTICLE 1

Personal Scope

(1)       This Agreement shall apply to persons who are residents of one or both of the Contracting States. 

(2)       However, nothing in this Agreement shall prevent the Philippines from taxing its own citizens, who are not residents of the Philippines, in accordance with Philippine law. 

ARTICLE 2 

Taxes Covered 

(1)       The existing taxes to which this Agreement shall apply are — 

(a)       in the Philippines:

the income taxes imposed by the Government of the Republic of the Philippines. 

(b)       in Australia:

the Australian income tax, including the additional tax upon the undistributed amount of the distributable income of a private company; 

(2)       This Agreement shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of this Agreement in addition to, or in place of, the existing taxes. At the end of each calendar year, the competent authority of each Contracting State shall notify the competent authority of the other Contracting State of any substantial changes which have been made in the laws of his State relating to the taxes to which this Agreement applies. 

CHAPTER II

Definitions

ARTICLE 3

General Definitions

(1)       In this Agreement, unless the context otherwise requires — 

(a)       the term "Philippines" means the Republic of the Philippines and when used in a geographical sense means the national territory comprising the Republic of the Philippines; 

(b)       the term "Australia" means the Commonwealth of Australia and, when used in a geographical sense, includes — 

(i)         the Territory of Norfolk Island; 

(ii)        the Territory of Christmas Island; 

(iii)       the Territory of Cocos (Keeling) Islands; 

(iv)       the Territory of Ashmoro and Cartier Islands; 

(v)        the Coral Sea Islands Territory; and 

(vi)       any area adjacent to the territorial limits of Australia or of the said Territories in respect of which there is for the time being in force a law of Australia or of a State or part of Australia or of a Territory aforesaid dealing with the exploitation of any of the natural resources of the sea-bed and subsoil of the continental shelf; 

(c)        the terms "Contracting State", "one of the Contracting States" and "other Contracting State" mean Australia or the Philippines, as the context requires; 

(d)       the term "person" means an individual, an estate, a trust, a company and any other body of persons; 

(e)       the term "company" means any body corporate or any entity which is treated as a company or a body corporate for tax purposes; 

(f)        the terms "enterprise of one of the Contracting States" and "enterprise of the other Contracting State" mean an enterprise carried on by a resident of the Philippines or an enterprise carried on by a resident of Australia, as the context requires; 

(g)       the term "tax" means Philippine tax or Australian tax, as the context requires; 

(h)       the term "Philippine tax" means tax imposed by the Philippines, being tax to which this Agreement applies by virtue of Article 2; 

(i)         the term "Australian tax" means tax imposed by Australia, being tax to which this Agreement applies by virtue of Article 2; 

(j)         the term "competent authority" means, in the case of Australia, the Commissioner of Taxation or his authorized representative, and, in the case of the Philippines, the Minister of Finance or his authorized representative; 

(k)        the term "international traffic", in relation to the operation of ships or aircraft by a resident of one of the Contracting States, means operations of ships or aircraft other than operations of ships or aircraft confined solely to places in the other Contracting State. 

(2)       In this Agreement, the terms "Philippine tax" and "Australian tax" do not include any penalty or interest imposed under the law of either Contracting State relating to the taxes to which this Agreement applies by virtue of Article 2. 

(3)       For the purposes of this Agreement, the carriage of passengers, livestock, mail, goods or merchandise shipped in one of the Contracting States for discharge at another place in that State shall be treated as operations of ships or aircraft confined solely to places in that State. 

(4)       In the application of this Agreement by a Contracting State, any term not defined in this Agreement shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to the taxes to which this Agreement applies. 

ARTICLE 4

Residence

(1)       For the purposes of this Agreement, a person is a resident of one of the Contracting States — 

(a)       in the case of the Philippines — 

(i)         if the person is a company or an entity which is incorporated, created or organized in the Philippines or under its laws and is treated as a body corporate for purposes of Philippine tax; 

(ii)        if the person, not being a company or an entity treated as a company or body corporate for the purposes of Philippine tax, is a resident of the Philippines for the purposes of Philippine tax;

(b)       in the case of Australia, subject to paragraph (2), if the person is a resident of Australia for the purposes of Australian tax.  

(2)       In relation to income from sources in the Philippines, a person who is subject to Australian tax on income which is from sources in Australia shall not be treated as a resident of Australia unless the income from sources in the Philippines is subject to Australian tax or, if that income is exempt from Australian tax, it is so exempt solely because it is subject to Philippine tax. 

(3)       Where by reason of the preceding provisions of this Article an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules — 

(a)       he shall be deemed to be a resident solely of the Contracting State in which he has a permanent home available to him; 

(b)       if he has a permanent home available to him in both Contracting States, or if he does not have a permanent home available to him in either of them, he shall be deemed to be a resident solely of the Contracting State with which his personal and economic relations are the closer. 

(4)       For the purposes of the last preceding paragraph, an individual's citizenship of a Contracting State shall be a factor in determining the degree of his personal and economic relations with that Contracting State. 

(5)       Where by reason of the provisions of paragraph (1), a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident solely of the Contracting State in which it is incorporated, created or organized. 

ARTICLE 5

Permanent Establishment

1.         For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2.         The term "permanent establishment" shall include especially —

(a)       a place of management;

(b)       a branch;

(c)        an office;

(d)       a factory;

(e)       a workshop;

(f)        a mine, oil gas well, quarry or other place of extraction of natural resources;

(g)       an agricultural, pastoral or forestry property;

(h)       a building site or construction, installation or assembly project, or supervisory activities in connection therewith where such site, project or activity continues for more than six months;

(i)         premises used as a sales outlet;

(j)         a warehouse, in relation to a person providing storage facilities for others;

(k)        a place in one of the Contracting States through which an enterprise of the other Contracting State furnishes services, including consultancy services, for a period or periods aggregating more than six months in any taxable year or year of income, as the case may be, in relation to a particular project, or to any project connected therewith. 

(3)       Notwithstanding the preceding provisions of this Article, an enterprise shall not be deemed to have a permanent establishment merely by reason of — 

(a)       the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(b)       the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; 

(c)        the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; 

(d)       the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise; 

(e)       the maintenance of a fixed place of business solely for the purpose of activities which have a preparatory or auxiliary character for the enterprise, such as advertising or scientific research. 

(4)       An enterprise shall be deemed to have a permanent establishment in one of the Contracting States and to carry on business through that permanent establishment if substantial equipment is being used in that State for more than six months by, for or under contract with the enterprise. 

(5)       A person acting in one of the Contracting States on behalf of an enterprise of the other Contracting State — other than an agent of an independent status to whom paragraph (6) applies — shall be deemed to be a permanent establishment of that enterprise in the first-mentioned State if — 

(a)       he has, and habitually exercises in that State, an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or 

(b)       he has such authority, but habitually maintains on behalf of the enterprise in the first-mentioned State a stock of goods or merchandise from which on behalf of the enterprise he regularly delivers goods or merchandise for use or consumption in that State; or

(c)        in so acting, he manufactures or processes in that State for the enterprise goods or merchandise belonging to the enterprise.

6.         An enterprise of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where that person is acting in the ordinary course of his business as such a broker or agent.

However, when the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise, he shall not be considered to be an agent of independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under arms-length conditions. In such a case, the provisions of paragraph (5) shall apply.

(7)       The fact that a company which is a resident of one of the Contracting States controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise) shall not of itself make either company a permanent establishment of the other. 

CHAPTER III

Taxation of Income

ARTICLE 6

Income from Real Property

(1)       Income from real property may be taxed in the Contracting State in which the real property is situated. 

(2)       The term "real property" shall have the meaning which it has under the laws in force in the Contracting State in which the property in question is situated. The term shall in any case include rights to royalties and other payments in respect of the operation of mines, oil or gas wells, or quarries or in respect of the exploitation of any natural resource and those rights shall be regarded as situated where the mines, oil or gas wells, quarries or natural resources are situated. Ships or aircraft shall not be regarded as real property. 

(3)       Income from a lease of land and income from any other direct interest in or over land, whether or not improved, shall be regarded as income from real property situated where the land to which the lease or other direct interest relates is situated. 

(4)       The provisions of paragraphs (1) and (3) shall also apply to income from real property of an enterprise and to income from real property used for the performance of professional services. 

ARTICLE 7

Business Profits

(1)       The profits of an enterprise of one of the Contracting States shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State, but only so much of them as is attributable to — 

(a)       that permanent establishment; or 

(b)       sales within that other Contracting State of goods or merchandise of the same or a similar kind as those sold; or other business activities of the same or a similar kind as those carried on through that permanent establishment if the sale or the business activities had been made or carried on in that way with a view to avoiding taxation in that other State. 

(2)       Subject to the provisions of paragraph (3), where an enterprise of one of the Contracting States carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment or with other enterprises with which it deals. 

(3)       In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses of the enterprise, being expenses which are incurred for the purposes of the permanent establishment (including executive and general administrative expenses so incurred) and which would be deductible if the permanent establishment were an independent entity which paid those expenses whether incurred in the Contracting State in which the permanent establishment is situated or elsewhere. 

(4)       No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 

(5)       If the information available to the competent authority of a Contracting State is inadequate to determine the profits to be attributed to the permanent establishment of an enterprise, nothing in this Article shall affect the application of any law of that State relating to the determination of the tax liability of a person provided that law shall be applied, so far as the information available to the competent authority permits, in accordance with the principles of this Article. 

(6)       For the purposes of this Article, the profits of an enterprise do not include income from the operation of aircraft in international traffic and, except as provided in the Articles referred to in this paragraph, do not include items of income dealt with in Articles 6, 8, 10, 11, 12, 13, 14, 16 and 17. 

(7)       The profits of an enterprise of one of the Contracting States from the carrying on in the other Contracting State of a business of any form of insurance other than life insurance may be taxed in the other Contracting State in accordance with the law of that other State relating specifically to the taxation of any person who carries on such business, and Article 24 shall apply for the elimination of double taxation as if the profits so taxed were attributable to a permanent establishment of the enterprise in the State imposing the tax. 

ARTICLE 8

Shipping

(1)       The tax payable in a Contracting State by a resident of the other Contracting State in respect of profits from the operation of ships in international traffic shall not exceed the lesser of — 

(a)       one and one-half per cent of the gross revenues derived from sources in that State; and  

(b)       the lowest rate of Philippine tax that may be imposed on profits of the same kind derived under similar circumstances by a resident of a third State. 

(2)       Paragraph (1) shall apply in relation to the share of the profits from the operation of ships derived by a resident of one of the Contracting States through participation in a pool service, in a joint transport operating organization or in an international operating agency. 

ARTICLE 9

Associated Enterprises

(1)       Where — 

(a)       an enterprise of one of the Contracting States participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State; or 

(b)       the same persons participate directly or indirectly in the management, control or capital of an enterprise of one of the Contracting States and an enterprise of the other Contracting State, 

and in either case conditions operate between the two enterprises in their commercial or financial relations which differ from those which might be expected to operate between independent enterprises dealing wholly independently with one another, then any profits which, but for those conditions, might have been expected to accrue to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. 

(2)       If the information available to the competent authority of a Contracting State is inadequate to determine the profits to be attributed to an enterprise, nothing in this Article shall affect the application of any law of that State relating to the determination of the tax liability of a person, provided that that law shall be applied, so far as the information available to the competent authority permits, in accordance with the principles of this Article. 

(3)       Where profits on which an enterprise of one of the Contracting States has been charged to tax in that State are also included, by virtue of paragraph (1) or (2), in the profits of an enterprise of the other Contracting State and taxed accordingly, and the profits so included are profits which might have been expected to have accrued to that enterprise of the other State if the conditions operative between the enterprises had been those which might have been expected to have operated between independent enterprises dealing wholly independently with one another, then the first-mentioned State shall make an appropriate adjustment to the amount of tax charged on those profits in the first-mentioned State. In determining such an adjustment, due regard shall be had to the other provisions of this Agreement in relation to the nature of the income, and for this purpose the competent authorities of the Contracting States shall, if necessary, consult each other. 

ARTICLE 10

Dividends

(1)       Dividends paid by a company which is a resident of one of the Contracting States for the purposes of its tax, being dividends to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 

(2)       Such dividends may be taxed in the Contracting State of which the company paying the dividends is a resident for the purposes of its tax, and according to the law of that State, but the tax so charged shall — 

(a)       in the case of dividends derived by a company, not exceed 15 per cent of the gross amount of the dividends where relief, either by way of rebate or credit as described in paragraph (2) of Article 24 or relief by way of credit as described in the second sentence of paragraph (4) of Article 24, is given to the beneficial owner of the dividends; and 

(b)       in any other case, not exceed 25 per cent of the gross amount of the dividends. 

Nothing in this paragraph shall affect the taxation of a company in respect of profits out of which dividends are paid. 

(3)       The term "dividends" in this Article means income from shares and other income assimilated to income from shares by the taxation law of the Contracting State of which the company making the distribution is a resident. 

(4)       The provisions of paragraphs (1) and (2) shall not apply if the person beneficially entitled to the dividends, being a resident of one of the Contracting States, carries on business of the other Contracting State of which the company paying the dividends is a resident through a permanent establishment situated therein or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with that permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 

(5)       Dividends paid by a company which is a resident of one of the Contracting States, being dividends to which a person who is not a resident of the other Contracting State is beneficially entitled, shall be exempt from tax in that other State except insofar as the holding in respect of which the dividends are paid in effectively connected with a permanent establishment or fixed base situated in that other State. Provided that this paragraph shall not apply in relation to dividends paid by a company which is a resident of Australia for the purposes of Australian tax and which is also a resident of the Philippines for the purposes of Philippine tax. 

(6)       The Philippines may impose in accordance with its domestic law, apart from the corporate income tax, a tax on remittances of profits by a branch to its Head Office provided that the tax so imposed shall not exceed 15 per cent of the amount remitted. 

(7)       Australia may impose on income tax (in this paragraph called a "branch profits tax") on the reduced taxable income of a company that is a resident of the Philippines in addition to the income tax (in this paragraph called "the general income tax") payable by the company in respect of its taxable income; provided that any branch profits tax so imposed in respect of a year of income shall not exceed 15 per cent of the amount by which the reduced taxable income of that year of income exceeds the general income tax payable in respect of the reduced taxable income of that year of income.  

ARTICLE 11

Interest

(1)       Interest arising in one of the Contracting States, being interest to which a resident of the other Contracting State in beneficially entitled, may be taxed in that other State. 

(2)       Such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the interest. 

(3)       The term "interest" in this Article includes interest from Government Securities or from bonds or debentures and interest from any other form of indebtedness (whether or not secured by mortgage and whether or not carrying a right to participate in profits) as well all other income assimilated to interest by the taxation law of the Contracting State in which the income arises. 

(4)       The provisions of paragraphs (1) and (2) shall not apply if the person beneficially entitled to the interest, being a resident of one of the Contracting States, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed based situated therein, and the indebtedness giving rise to the interest is effectively connected with that permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 

(5)       Interest shall be deemed to arise in a Contracting State when the payer is that State itself or a political subdivision of that State or a local authority of that State or a person who is a resident of that State for the purposes of its tax. Where, however, the person paying the interest, whether he is a resident of one of the Contracting States or not, has in a Contracting State or outside both Contracting States a permanent establishment or fixed base in connection with which the indebtedness on which the interest is paid was incurred, and the interest is borne by the permanent establishment or fixed base, then the interest shall be deemed to arise where the permanent establishment or fixed base is situated. 

(6)       Where, owing to a special relationship between the payer and the person beneficially entitled to the interest, or between both of them and some other person, the amount of the interest paid, having regard to the indebtedness for which it is paid, exceeds the amount which might have been expected to have been agreed upon by the payer and the person so entitled in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the amount of the interest paid shall remain taxable according to the law of each Contracting State, but subject to the other provisions of this Agreement. 

(7)       Interest derived by the Government of a Contracting State, or by any other body exercising governmental functions in, or in a part of, a Contracting State, or by a bank performing central banking functions in a Contracting State, shall be exempt from tax in the other Contracting State. 

(8)       The Philippine tax on interest arising in the Philippines in respect of public issues of bonds, debentures or similar obligations and paid by a company which is a resident of the Philippines to a resident of Australia shall not exceed 10 per cent of the gross amount of the interest. 

(9)       The principles set forth in paragraphs (1) to (7) inclusive of Article 5 shall be applied in determining for the purposes of this Article whether there is a permanent establishment outside both Contracting States, and whether an enterprise, not being an enterprise of one of the Contracting States, has a permanent establishment in one of the Contracting States. 

ARTICLE 12

Royalties

(1)       Royalties arising in one of the Contracting States, being royalties to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 

(2)       Such royalties may also be taxed in the Contracting State in which they arise, and according to the law of that State. However, the tax so charged shall not exceed — 

(a)       15 per cent of the gross amount of the royalties where the royalties are paid by an enterprise registered with the Philippine Board of Investments and engaged in preferred areas of activities; and 

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

(3)       The term "royalties" in this Article means payments or credits, whether periodical or not, and however described or computed, to the extent to which they are made as consideration for — 

(a)       the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trademark, or other like property or right; 

(b)       the use of, or the right to use, any individual, commercial or scientific equipment; 

(c)        the supply of scientific, technical, industrial or commercial knowledge or information; 

(d)       the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as is mentioned in paragraph (a), any such equipment as is mentioned in paragraph (b) or any such knowledge or information as is mentioned in paragraph (c); 

(e)       the use of, or the right to use — 

(i)         motion picture films; 

(ii)        films or video tapes for use in connection with television; or 

(iii)       tapes for use in connection with radio broadcasting; or 

(f)        total or partial forbearance in respect of the use of a property or right referred to in this paragraph. 

(4)       The provisions of paragraphs (1) and (2) shall not apply in the person beneficially entitled to the royalties, being a resident of one of the Contracting States, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein, or performs in that other State independent, professional services from a fixed base situated therein, and the asset giving rise to the royalties is effectively connected with that permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply.  

(5)       Royalties shall be deemed to arise in a Contracting State when the payer is that Contracting State itself or a political sub-division of that State or a local authority of that State or a person who is a resident of that State for purposes of its tax. Where, however, the person paying the royalties, whether he is a resident of one of the Contracting States or not, has in the other Contracting State or outside both Contracting States a permanent establishment or fixed base, in connection with which the liability to pay the royalties was incurred, and the royalties are borne by the permanent establishment or fixed base, then the royalties shall be deemed to arise where the permanent establishment or fixed base in situated. 

(6)       Where, owing to a special relationship between the payer and the person beneficially entitled to the royalties or between both of them and some other person, the amount of the royalties paid, having regard to what they are paid for, exceeds the amount which might have been expected to have been agreed upon by the payer and the person so entitled in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the amount of the royalties paid shall remain taxable according to the law of each Contracting State, but subject to the other provisions of this Agreement. 

(7)       The principles set forth in paragraphs (1) to (7) inclusive of Article 5 shall be applied in determining for the purposes of this Article whether there is a permanent establishment outside both Contracting States, and whether an enterprise, not being an enterprise of one of the Contracting States, has a permanent establishment in one of the Contracting States. 

ARTICLE 13

Alienation of Property

(1)       Income from the alienation of real property may be taxed in the Contracting State in which that property is situated. 

(2)       For the purposes of this Article — 

(a)       the term "real property" shall have the meaning which it has under the laws in force in the Contracting State in which the property in question is situated and shall include — 

(i)         a lease of land or any other direct interest in or over land; 

(ii)        rights to exploit, or to explore for, natural resources; and 

(iii)       shares or comparable interests in a company, the assets of which consist wholly or principally of direct interests in or over land in one of the Contracting States or of rights to exploit, or to explore for, natural resources in one of the Contracting States; 

(b)       real property shall be deemed to be situated — 

(i)         where it consists of direct interests in or over land — in the Contracting State in which the land is situated; 

(ii)        where it consists of rights to exploit, or to explore for, natural resources — in the Contracting State in which the natural resources are situated or the exploration may take place; and 

(iii)       where it consists of shares or comparable interests in a company, the assets of which consist wholly or principally of direct interests in or over land in one of the Contracting States or of rights to exploit, or to explore for, natural resources in one of the Contracting States — in the Contracting State in which the assets or the principal assets of the company are situated. 

(3)       Subject to the provisions of paragraph (1), income from the alienation of capital assets of an enterprise of one of the Contracting States or available to a resident of one of the Contracting States for the purpose of performing professional services or other independent activities shall be taxable only in that Contracting State, but, where those assets form part of the business property of a permanent establishment or fixed base situated in the other Contracting State, such income may be taxed in that other State. 

ARTICLE 14

Independent Personal Services

(1)       Income derived by an individual who is a resident of one of the Contracting States in respect of professional services or other independent activities of a similar character shall be taxable only in that State. However, if such an individual — 

(a)       has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; or 

(b)       in a year of income or taxable year, as the case may be, stays in the other Contracting State for a period or periods aggregating 183 days for the purpose of performing his activities; or 

(c)        derives, in a year of income or taxable year, as the case may be, from residents of the other Contracting State gross remuneration in that State exceeding ten thousand Australian dollars or its equivalent in Philippine pesos from performing his activities; 

so much of the income derived by him as is attributable to activities so performed may be taxed in the other State. 

(2)       The Treasurer of Australia and the Minister of Finance of the Philippines may agree in letters exchanged for the purpose to variations in the amount specified in sub-paragraph (c) of paragraph (1) and any variations so agreed shall have effect according to the tenor of the letters. 

(3)       The term "professional services" includes services performed in the exercise of independent scientific, literary, artistic, educational or teaching activities, as well as in the exercise of independent activities of physicians, lawyers, engineers, architects, dentists and accountants. 

ARTICLE 15

Dependent Personal Services

(1)       Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similar remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived from that exercise may be taxed in that other State. 

(2)       Notwithstanding the provisions of paragraph (1), remuneration derived by an individual who is a resident of one of the Contracting States in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if — 

(a)       the recipient is present in that other State for a period or periods not exceeding in the aggregate 183 days in the year of income or taxable year, as the case may be, of that other State; and 

(b)       the remuneration is paid by, or on behalf of, an employer who is not a resident of that other State; and 

(c)        the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in that other State. 

(3)       Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft operated in international traffic by a resident of one of the Contracting States may be taxed in that Contracting State. 

ARTICLE 16

Directors' Fees

Directors' fees and similar payments derived by a resident of one of the Contracting States in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State. In relation to remuneration of a director of a company derived from the company in respect of the discharge of day-to-day functions of a managerial or technical nature, the provisions of Article 15 shall apply as if the remuneration were remuneration of an employee in respect of an employment and as if references to "employer" were references to the company. 

ARTICLE 17

Entertainers

(1)       Notwithstanding the provisions of Articles 14 and 15, income derived by entertainers (such as theatrical, motion picture, radio or television artists and musicians and athletes) from their personal activities as such may be taxed in the Contracting State in which these activities are exercised. 

(2)       Where income in respect of the personal activities of an entertainer as such accrues not to that entertainer but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer are exercised. 

(3)       Notwithstanding the provisions of paragraph (1) and Articles 14 and 15, income derived from activities performed in a Contracting State by entertainers shall be exempt from tax in that Contracting State if the visit to that State is substantially supported or sponsored by the other Contracting State and the entertainer is certified as qualifying under this provision by the competent authority of that other State. 

ARTICLE 18

Pensions and Annuities

(1)       Pensions (including government pensions) and annuities paid to a resident of one of the Contracting States shall be taxable only in that State. However, pensions paid by a Philippine enterprise under a pension plan not registered under Philippine law may be taxed in the Philippines.  

(2)       The term "annuity" means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and full consideration in money or money's worth. 

ARTICLE 19

Government Service

(1)       Remuneration (other than a pension) paid by a Contracting State or a political sub-division of that State or a local authority of that State to any individual in respect of services rendered in the discharge of governmental functions shall be taxable only that State. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the recipient is a resident of that State who — 

(a)       is a citizen or national of that State; or 

(b)       did not become a resident of that State solely for the purpose of performing the services. 

(2)       The provisions of paragraph (1) shall not apply to remuneration in respect of services rendered in connection with any trade or business carried on by one of the Contracting States or a political sub-division of one of the States or a local authority of one of the States. In such a case the provisions of Articles 15 and 16 shall apply. 

ARTICLE 20

Professors and Teachers

(1)       Remuneration which a professor or teacher who is a resident of one of the Contracting States and who visits the other Contracting State for a period not exceeding two years for the purpose of teaching or carrying out advanced study or research at a university, college, school or other educational institution receives for those activities shall be taxable only in the first-mentioned State. 

(2)       This Article shall not apply to remuneration which a professor or teacher receives for conducting research if the research is undertaken primarily for the private benefit of a specific person or persons. 

(3)       For the purposes of paragraph (1), the term "remuneration" shall include remittances from sources outside the other State sent to enable the professor or teacher to carry out the purposes referred to in paragraph (1). 

ARTICLE 21

Students and Trainees

Where a student or trainee, who is a resident of one of the Contracting States or who was a resident of that State immediately before visiting the other Contracting State and who is temporarily present in the other State solely for the purpose of his education or training, receives remittances from sources outside the other State for the purpose of his maintenance or education, those payments shall be exempt from tax in the other State. 

ARTICLE 22

Income of Dual Resident

Where a person who by reason of the provisions of paragraph (1) of Article 4 is a resident of both Contracting States but by reason of the provisions of paragraph (3) or (5) of that Article is deemed for the purposes of this Agreement to be a resident solely of one of the Contracting States derives income from sources in that Contracting State or from sources outside both Contracting States, that income shall be taxable only in that Contracting State. 

ARTICLE 23

Source of Income

Income derived by a resident of one of the Contracting States which, under any one or more of Articles 6 to 8 and 10 to 17 may be taxed in the other Contracting State, shall, for the purposes of Article 24 and of the income tax law of that other State, be deemed to be income from sources in that other State. 

CHAPTER IV

Methods of Elimination of Double Taxation

ARTICLE 24

(1)       Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle hereof), Philippine tax paid, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in the Philippines (excluding, in the case of dividends; tax paid in respect of the profits out of which the dividends are paid except to the extent that the provisions of paragraph (2) may permit that tax to be included) shall be allowed as a credit against Australian tax payable in respect of that income.  

(2)       A company which is a resident of Australia is, in accordance with the provisions of the taxation law of Australia in force at the date of signature of this Agreement, entitled to a rebate in its assessment at the average rate of tax payable by the company in respect of dividends that are included in its taxable income and are received from a company that is a resident of the Philippines. However, should the law so in force be amended so that the rebate in relation to the dividends ceases to be allowable under that law, credit shall be allowed to the first-mentioned company under paragraph (1) for the Philippine tax paid on the profits out of which the dividends are paid, but only if that company beneficially owns at least 10 per cent of the paid-up share capital of the second-mentioned company. 

(3)       For the purposes of paragraph (1) and of the income tax law of Australia — 

(a)       a resident of Australia deriving income from sources in the Philippines, consisting of royalties to which sub-paragraph (a) of paragraph (2) of Article 12 applies, shall be deemed to have paid, in addition to any Philippine tax actually paid, Philippine tax in an amount equal to 5 per cent of the gross amount of the royalties; and 

(b)       the amount of the said royalties shall be deemed to be the amount that would have been the amount of the royalties if no Philippine tax had been paid, increased by 5 per cent.  

(4)       In accordance with the provisions and subject to the limitations of the law of the Philippines (as it may be amended from time to time without changing the general principle hereof), the Philippines shall allow to a resident of the Philippines as a credit against the Philippine tax the appropriate amount of taxes paid or accrued to Australia. In the case of a Philippine corporation owning more than 50 per cent of the voting stock of an Australian corporation from which it receives dividends in any taxable year, the Philippines shall also allow credit for the appropriate amount of taxes paid or accrued to Australia by an Australian corporation paying such dividends with respect to the profits out of which such dividends are paid. Such appropriate amount shall be based upon the amount of tax paid or accrued to Australia, but the credit shall not exceed the limitations (for the purpose of limiting the credit to the Philippine tax on income from sources within Australia, and on income from sources outside the Philippines) provided by Philippine law for the taxable year. 

CHAPTER V

Special Provisions

ARTICLE 25

Mutual Agreement Procedure

(1)       Where a resident of one of the Contracting States considers that the actions of the competent authority of one or both of the Contracting States result or will result for him in taxation not in accordance with this Agreement, he may, notwithstanding the remedies provided by the national laws of those States, present his case to the competent authority of the Contracting State of which he is a resident. The case must be presented in writing within two years from the first notification of the action. 

(2)       The competent authority shall endeavor, if the taxpayer's claim appears to it to be justified and if it is not itself able to arrive at an appropriate solution, to resolve the case with the competent authority of the other Contracting State, with a view to the avoidance of taxation not in accordance with this Agreement. 

(3)       The competent authorities of the Contracting States shall jointly endeavor to resolve any difficulties or doubts arising as to the application of this Agreement.  

(4)       The competent authorities of the Contracting States may communicate with each other directly for the purpose of giving effect to the provisions of this Agreement. 

ARTICLE 26

Exchange of Information

(1)       The competent authorities of the Contracting States shall exchange such information as is necessary for the carrying out of this Agreement or of the domestic laws of the Contracting States concerning the taxes to which this Agreement applies insofar as the taxation thereunder is not contrary to this Agreement. The exchange of information is not restricted by Article 1. Any information received by the competent authority of a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes to which this Agreement applies and shall be used only for such purposes. 

(2)       In no case shall the provisions of paragraph (1) be construed so as to impose on a Contracting State the obligation — 

(a)       to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State; 

(b)       to supply particulars which are not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; 

(c)        to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or to supply information the disclosure of which would be contrary to public policy.

ARTICLE 27

Diplomatic and Consular Officials

Nothing in this Agreement shall affect the fiscal privileges of diplomatic or consular officials under the general rules of international law or under the provisions of special agreements. 

ARTICLE 28

Miscellaneous

If, under any Agreement or Convention concluded by the Philippines, a resident of any other country is exempt from —

(a)       the Philippine income tax on gross billings relating to the operation of aircraft in international traffic; or

(b)       the Philippine business tax on gross receipts relating to the operation of ships or aircraft in international traffic;

the Philippines will grant a corresponding exemption to residents of Australia and Australia will grant a corresponding exemption to residents of the Philippines.

CHAPTER VI

Final Provisions

ARTICLE 29

Entry Into Force

(1)       This Agreement shall be ratified and the instruments of ratification shall be exchanged at Camberra, Australia, as soon as possible. 

(2)       The Agreement shall enter into force upon the date of exchange of the instruments of ratification and its provisions shall have effect: 

(a)       in the Philippines — 

(i)         in respect of tax withheld at the source on amounts paid to non-residents on or after the 1st day of January of the calendar year on which the exchange of instruments takes place;

(ii)        in respect of other taxes for taxable year beginning on or after the 1st day of January in that calendar year.

(b)       in Australia — 

(i)         with respect to withholding tax on income that is derived by a non-resident, in relation to income derived on or after 1 January in the calendar year in which the exchange of instruments of ratification takes place;   

(ii)        with respect to other Australian tax, in relation to income of any year of income beginning on or after 1 July in that calendar year; 

ARTICLE 30

Termination

This Agreement shall continue in effect indefinitely but either Contracting State may, on or before June 30 in any calendar year after the fifth year following the exchange of the instruments of ratification, give to the other Contracting State, through the diplomatic channel, written notice of termination and in such event the Agreement shall cease to have effect: 

(a)       in the Philippines —

(i)         in respect of tax withheld at the source on amounts paid to non-residents on or after the first day of January in the calendar year next following that in which the written notice of termination takes place; and 

(ii)        in respect of other taxes for taxable years beginning on or after the first day of January in the next following calendar year. 

(b)       in Australia — 

(i)         with respect to withholding tax on income that is derived by a non-resident, in relation to income derived on or after 1 January in the calendar year next following that in which the written notice of termination takes place; 

(ii)        with respect to other Australian tax, in relation to income of any year of income beginning on or after 1 July in the next following calendar year; 

IN WITNESS WHEREOF the undersigned, duly authorized thereto, have signed this Agreement.   

DONE in duplicate at MANILA this 11th day of MAY One thousand nine hundred and seventy-nine in the English language. 

           

FOR THE GOVERNMENT                                     FOR THE GOVERNMENT 

                                                                                    OF AUSTRALIA      

OF THE REPUBLIC OF 

THE PHILIPPINES

_________________________                            __________________________

(SGD. CESAR VIRATA                                          (SGD.) R. V. GARLAND