Article 25, MUTUAL AGREEMENT PROCEDURE

Under paragraph (1 ), when a resident or citizen of one Contracting State considers that action of one or both Contracting States results or will result for him in taxation not in accordance with the Convention, he may, notwithstanding the remedies provided by the national laws of the Contracting States, present his case to the competent authority of the Contracting State of which he is a resident or citizen. A resident or citizen of a Contracting State need not, although it is anticipated that in the normal situation he will, exhaust his other administrative or judicial remedies prior to resorting to the use of the mutual agreement procedure, If the claim is considered to have merit by the competent authority, that competent authority will endeavor to come to an agreement with the competent authority of the other Contracting State with a view to the avoidance of taxation not in accordance with the Convention.

Paragraph (2) requires the competent authorities of the two Contract­ ing States to endeavor to resolve by mutual agreement any difficulties or doubts arising as to the application of the Convention. In particular, the competent authorities may agree to the same attribution of business profits to a resident of one Contracting State and its permanent establishment situated in the other Contracting State: the same !l location of income, deductions, credits, or allowances between a resident of one Contracting State and a related person and to the readjustment of taxes imposed by. each Contracting State to reflect such allocation: the same determination of the source of particular items of income: and, the same characteri­ zation o{ particular items o{ income.

Under paragraph (3 ), in implementing the provisions of this Article, the competent authorities may communicate with each other directly and; when advisable, meet together for an oral exchange or opinions.

Under paragraph (4 ), in cases in which the competent authorities reach an agreement, taxes will be imposed on such income and refund or credit or taxes will be allowed by the Contracting States in accordance with such agreement. In the case or the United States, where an agree­ m nt is reached between the competent authorities which requires the

United States to make a refund of tax or to extend any other similar credit, such refund or credit will be allowed, notwithstanding procedural barriers otherwise existing under United States law, such as the statute of limitations, In cases where an agreement caMot be reached between the two competent authorities, the United States will not be required to provide any relief for double taxation on a unilateral basis, Paragraph

(4), or course, does not authorize the imposition of additional taxes after the statute of limitations has run.

In the case of the Philippines, a refund or ere-.: .. will also be allowed, but such refund or credit v.'ill be subject to Philippine proce­ dural rules (including the statute or limitations). This permits the Philip­ pines to disallow a claim for refund or credit on the basis or section 309 or the Philippine Code, if that claim is tiled later than 2 years from the payment or the tax. However, .the Philippines will issue a tax credit certificate, notwithstanding any Philippine procedural rule, such as section 309 or the Philippine Code, U' a claim is filed with the competent authority or the Philippines no later than 2 years from the close of the

Philippine taxable year in which the United States tax imposed under paragraph (4) is paid, The amount of the tax credit certif cate will be computed in the same manner as if an actual re!und had been made.

It may be used only as a credit ag.;inst Philippine tax liability and will not give rise to a refund.

When the Philippine tax credit certificate is used by a taxpayer to offset its Philippine tax liability, there is an adjustment in Philippine taxes for U.S. tax credit purposes: the Philippine taxes paid by that taxpayer !or the year (or years) with respect to which the certificate was issued are reduced to the extent that the credit authorized in the certificate is used to offset its Philippine taxes in another year (or years). Consequently, !or U.S. tax credit purposes, there is no reduction in the taxpayer's Philippine taxes for the year (or years) with respect to which the certificate is used as a credit against its Philippine taxes,

Because books or accounts· and other accounting records must be preserved, under section 337 or the Philippine Code, for a period or at least 5 years from the date of the last entry in each book, it is anticipated

that the compete-nt authority or the Philippines will have at his disposal

sufficient information to come to an agreement with the competent authority of the United States so that taxation not in accordance with the provisions of the Convention will be avoided. Thus, if a claim for a tax credit certificate is filed vdthin 5 taxable years from the close of the Philippine tax.able years in issue, the competent authorities of both Contracting States will communicate or meet and, if agreement is reached, the tax

credit certificate will be issued. However, if a claim is filed after the aforementioned S•taxable year period, the competent authority of the

Philippines may not have sufficient information at his disposal to come to an agreement with the competent authority of the United States if the Philippine taxpayer did not preserve its books of accounts or other accounting records for longer than the 5-year minimum period. To facilitate the agreement process between the competent authorities of the two Contracting States, paragraph (4) provides that a tax credit certificate wil be issued with respect to a claim filed after the 5-taxable year period beginning with the close of the Philippine taxable year in issue only if the claim is supported by the books and records c: the tax­ payer.