BIR Ruling

September 7, 1971 The Honorable Undersecretary Department of Commerce and Industry Office of the Secretary Ermita Center Bldg., Manila S i r : This refers to your letter dated July 28, 1971 requesting exemption from the payment of income tax on interest arising from a contract of loan entered into by and between Marubeni Iida Corporation (New York) and the Department of Commerce and Industry on May 23, 1969. cdt It appears that the Department of Commerce and Industry (hereinafter referred to as Debtor), represented by Secretary Leonides S. Virata secured a loan in the amount of $502,306.00 from Marubeni Iida Corporation, New York (hereinafter referred to as the Creditor), a non-resident foreign corporation not engaged in trade or business in the Philippines, represented by its President, Mr. Shunsuke Awano, for the purpose of financing the construction of the Philippine Pavillion in Osaka, Japan, in connection with the celebration of Expo '70; that the payment of taxes on interest of the said loan has been assumed by the Debtor in pursuance of Article 6 of the Loan Agreement. In reply, I have the honor to inform you that in view of the fact that the Debtor, being a government agency is not liable for the tax, and that under Article 6 of the Agreement reading "Debtor shall pay, on its own account, any and all the expenses and the taxes that may be incurred and levied in connection with the making and repayment of LOAN AMOUNT, and the payment of the interest thereon specified hereunder, whether legal, accounting or otherwise. the debtor will absorb all the tax liabilities that will be levied against the Creditor, the Debtor may be granted exemption from the payment of the 35% withholding tax notwithstanding the fact that the tax on such interest income is the direct, and personal liability of the Creditor, a non-resident foreign corporation, not engaged in trade or business within the Philippines. (See BIR Ruling No. 65-137 dated December 28, 1965) cdta Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue