BIR Ruling

January 23, 1968 The Manila Electric Company P. O. Box 451, Manila Attention: Mr . Vicente T . Paterno Gentlemen : This refers to your letter dated August 10, 1967 requesting legal opinion on the question of whether or not interest payments commitment fees and other amounts which will be paid to Kreditanstalt fur Wiederaufbau (KFW) by the Manila Electric Company (Meralco for short) under a proposed loan agreement which will be executed by KFW and Meralco are subject to the 30% withholding tax prescribed by Section 54 in relation to Section 53 of the Tax Code. It is represented that the KFW is a banking establishment of the Federal Republic of Germany; that it has been instituted to perform special governmental banking functions, i.e., to supply medium and long term funds within the framework of the capital loans granted by the Federal government to developing countries; and that it conducts its transactions only under the supervision of the German government authorities. In reply thereto, I have the honor to inform you that income of foreign government received from their investments in the Philippines in stock, bonds, or other domestic securities, or from interest on their deposits in banks in the Philippines are exempt from income tax in accordance with Section 29(b)(7) of the Tax Code. The KFW is a banking establishment of the Federal Republic of Germany instituted to perform special governmental banking functions. Accordingly, interest payments, commitment fees and other amounts payable under the proposed loan agreement which will be paid by the Meralco to KFW are not subject to the 30% withholding tax prescribed by Section 54 relation to Section 53 of the Tax Code. lexlib Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue