BIR Ruling

February 9, 1968 Republic Telephone Company, Inc. P.O. Box 485 Manila Gentlemen : This refers to your letter dated February 5, 1968 requesting information as to whether or not the interest on the loan of approximately $2,434,000.00 which you are now negotiating with the Export Credits Insurance Corporation (ECIC) of Canada is subject to the withholding tax. From the documentary evidence submitted, it appears that ECIC is a Crown (Government) Corporation established by the Government of Canada under the Export Credits Act of 1944. It is administered by a Board consisting of the Governor of the Bank of Canada, the Deputy Minister of Trade and Commerce, and the Deputy Minister of Finance. It reports to Parliament through the Minister of Trade and Commerce. Among others, the establishment of ECIC under the Act of 1944 provides a useful form of capital assistance for economic development in recipient countries as in fact the interest charged is only 6%. In reply, I have the honor to inform you that under Section 29(b) 7(A) of the Tax Code incomes of foreign governments 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 the income tax. The resolution of the question of whether or not the interest on the loan in question is subject to the withholding tax is, therefore, dependent on the question of whether or not the loan is a loan given by the Federal Government of Canada. From the facts established by the documentary evidence submitted, it is the opinion of this Office as it hereby holds that the loan in question is a loan granted by the Federal Government of Canada thru ECIC. Such being the case, the interest to be paid by you thereon is not subject to Philippine income tax pursuant to Section 29(b) 7(A) of the Tax Code, and, therefore, you are not required to withhold any tax thereon under the provisions of Section 54, in relation to Section 53, both of the same Code. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue