BIR Ruling

May 4, 1972 Mr. B. J. Bernabe Asst. Vice-President Manila Electric Company Ortigas Ave., Pasig, Rizal S i r : This refers to your letter of April 27, 1972 requesting a certification from this Office that interest payments, commitment fees and other amounts payable by the Manila Electric Co. (Meralco) to Kreditanstalt fur Wiederaufbau (KfW) under and pursuant to the terms of the loan agreement between Meralco and KfW are not subject to the withholding tax prescribed by Section 54 in relation to Section 55 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 frame work 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; that the KfW has agreed to finance the cost and installation of machinery, equipment, materials and certain other equipment for Meralco's electric generating units, namely: Snyder Station Units Nos. 1 and 2 (S-1 and S-2) and Montelibano Unit No. L (M-1). cdta As this Office has ruled in its letter to you on January 23, 1968, 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 being a banking establishment of Federal Republic of Germany instituted to perform special governmental banking functions, 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 35% withholding tax prescribed by Section 54 in relation to Section 53 of the Tax Code. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue