BIR Ruling

September 20, 1972 A. P. Torres & Company Certified Public Accountants 3rd Floor, 1010 Building A. Mabini, Ermita Manila Gentlemen : This refers to your letter dated August 21, 1972 requesting in behalf of your client, a domestic corporation, for a ruling as to the party liable for the payment of income tax. aisadc It is represented that your client, engaging in international shipping, will import ship materials and equipment on a deferred payment basis, the total cost of which will be payable over a period of 8 years after making a down payment of 10% with 8% interest on the yearly balance; that the cost of the said materials and equipment will be in the nature of a foreign loan and payment of the balance of 90% of the total contract price plus 8% interest will be guaranteed by the Development Bank of the Philippines; that under the contract between your client and the foreign supplier it is provided that the withholding taxes due on the interest charges shall be for the account of your client; that the foreign supplier which is a foreign corporation duly licensed to engaged in business in the Philippines by the Securities and Exchange Commission and the Board of Industries, has a liaison office or branch office in Manila; and that the contract between your client and the foreign supplier was perfected abroad. In reply thereto, I have the honor to inform you that since the foreign supplier is a foreign corporation licensed to engaged in business in this country and that it has a branch office in the Philippines thru which it does business here, said supplier is considered a resident foreign corporation. Consequently, said foreign corporation, thru its branch shall file its Philippine income tax return declaring therein all income derived from sources within the Philippines, which income shall be subject to the corporate income tax prescribed by Section 24 (b)(2) of the Tax Code. The interest paid by your client on the loan subject of the abovementioned contract is considered income from sources within the Philippines (Sec. 37(a)(1), Tax Code); hence, it should be declared in the Philippine income tax return of the said foreign corporation as part of its gross income. Since said foreign corporation is a resident corporation, it is required to file its own income tax return and pay directly the tax due on its income from Philippine sources, which income includes taxes assumed by domestic debtors. cdtech Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue