BIR Ruling

April 1, 1974 Carlos J. Valdes & Co. 1130 Peres St., Paco Manila Gentlemen : This refers to your letter dated August 1, 1973 requesting information on the following queries: aisa dc CASE 1 "Corporation A, a domestic corporation is a licensee of Corporation B, a non-resident foreign corporation. The former buys its raw materials from the latter on the usual 180-day term with interest at 10%. "Is the 10% interest referred to above within the purview of Presidential Decree No. 131 such would make it subject to the income tax rate of 15% instead of 35%?" CASE 2 "Corporation C, a domestic corporation, imported equipment from Corporation B, a non-resident foreign corporation. The repayment term is "25% down, the balance in 3 equal annual installments with interest computed at 10% per annum." "Is the 10% interest in the above case within the purview of PD 131 such as would make it subject to the income tax rate of 15% instead of 35%? CASE 3 "Corporation E, a domestic corporation obtained a 5-year US dollar loan at 7-% per annum. "Would the 7-% interest be within the purview of PD 131 and therefore subject to the income tax rate of 15% if the repayment period were shortened? In other Words, would the shortening of the repayment period affect the rate of income tax to be used?" In reply thereto, I have the honor to inform you as follows: The 10% interest payable by Corporation A on its purchase of raw materials from abroad on a short-time 180-day term does not come within the purview of Presidential Decree No. 131, as this is not considered foreign borrowing by the Central Bank. Hence, the withholding tax rate thereon is 35%. The 10% interest per annum payable by Corporation C on its importations of equipment with a 25% down payment, the balance payable in three (3) equal installments is considered by the Central Bank as foreign borrowing and therefore qualifies as a foreign loan subject to the reduced 15% tax pursuant to Presidential Decree No. 131. Likewise, the 5-year U.S. dollar loan at 7- per annum obtained by Corporation E presumably from abroad is considered foreign loans within the contemplation of Presidential Decree No. 131, regardless of the duration of the repayment period. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."