BIR Ruling

September 11, 1967 Carlos J. Valdez & Co. Certified Public Accountants 1130 Perez St., Manila Gentlemen : This refers to your letter dated July 17, 1967 requesting a ruling based on a query stated as follows: "1. Is the withholding agent required to withhold and deduct, file a return for and pay the tax on the interest income from sources within the Philippines of a non-resident foreign corporation not engaged in trade or business in the Philippines and not having an office or place of business therein, where such interest, accrued in the books of the obligor-withholding agent, is not remitted to the recipient? cdpr "2. If the withholding of the tax is not required or necessary, when is the tax on the unremitted interest income in No. 1 due and payable to the government? "3. If the unremitted interest is converted into promissory notes, would withholding tax become necessary?" In reply thereto, I have the honor to inform you that the obligation to deduct and withhold income tax on income derived from sources within the Philippines by a non-resident foreign corporation not engaged in trade or business in the Philippines and not having an office or place of business therein is not predicated on remittance of said income to such foreign recipient but on the earning of the income by the latter. Upon the realization of gains, profits and income by the foreign recipient, the duty of the withholding agent to deduct and withhold income tax for the Government arises. prcd An interest income earned becomes property of the earner and the fact that the earner agrees to lend it to the debtor evidenced by the latter's promissory note will not alter the taxable character of the income for the lending thereof to the debtor is a separate transaction not connected to the earning of the income. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue