BIR Ruling

September 16, 1966 Mr. Jaime Sumulong 335 F. Roxas St. Caloocan City S i r : This refers to your letter dated August 10, 1966 requesting information on the tax consequences of a loan transaction represented as follows: You have relatives living in Hongkong who have resources and who are willing to extend to you a loan of $150,000.00 for investment in your business in the Philippines. The loan shall be remitted through a local bank. Being yourself a Filipino citizen, the answer to your inquiry assumed that your relatives in Hongkong are also citizens of this country. In reply, I have the honor to inform you that the loan in question when remitted to you in this country shall not be subject to any internal revenue tax. However, the interests due on said loan shall constitute income to the lenders which should be declared for income tax purposes in the year accrued or received. Should your relatives in Hongkong be not citizens of the Philippines and not residents thereof, it shall be your obligation to deduct and withhold 20% of the interest due on the loan as income tax thereon and to make a return thereof, in duplicate on or before April 15 of each year and pay the tax withheld to the internal revenue officer authorized to receive it pursuant to Section 53(b) and (c) of the Tax Code. It is of course understood that the efficacy of the ruling hereon is dependent on a prior proof of the fact of loan. The mere remittance of the supposed loan through a local bank will not be considered sufficient proof. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue