BIR Ruling

November 16, 1966 MEMORANDUM FOR: The Commissioner Bureau of Internal Revenue Manila This refers to the withholding tax case of the GENERAL SHIPPING COMPANY, INCORPORATED, Lopez Building, Aduana St., Manila, for the fiscal year ended June 30, 1963, in the amount of P75,660.75, inclusive of interest and surcharge. LexLib The sole issue here is whether or not the subject taxpayer is liable to withholding tax pursuant to Section 54, in relation to Section 53, both of the Tax Code, as amended. The records show that the General Shipping Company, Incorporated (hereinafter referred to as the Genshipco), purchased on a deferred payment plan via the loan component of the Reparations Agreement and the Reparations Law, a cargo passenger ship, the M/V General del Pilar, from the Nippon Kokan Kabushiki Kaisha, a non-resident Japanese company not authorized to do business in the Philippines; that all the amortization payments of the Genshipco to the vendor company are covered by irrevocable letters of credit drawn through its agent bank, the Security Bank and Trust Co.; that an investigation conducted by this Office on the internal revenue tax liability of the Genshipco for the fiscal year ended June 30, 1963 disclosed that the subject taxpayer remitted to the vendor company the total amount of P189,447.72 as interest payment for the said year, but that it failed to withhold the corresponding withholding income tax supposedly due thereon under Section 54 of the Tax Code, in relation to Section 53 of the same Code, as amended; and that on July 20, 1965, a letter of demand for P75,660.75 as deficiency withholding income tax for the fiscal year ended June 30, 193 was issued against the Genshipco. The provision of Section 54 of the National Internal Revenue Code, as amended, in only and administrative device to facilitate the collection of the tax on non-resident aliens and non-resident foreign corporations. Such that, if no tax is due from them, no deduction or withholding is required. Article 9, Section 4 of the Reparations Agreement between the Philippines and Japan as ratified by the Philippine Senate Resolution No. 78 Third Congress, Third Special Session provides: "With reference to the income derived from the supply of services or products under the present Agreement, Japanese nationals and juridical persons shall be exempt from taxation in the Philippines." Under the aforequoted provision of the Agreement there is no question that the Nippon Kokan Kabushiki is exempt from income tax on the interest payments received by it from the subject taxpayer. Consequently, the Genshipco is not liable to any withholding tax. In view thereof, it is respectfully recommended that the assessment be withdrawn and the case considered closed and terminated. Respectfully submitted: (SGD.) SIMEON B. PRUDENCIO Chief, Law Division APPROVED: (SGD.) MISAEL P. VERA Commissioner of Internal Revenue