BIR Ruling

May 7, 1973 The Manila Electric Company Ortigas Avenue, Pasig, Rizal Attention: Mr . B . J . Bernabe Assistant Vice-President Gentlemen : This refers to your letter dated April 17, 1973 requesting an updated confirmation of the rulings issued by this Office on January 23, 1968 and May 4, 1972 to the effect that interest payments, commitment fees and other amounts payable under a proposed loan agreement which will be paid by the Meralco to Kreditanstalt Fur Wiederaufbau (KFW) are not subject to the 35% withholding tax prescribed by Section 54 in relation to Section 53 of the Tax Code. It is represented that KFW is a banking establishment of the Federal Republic of Germany instituted to perform special governmental banking functions. In reply, thereto, I have the honor to inform you that income received by foreign governments or financing institutions owned, controlled, or enjoying refinancing by such foreign governments from their investments in the Philippines in loans, stocks, bonds, or domestic securities, or from interest on their deposits in banks in the Philippines are exempt from income tax in accordance with Section 29 (b)(7)(A)(1) & (2) of the Tax Code as amended by Presidential Decree No. 69. The KFW is a banking establishment of the Federal Republic of Germany instituted to perform special governmental banking functions. Accordingly, interest payments, commitment fees and other amounts payable under the proposed loan agreement by Meralco to KFW are not subject to the 35% withholding tax prescribed by Section 54 in relation to Section 53 of the Tax Code. Very truly yours, (SGD.) CONRADO P. DIAZ Acting Commissioner of Internal Revenue