BIR Ruling [DA-079-05]

March 10, 2005 BIR RULING [DA-079-05] 32 (B) (7) (a) 215-91 dated October 24, 1991; 013-96 dated February 14, 1996; 285-82 dated November 16, 1982 Punongbayan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Ayala Avenue Makati City Attention: Atty. Romeo H. Duran Tax Principal Gentlemen : This refers to your letter dated September 15, 2003 requesting on behalf of your client, JP Morgan Chase Bank (CHASE),for a ruling confirming your opinion that the latter's client, Abu Dhabi Investment Authority (ADIA),a government financial institution wholly owned by the Government of Emirate of Abu Dhabi, is not subject to final tax withheld on dividends received from the Philippine companies. In reply, please be informed that Section 32(B)(7)(a) of the Tax Code of 1997 provides that income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financial institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments shall not be included in gross income and shall be exempt from taxation. In applying the above-cited section, this Office in BIR Ruling No. 285-82 dated November 16, 1982 ruled that ". . . income received by foreign governments, financing institutions owned, controlled, or enjoying refinancing by foreign governments and international or regional financing institutions established by governments and international or regional financing institutions established by governments from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in the Philippines is exempt from income tax in accordance with Section 29(c)(8)(A)(1)(2) and (3) of the Tax Code, as amended. In the instant case, since SBI is 55% owned by SNI which, in turn, is wholly owned by the Government of Belgium, SBI could be considered as controlled by said foreign government. A controlled corporation may be defined as a corporation more than fifty per cent (50%) of whose total combined voting power is owned by the shareholder(s) alleged to be in control in the particular case. Accordingly, the interest payments which will be remitted to SBI by PDCP are not subject to Philippine income tax, and consequently, not also subject to the withholding tax provisions of Section 53(b)(2) in relation to Section 54 of the Tax Code." Later, in BIR Ruling No. 013-96 dated February 14, 1996, this Office reiterated its stance that ". . . since CDCH is a wholly-owned subsidiary of CDC which is a British Government owned or controlled instrumentality, as earlier confirmed by then Secretary of Finance, Cesar Virata, in his letter dated November 9, 1977, this Office is of the opinion that CDC should also be considered as a financing institution owned, controlled, or enjoying refinancing from the British government as contemplated in Section 28(b)(A)(ii) of the Tax Code, as amended. Accordingly, the income to be received by CDCH from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in banks in the Philippines shall not be subject to Philippine income tax and consequently to the withholding tax." Accordingly, since as represented ADIA is a financial institution owned, controlled and financed by the Government of the Emirate of Abu Dhabi as contemplated under Section 32(B)(7)(a)(ii) of the Tax Code of 1997, any income received by ADIA from its investment in the Philippines, such as interest on loans, interest on deposits, interest on bonds, dividends, and capital gains on sale of shares of stock, bonds, and other domestic securities, are exempt from Philippine income tax and consequently from the withholding tax. ( BIR Ruling No. 215-91 dated October 24, 1991 ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it is disclosed that the facts are different, then this ruling shall ipso facto be null and void. IaAScD Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group