Shindengen Philippines Corporation

March 4, 2008 BIR RULING [DA-118-08] RR 16-2005; VAT Ruling No. 015-2004 Shindengen Philippines Corporation 120 Excellence Avenue cor. Quality Drive Carmelray Industrial Park I, Canlubang Calamba City Attention: Mr. Gregorio L. Viado Finance Department Manager Gentlemen : This refers to your letter dated October 9, 2007 stating that Shindengen Philippines Corporation (SPC) is registered with the Philippine Economic Zone Authority (PEZA) under Registration Certificate No. 95-41 dated April 6, 1995; that it is engaged in the manufacture of axial diodes, SIP diodes, array and bridge for semi-conductor and electronic industries; that SPC provided funds to its sister company, Shindengen Development, Inc. (SDI), which the latter used in buying a realty within the ecozone to be utilized as a plant site of SPC, as SPC is not allowed to acquire real property in the Philippines as it is wholly-owned by a Japanese firm; that SPC is leasing the premises from SDI; and that SPC is being assessed by the Revenue District Office (RDO) concerned of value-added tax (VAT) on the amount of interest income it derived from the SDI loan. From the foregoing, you are requesting a ruling that the above interest income derived by SPC from the SDI loan is not subject to VAT. In reply, please be informed that Section 4.108-3 of Revenue Regulations No. 16-2005, as amended, defined a lending investor as follows, viz .: "The term "lending investor" includes all other persons other than banks, non-bank financial intermediaries, finance companies and other financial intermediaries not performing quasi-banking functions who make a practice of lending money for themselves or others at interest." It is clear from the above-mentioned facts that SPC is not engaged in the practice of lending money. It is organized as a manufacturer of electronic materials and components rather than to engage in lending activities. The lending of money for an interest which is not pursued as a business activity but merely for the purpose of providing funds to its sister company to be used in the acquisition of a realty which later on it utilized as its plant site, will not make SPC a lending investor within the contemplation of Section 108 of the Tax Code, as amended. Accordingly, the interest income earned or received by SPC from its loan to SDI is exempt from the value-added tax. (VAT Ruling No. 015-2004 dated May 18, 2004) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. AEHTIC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service