BIR Ruling [DA-130-02]

July 31, 2002 BIR RULING [DA-130-02] 32 (B) (7) (a) 215-91 dated October 24, 1991; 013-96 Dated February 14, 1996; 285-82 dated November 16, 1982 Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, CITIBANK Tower 8741 Paseo de Roxas Makati City Attention: Atty. Perry L. Pe and Atty. Jayson L. Fernandez Gentlemen : This refers to your letter dated May 22, 2002 stating that your client, Reco Grandhomes Pte Ltd. (Reco), is a non-resident foreign corporation organized and existing under the laws of the Republic of Singapore for the purpose of, among others, carrying on the business of investment, acting as a holding company, and undertaking and transacting all kinds of investment business; that it is 100% beneficially owned by the Government of Singapore; that Reco's investments are managed by GIC Real Estate Pte Ltd (GIC Re), which is 100% directly owned by Government of Singapore Investment Corporation Pte. Ltd. (GIC), a financing institution wholly-owned and controlled by the Government of Singapore ( Government of Singapore Investment Corporation Pte. Ltd. v. Commissioner of Internal Revenue, CTA Case No. 5568 dated February 10, 2000 ); and that Reco has invested in bonds maturing in 2007 issued by Filinvest Land, Inc. (FLI), a domestic corporation, and is presently considering making other in investments in equity and debt instruments in the Philippines. Based on the foregoing representations, you now request for a ruling that since Reco, is a financial institution which is owned, controlled and financed by the Republic of Singapore, its income received from its investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in banks in the Philippines is exempt from Philippine income tax and consequently from withholding tax. 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 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 Reco is a financial institution owned, controlled and financed by the Republic of Singapore as contemplated under Section 32(B)(7)(a)(ii) of the Tax Code of 1997, any income received by Reco 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 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 will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Service