BIR Ruling [DA-151-98]

April 20, 1998 BIR RULING [DA-151-98] Punongbayan & Araullo 6th Floor, Vernida IV Building Alfaro Street, Salcedo Village 1200 Makati City Attention: Atty . Vic C . Mamalateo Tax Partner Gentlemen : This refers to your letter dated March 6, 1997 re-applying, in behalf of your client, BANKERS TRUST SOCIEDAD DE VALORES, S.A., for a tax treaty relief with respect to interest income arising from its purchase of Philippine treasury bills and treasury notes from the Bangko Sentral ng Pilipinas (BSP). LLpr It is represented that Bankers Trust Sociedad de Valores, S.A. is a corporation organized and existing under the laws of Spain with its registered office at Paso de la Castellana No. 31, Madrid, Spain; that it will still be purchasing Philippine treasury bills and treasury notes from the BSP; and that it was previously granted tax relief on the same transaction. In reply, please be informed that Article 11(3)(1) and (4) of the RP-Spain Tax Treaty provide, viz. "ARTICLE 11 INTEREST "xxx xxx xxx "3. Notwithstanding the provisions of paragraph 2. "(a) Interest arising in a Contracting State and paid to a resident of the other Contracting State in respect of a bond, debenture or other similar obligation of the government of the first-mentioned Contracting State or of a political subdivision or local authority thereof shall, provided that the interest is beneficially owned by a resident of the other Contracting State, be taxable only in that other Contracting State; xxx xxx xxx "4. The term "interest" as used in this Article means income from debt claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtors profits and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article." xxx xxx xxx." Accordingly, the interest income that may be derived by Bankers Trust Sociedad de Valores, S.A. from its purchase of Philippine treasury bills and treasury notes from the Bangko Sentral ng Pilipinas shall be exempt from Philippine income tax and consequently from the withholding tax. (BIR Ruling No. 047-96 dated April 3, 1996) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group