BIR Ruling [DA-157-98]

April 21, 1998 BIR RULING [DA-157-98] Pambansang Korporasyon sa Elektrisidad (National Power Corporation) Cor. Quezon Avenue & Agham Road Diliman, Quezon City Attention: Mr . Mehol K . Sadain Officer-in-Charge Office of the General Counsel Gentlemen : This refers to your letter dated March 31, 1998 requesting confirmation of BIR Ruling No. 121-96 dated November 18, 1996, that National Power Corporation's (NPC) payment of the principal and interest on its loans, credits and indebtedness to its foreign creditors such as on its proposed issuance of U.S. Securities and Exchange Commission (SEC) registered bonds in the United States of America are exempt from Philippine income tax and not subject to withholding tax in the Philippines. cdll It is represented that US SEC-registered bonds to be issued by NPC in the USA is pursuant to the authority of the President of the Republic of the Philippines and is unconditionally guaranteed by the Republic of the Philippines, as primary obligor and not as surety merely; that the purpose of NPC's issuance of bonds is to finance a portion of its funding deficit; that with its enormous task of generation and transmission of electric power in the Philippines, the revenues of NPC will not be enough to support its total expenditures; that inasmuch as the National Government cannot infuse the fund requirements of NPC, the deficit will be funded by more foreign borrowings by NPC; and that the flotation of bond is one of those identified as one way of raising the needed funds. In reply, we hereby confirm our opinion in BIR Ruling No. 121-96 dated November 18, 1996 addressed to you to the effect that interest on bonds paid to foreign bondholders in United States and other foreign countries regardless of whether or not a tax treaty exists between the Philippines and such other countries shall be exempt from income tax and consequently from withholding tax, in accordance with Section 8(b) of R. A. No. 6395 which reads: "The loans, credits and indebtedness contracted under this subsection and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials, supplies and services by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions, including import restrictions previously and presently imposed, and to be imposed by the Republic of the Philippines, or any of its agencies and political subdivisions." Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)