BIR Ruling [DA-181-04]

April 6, 2004 BIR RULING [DA-181-04] Security Bank Corporation Security Bank Center 6776 Ayala Avenue Makati City Attention: Ms. Rodora E. Baares Senior Vice President Gentlemen : This refers to your letter dated May 20, 2002 stating that Security Bank Corporation is a universal bank and an accredited withholding agent of the Bureau of Internal Revenue (BIR); that it has clients/depositors who are registered with the Philippine Economic Zone Authority (PEZA); and that these PEZA-registered enterprises maintain with the said bank deposits and/or deposit substitutes or similar instruments from which they derive interest income therefrom. Based on the foregoing representations, you now request a ruling as to whether or not interest income derived by these PEZA-registered enterprises from their deposits and/or deposit substitutes is subject to the 5% preferential tax rate on their gross income earned pursuant to R.A. No. 7916, as amended. In reply thereto, please be informed that in BIR Ruling No. 270-99 dated May 5, 1999, this Office ruled that "interest income earned by SBF-registered enterprises within the zone, whether in peso or in foreign currency deposit, are subject to the preferential tax rate of 5%." Since all privileges, benefits, advantages or exemptions granted to special economic zones under RA No. 7227. shall ipso facto be accorded to special economic zones already created or to be created under RA 7916, it follows that the same treatment of interest shall likewise be available to PEZA-registered enterprises. ( Sec. 51, RA 7916 ) It is to be emphasized however, that for interest income from Philippine currency bank deposits, etc., earned by a PEZA-registered enterprise to be subject to the preferential tax rate, it is required that such interest must have been earned by enterprises registered and engaged in business within the Secured Area, pursuant to Section 6(f) of Revenue Regulations No. 1-95, as amended, which provides as follows: "(f). Interest from any Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, and from trust fund and similar arrangements received by a registered enterprise engaged in business within the Secured Area shall be subject to the preferential tax rate. All other interest, yield or monetary benefit from deposit substitutes, trust funds and other similar arrangements and royalties derived from sources within the Philippines by a person other than a registered enterprise operating within the Secured Area in the Zone shall be subject to the appropriate tax law rates of the Customs Territory." Accordingly, interest income derived by PEZA-registered enterprises maintaining bank deposit within the secured area of the zone shall be subject to the preferential tax rate of 5% under RA No. 7916, as amended by 8748, as implemented by Revenue Regulations No. 1-95, as amended by Revenue Regulations No. 16-99. CTcSAE This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it well disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group