BIR Ruling [DA-211-03]

July 8, 2003 BIR RULING [DA-211-03] Sec. 32 (B) (7) (a) BIR Ruling No. DA 218-96 SyCip Salazar Hernandez & Gatmaitan SSHG Law Centre, 105 Paseo de Roxas Makati City Attention: Mr. Hector M. de Leon, Jr. and Mr. Benedicto P. Panigbatan Gentlemen : This refers to your letter dated January 13, 2003 requesting for a confirmation of your opinion that CBK Power Company Limited is not under obligation to withhold taxes on income derived from the Philippines by WestLB AG arising from a loan granted by WestLB AG to CBK Power Company Limited. It is represented that CBK Power Company Limited ("CBK") is a Limited partnership duly organized and existing in accordance with Philippine laws with principal office in the Province of Laguna; that WestLB AG formerly Westdeutsche Landesbank Girozentrale ("WLG") is a banking institution organized pursuant to the public law of the State of North Rhine-Westphalia, Federal Republic of Germany; that WLG along with several banking institutions, granted a loan to CBK as a participating lender under and pursuant to Part B (PRI Facility Credit Agreement) of the Omnibus Credit and Security Agreement dated August 18, 2000 ("Loan"); that on July 2, 2002, the state parliament of North Rhine-Westphalia, Federal Republic of Germany adopted an "Act on Redefining the Legal Status of Public-Law Banking Institutions in North Rhine-Westphalia" which took effect on September 1, 2002 ("Act"); that among others, the Act provided for the following: 1. the establishment of a new public institution called the Landesbank Nordrhein-Westfalen ("LNW") [Sec. 1(1), Act]; and 2. the transformation of WLG into a joint stock company called WestLB AG, which company shall be owned by LNW [Sec. 8(1), Act]. that prior to the Act, the shares of WLG were in the aggregate 66.6% owned by the State of North Rhine-Westphalia and the Regional Associations of the Rhineland and West-phalia-Lippe; that subsequent to the Act [Sec. 6(1), Act], these shareholders now hold the same shareholding in LNW (which in turn owns WestLB AG), so that the ultimate controlling stockholders of WestLB AG have not changed; and that as a result of the transformation, WestLB AG is now legally the lender of CBK in lieu of WLG. In reply thereto, please be informed that income received by foreign governments, financing institutions owned, controlled, or enjoying refinancing from foreign governments and international or regional financing institutions established by foreign 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 Philippine income tax pursuant to Section 32(B)(7)(a) of the 1997 Tax Code. EScAID Since Landesbank Nordrhein-Westfalen, which now owns WestLB AG, is a financing institution owned or controlled by a foreign government, interest income to be remitted by CBK Power Company Limited to WestLB AG, the entity that replaced WLG pursuant to the Act, is not subject to Philippine income tax and consequently, to the withholding tax pursuant to Section 57(A) in relation to Section 58, both of the 1997 Tax Code, as implemented by Revenue Regulations 2-98, as amended. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By. (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group