Nissin Brake Philippines Corporation

April 17, 2007 BIR RULING [DA-232-07] RR 7-95 015-2004 Nissin Brake Philippines Corporation 127 North Science Avenue, SEPZ Laguna Technopark, Inc. Bian, Laguna Attention: Ms. Arceli C. Seva Accounting Supervisor Gentlemen : This refers to your letter dated September 28, 2005, a copy of which was received by this Office on August 16, 2006, requesting exemption from the payment of value-added tax on the interest income Nissin Brake Philippines Corporation (NBPC) is receiving from its landholding company. It is represented that Nissin Brake Philippines Corporation is a 100% Japanese owned company; that it is a Philippine Economic Zone Authority (PEZA) registered enterprise under Certificate of Registration No. 95-74 dated July 20, 1995; that NBPC is registered to manufacture pad and shoe components for brake system; that foreign owned companies cannot buy real property, hence the need to establish a landholding company under BOI to facilitate its operations; that Nissin Brake Realty (NBR) was incorporated only for this purpose; that NBPC lent money to finance the operation of NBR, only to acquire land and it has not performed since then, any other activity other than being a land owner; that this lending of money was covered by a loan agreement for twenty five (25) years with a five percent (5) interest per annum; and that this is where the interest income earned by NBPC arises and this same interest income is the one being subjected to 10% VAT. HcTSDa In reply, please be informed that Revenue Regulations No. 7-95 defined a lending investor as follows, viz: The term "lending investor" includes all other persons other than banks, non-bank financial intermediaries, finance companies and other financial intermediaries not performing quasi-banking functions who make a practice of lending money for themselves or others at interest." It is clear from the foregoing facts that NBPC is not engaged in the practice of lending money. It is organized as a manufacturer of pad and shoe components for brake system rather than to engage in lending activities. The lending of money for an interest which is not pursued as a business activity but merely to establish a landholding company under BOI to facilitate its operations, will not make the lender a lending investor within the contemplation of Section 108 of the Tax Code. Accordingly, the interest income earned or received by NBPC from its loan to NBR is exempt from the value-added tax. (BIR Ruling No. 015-2004 dated May 18, 2004) CacISA This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service