BIR Ruling [DA-267-96]

July 22, 1996 BIR RULING [DA-267-96] SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty . J . A . Osana Gentlemen : This refers to your letter dated February 20, 1996 requesting confirmation of your opinion that the State General Reserve Fund is exempt from Philippine withholding tax on income received from its investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in banks in the Philippines. It is represented that the State General Reserve Fund (SGRF) is an agency of the Sultanate of Oman; that it was established under Royal Decree 1/80 dated August 1, 1980 by the Sultanate of Oman; that it was created to safeguard the future economic development of the Sultanate of Oman and is authorized to guarantee any loan contracted by the Sultanate of Oman; that the resources of the SGRF is composed of the following: (1) any government balances or negotiable investments valued in freely convertible currencies held in surplus as of January 1, 1980 with the exception of operation accounts necessary for running state affairs: (2) 15% of each net payment of oil revenues; (3) any surpluses at the end of each financial year; (4) the return on investment of fund monies; and (5) any other resources as QABOOS SIN SAID, Sultan of Oman may think appropriate to be added to the SGRF; that SGRF has passive investments in the Philippines; that it is the beneficial owner of shares of stock in Philippine domestic corporations, among others; that these shares of stock are maintained by your client, Hongkong and Shanghai Banking Corporation, Ltd. as the custodian bank of SGRF; and that SGRF derives passive income from its investment including dividend income from domestic corporations. In reply, please be informed that pursuant to Section 28(b) (8) (A) of the Tax Code, as amended, income received 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 by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from them, and (iii) international or regional financing institutions established by government, shall not be included in gross income and shall be exempt from taxation. Accordingly, since as represented the State General Reserve Fund is an agency instrumentality of the government of the Sultanate of Oman, it falls within the purview of the term "financing institutions owned, controlled, or enjoying refinancing from them" as contemplated under Section 28(b) (8) (A) (ii) of the Tax Code, as amended. Hence income received from SGRF's investment in the Philippines in loans, stocks such as dividends, bonds or other domestic securities, or interest on its deposits in banks in the Philippines, are exempt from Philippine income tax and consequently from withholding tax. (BIR Ruling No. 049-94 dated February 8, 1994) 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 null and void. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant Legal Service