BIR Ruling [DA-270-99]

May 7, 1999 BIR RULING [DA-270-99] Office of the Revenue District Officer Revenue District No. 19 Subic Bay Freeport Zone Attention: Mr . Edgar B . Tolentino Officer-in-Charge/ Assistant Revenue District Officer This to your letter dated February 24, 1999 requesting confirmation of your opinion that "the interest income earned by any SBF-registered enterprise from any currency bank deposit (Philippine Peso and FCDU) and yield or any other monetary benefit from the deposit substitute and from trust funds are subject to the preferential tax rate of five percent (5%) instead of the final tax of 20% on interest income on peso deposits and 7.5% interest income on foreign currency deposits". In reply, please be advised that Section 6(f) of Revenue Regulations I-95 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 receive 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 enterprises operating within the Secured Area in the Zone shall be subject to the appropriate tax law rates of the Customs Territory." Although the above-quoted provision speaks of only Philippine currency bank deposits, we see no cogent reason why foreign currency deposit should receive a different treatment, particularly considering that the very nature of the business of SBF enterprises requires them to maintain foreign currency deposits. It is well-established that SBF enterprises are exempt from all internal and local taxes and in lieu thereof, they shall pay a final tax of five (5%) percent of gross income earned. Once issued a Certificate of Registration as an SBF Enterprise, the business enterprise shall be entitled to all the benefits provided for by law. (Section 21 Rules and Regulations Implementing R.A. 7227). Likewise, there are pertinent provisions of the Rules and Regulations implementing the provisions relative to the Subic Special Economic and Freeport Zone and the Subic Bay Metropolitan Authority under Republic Act no. 7227, Otherwise Known as the "Bases Conversion and Development Act of 1992", pointing that FCDU accounts are recognized in the operation of SBF Enterprises, as follows: "SEC. 79. Foreign Exchange Accounts . All SBF Enterprises and Residents shall be free to maintain foreign exchange accounts with any bank or financial institution licensed to hold deposits in foreign exchange." xxx xxx xxx "SEC. 89. Foreign Currency Depository Units . Any bank registered as a Foreign Currency Depository Unit (FCDU) may accept deposits, make loans, and otherwise provide financial services in foreign exchange to SBF Enterprises and Residents, in accordance with Central Bank regulations governing FCDU's." In view thereof, this Office is of the opinion and so holds that the interest income earned within by SBF-registered enterprise within the zone, whether in peso or in foreign currency deposit, are subject to the preferential tax rate of 5%. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group