Sycip Salazar Hernandez & Gatmaitan

May 2, 2008 BIR RULING [DA-281-08] Secs. 24 (B) (1) & 27 (D) (1); DA-201-2004 Sycip Salazar Hernandez & Gatmaitan SSHG Law Center, 105 Paseo de Roxas Makati City Attention: Atty. Emmanuel C. Paras Atty. Dodjie D. Lagazo ING Trust Department Gentlemen : This refers to your letter dated February 28, 2005 stating that clients called Trustors or Account Holders invest their funds in various trust products of ING Trust Department ("ING Trust"); that as trustee, ING Trust holds legal title to the funds but the Trustors or Account Holders retain beneficial title thereto; that as such, ING Trust invests said funds in various investment outlets such as loans to the top ten thousand corporations (the "Loans"); that the Loans are evidenced by promissory notes in favor of ING Trust; that the interest payments from the Loans are made to ING Trust, but these interest payments are, in turn, conveyed by ING Trust to the concerned Trustors or Account Holders who, or which, funded the Loans; that the interest payments are not income of ING Trust but of the Trustors or Account Holders; that ING Trust withholds final tax on the interest payments based on the rate required for interest income of the concerned trust funds upon release of funds or interest thereof to the Trustors or Account Holders pursuant to Section 24 (B) (1) and 27 (D) (1), as the case may be. In connection therewith, you now request confirmation of your opinion that the interest payments made by the top ten thousand corporations to ING Trust in respect of the Loans funded by the Trustors or Account Holders are not subject to the 2% creditable withholding tax as prescribed in Section 2.57.2 (M) of Revenue Regulation No. 2-98, as amended by Revenue Regulation No. 17-2003. In reply thereto, please be informed that Section 2.57.2 (M) of Revenue Regulation No. 2-98, as amended by Revenue Regulation No. 17-2003, provides: (M) Income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax. Income payments made by any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, to their local/resident supplier of goods and local/resident supplier of services, including non-resident alien engaged in trade or business in the Philippines. SEHaDI Supplier of goods One percent (1%) Supplier of services Two percent (2%) xxx xxx xxx Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. The income recipient is still required to file an income tax return, as prescribed in Sections 51 and 41 of the Tax Code of 1997, to report the income and/or pay the difference between the tax withheld and the tax due on the income. (Section 2.57 (B), Revenue Regulations No. 2-98, as amended) On the other hand, under the final withholding tax system, the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. In the instant case, the interest payments made by the top ten thousand corporations are already covered by other rates of withholding tax which is the 20% final withholding tax as prescribed in Sections 24 (B) (1) and 27 (D) (1) of the Tax Code of 1997. Thus, the subject interest payments are not income payments to ING Trust but to the Trustors or Account Holders, notwithstanding that ING Trust holds legal title to the funds, but the beneficial title remains with the Trustors or Account Holders. It is for this reason that the interest paid by ING Trust to its Trustors or Account Holders is already subject to the 20% final withholding tax. SUCH BEING THE CASE, and in accordance with BIR Ruling No. DA-201-2004 dated April 12, 2004 (holding that interest payments made by the top ten thousand corporations for their loans funded by a bank's trust department, acting as trustee of various funders, is no longer subject to the 2% creditable withholding tax prescribed in Section 2.57.2 (M) of Revenue Regulations No. 17-2003, amending Revenue Regulations No. 2-98), the interest payments made by the top ten thousand corporations to ING Trust in respect of the Loans funded by the Trustors or Account Holders, are no longer subject to the 2% creditable withholding tax prescribed in Section 2.57.2 (M) of Revenue Regulation No. 2-98, as amended by Revenue Regulation No. 17-2003. 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service