BIR Ruling [DA-312-05]

July 6, 2005 BIR RULING [DA-312-05] Section 32 (B) (7) (a) Sycip Salazar Hernandez & Gatmaitan SSGH Law Center, 105 Paseo de Roxas Makati City Attention: Attys: Ernesto S. Taio, Jr. Philbert E. Varona Gentlemen : This refers to your letter dated March 11, 2005 in behalf of your client, The Industrialization Fund for Developing Countries requesting for a confirmation of your opinion that the income or gains to be derived from the sale of shares are exempt from Philippine income tax. It is represented that The Industrialization Fund for Developing Countries (IFU) is a self-governing institution wholly financed by the Danish government and established by Act No. 243 on June 7, 1967 as amended by Act No. 297 on June 10, 1971 of the Parliament of the Kingdom of Denmark, with office address at 4 Bremerholm, 1069 Copenhagen K. Denmark; and that Bacnotan Consolidated Industries, Inc.,(Bacnotan) and Atlas Cement Corporation (ACC) are corporations duly organized and existing under the laws of the Philippines; that by virtue of a Deed of Absolute Sale executed by IFU and Bacnotan in counterparts on December 29, 2004, Bacnotan purchased 215,000 common shares of ACC (the Subject Shares) from IFU. In reply, please be informed that Section 32(B)(7)(a) of the Tax Code of 1997 provides as follows: "SEC. 32. Gross Income . xxx xxx xxx (B) Exclusions from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (7) Miscellaneous Items . (a) Income Derived by Foreign Government . Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments." CASIEa In view of the foregoing, the sale executed by IFU and Bacnotan in counterparts on December 29, 2004, where Bacnotan purchased 215,000 common shares of ACC (the Subject Shares) from IFU a self-governing institution wholly financed by the Danish government, this Office hereby confirms your opinion that any income derived by a financing institution owned, controlled or enjoying refinancing from a foreign government from investments in shares of stock in a Philippine corporation is excluded from the financing institutions gross income and is exempt from taxation. This ruling is issued on the basis of the foregoing representations. 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group