BIR Ruling [DA-319-00]

August 22, 2000 BIR RULING [DA-319-00] Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles 30th Floor, CitiBank Tower Citibank Plaza 8741 Paseo de Roxas Makati City Attention: Atty . Priscilla B . Valer Gentlemen : This refers to your letter dated May 15, 2000 stating that your client, Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N. V. (a.k.a. Netherlands Development Finance Company or FMO)("FMO"), is a financial institution which is owned, controlled and financed by the State of Netherlands; that it is organized for the purpose of providing financial assistance to the private sector in developing countries, inter alia by subscribing to share capital, by granting loans and providing subsidies; that FMO is not engaged in trade or business in the Philippines; that FMO's authorized capital stock is 50 million Dutch Guilders (NLG) which is divided into 510,000 A shares of NLG50 each, which may be held only by the State of Netherlands. and 490,000 B shares of NLG50 each, which may be held by private investors; that the State of Netherlands owns 51% or 204,000 shares out of the total 400,000 issued and outstanding shares of FMO; and that FMO operates partly with funds drawn directly from budget appropriations for the Development Fund and partly with borrowings on the Dutch capital market. Based on the foregoing representations, you now request for a ruling that since FMO is a financial institution which is owned, controlled and financed by the State of the Netherlands, its 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 is exempt from Philippine income tax and consequently from withholding tax. In reply, please be informed that Section 32(B)(7)(a) of the Tax Code of 1997 provides that 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) financial institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments shall not be included in gross income and shall be exempt from taxation. Accordingly, since as represented FMO is a financial institution owned, controlled and financed by the State of Netherlands as contemplated under Section 32(B)(7)(a)(ii) of the Tax Code of 1997, any income received by FMO from its investment in the Philippines, such as interest on loans, interest on deposits, interest on bonds, dividends, and capital gains on sale of shares of stock, bonds, and other domestic securities, are exempt from Philippine income tax and consequently from withholding tax. (BIR Ruling No. 215-91 dated October 24, 1991) 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. DCcTHa Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group