BIR Ruling [DA-424-05]

October 11, 2005 BIR RULING [DA-424-05] 27 (D) (1);30-056-99 Philippine Band of Mercy 815 Remedios Street, Malate Manila Attention: Mr. Jesus Perez President & Trustee Gentlemen : This refers to your letter dated August 12, 2005 requesting for exemption from the payment of the 20% final withholding tax from interest income of your bank deposits. TIEHSA It is represented that Philippine Band of Mercy (PBM) is a private non-stock, non-profit foundation established in 1937 to provide assistance to indigent disabled children born with cleft lip and palate deformities, hydrocephalus and meninggoceole; that as a non-profit civic organization, no part of the property or income of the foundation inures to the benefit of any member, trustee or officer; that no member, trustee or officer likewise receives compensation or remuneration for the services of the foundation; that to undertake PBM's services/programs it generates income from its property through rentals; that seventy (70%) of all rental revenues goes directly and exclusively to fund PBM's programs; that thirty (30%) percent is re-invested in Perpetual Trust Fund with the Bank of the Philippine Islands (BPI) as it trustee and invested on long term government securities and commercial papers; that PBM invests on securities with maturity of over five (5) years as it prefers the higher interest rate; that the interest earned is divided into 70% being remitted back to PBM again for direct utilization in funding its programs and 30% being re-invested by the trustee; and that when interest is remitted to PBM and when interest is re-invested, a 20% withholding tax is applied. In reply thereto, please be informed that PBM is only exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Accordingly, and since interest income from currency bank deposits and yield or any other monetary benefit from deposit substitute instruments is income from personal property , said interest income is subject to the 20% final withholding tax. However, interest income derived by it from a depository bank under the expanded foreign currency deposit system shall be subject to 7 1/2% final withholding tax pursuant to Section 27(D)(1) in relation to 57(A) both of the Tax Code of 1997. (BIR Ruling S-30-056-99 dated July 7, 1999) Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service