BIR Ruling [DA-534-98]

November 26, 1998 BIR RULING [DA-534-98] Joaquin Cunanan & Co. 14th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Mr . Alexander B . Cabrera Partner Gentlemen : This refers to your letter dated September 2, 1998 requesting confirmation of your opinion that the interest payments on account of a foreign loan to a resident of Sweden is subject only to the preferential tax treaty rate of 15% income/withholding tax as provided under the RP-Sweden Tax Treaty. It is represented that Ericsson Telecommunications, Inc . (ETI) is a corporation organized and existing under the laws of the Philippines. Its lender, Ericsson Treasury Services, AB (ETS), on the other hand, is a foreign corporation organized and existing under the laws of Sweden without a permanent establishment in the Philippines. On May 2, 1998, ETI obtained an interest-bearing loan from ETS to finance its projects and other business operations. In reply, please be informed that Article 11 of the RP-Sweden Tax Treaty provides, viz: "ARTICLE 11 Interest (1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2) However, such interest may also be taxed in the Contracting State in which it arises and according to the law of the State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. (3) The term "interest" as used in this Article means income from debt claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises, including interest on deferred payment sales. Penalty charges for late payment shall not be regarded as interest for purposes of this Article. xxx xxx xxx" Such being the case, your opinion that the interest payments on account of the foreign loan to ETS is subject to income/withholding tax rate of 15% as prescribed under Article 11 of the RP-Sweden Tax Treaty is hereby confirmed. (BIR Ruling Nos. 142-95 and DA-359-98 dated August 4, 1998) 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 considered null and void. aisadc Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group