BIR Ruling [DA-566-06]

September 19, 2006 BIR RULING [DA-566-06] DA 216-05 Deutsche Bank AG 26th Floor, Ayala Tower One Ayala Triangle Makati City Attention: Mr. Manuel C. Malabanan and Ms. Naneth S. Vinoya Gentlemen : This refers to your letter dated March 20, 2006 stating that the Deutsche Bank AG Manila Branch Trust Department (DBTrust) has been appointed as Trustee under a Trust Agreement separately executed with each tax-exempt clients/trustors (TEC),to wit: a) various BIR-qualified tax exempt private benefit plans, for each of which a trust fund has been created to implement the provisions of its "reasonable private benefit plan" within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997; and b) various non-stock, non-profit educational institutions, for each of which a trust fund has been created to invest its assets and generate investment income that is used actually, directly and exclusively in pursuance of its purpose as an educational institution. that the following BIR-qualified tax-exempt employees' benefit plans and non-stock, non-profit educational institutions are being operated under the name of DBTrust TR-001 Emirate Employees Retirement Plan TR-001B DNATA Wings Aviation Systems Corp. Retirement Plan TR-002 Procter & Gamble Phils. Retirement Plan TR-004 Coca Cola Bottlers Phils. Retirement Plan TR-005 Golay Buchel Phils. Retirement Plan TR-007 Goya Inc. Retirement Plan TR-009 International Wiring Systems (Phils.) Corp. Ret. Plan TR-010 Prudentialife Multi-Employer Ret. Fund TR-011 Philippine Belt Mfg. Corp. Retirement Plan TR-012 Intel Technology Phils.,Inc. Retirement Plan TR-013 Material Resources Int'l Corp. Retirement Plan TR-014 Dow Chem Phils. Retirement Plan TR-015 Wyeth Phils.,Inc. Retirement Plan HIAESC TR-016 Alaska Milk Corp. Retirement Plan TR-017 Catholic Educational Asso. Of the Phils. Retirement Plan TR-018 Lincoln National Life Insurance Co.,Inc. Retirement Plan TR-019 Automatic Response Inc. Retirement Plan TR-021 Temic Automotive Phils.,Inc. Retirement Plan TR-023 Boehringer Ingelheim Retirement Fund TR-024 Temic RF Technologies (Phils.) Inc. Ret. Plan TR-025 Van Melle Phils.,Inc. Retirement Plan TR-026 Sika Phils. Inc. Retirement Plan TR-028 Societe Generale Manila Offshore Br. Ret. Plan TR-029 Intel Phils.,Manufacturing Retirement Plan TR-030 B. Braun Medical Supplies Inc. Ret. Plan TR-031 Vishay Phils.,Inc. Emp. Ret. Fund TR-032 P.J. Lhuiller Employees Retirement Plan TR-033 Swedish Match Phils.,Inc. Retirement Plan TR-034 Merck Inc. Retirement Plan TR-035 Philam Insurance Co.,Inc. Retirement Plan TR-036 Bankers Asso. Of the Phils. Employees Ret. Plan TR-038 Reuters Ltd.,Phils. Retirement Plan TR-039 Firmenich Phils. Inc. Emp. Ret. Fund TR-044 Merck Sharp & Dhome TR-046 Asian Institute of Management Faculty Retirement Plan TR-049 Primark Phils. Ret. Fund TR-051 Ateneo de Manila University Retirement Plan TR-052 United Laboratories Inc. Retirement Plan TR-053 Toyota Motor Phils. Corp. Ret. Plan TR-054 Del Monte Philippines, Inc. Retirement Plan TR-055 Deutsche Bank AG Ret. Fund TR-057 Yazaki Torres Mftg. Inc. Retirement Plan TR-059 Regis Partners Inc. Ret. Plan TR-064 Cathay Pacific Airways (Phils.),Inc. Emp. Ret. Fund TR-069 Siemens Power Operation Emp. Ret. Fund TR-075 Fujitsu Phils.,Inc. Ret. Fund TR-072 Genosi Inc. Retirement Plan TR-076 Globe Telecoms, Inc. Emp. Ret. Fund TR-077 Innove Communications, Inc. Emp. Ret. Fund (formerly known as Islacom Phils.,Inc. Employees Ret. Fund) TR-079 Triumph International Phils.,Inc. Employees Ret. Plan TR-081 Kouk Group of Cos. (Non-Hotel) Employees Ret. Fund TR-082 SCA Hygiene Products Corp. Emp. Ret. Fund TR-084B AIM Scientific Research Fdn.,Inc. TR-088 BASF Group of Companies Ret. Fund TR-091 Miriam College TR-093 Invensys Phils. Inc. Emp. Ret. Plan that as Trustee, DBTrust holds legal title to the trust fund assets while the TECs retain beneficial title thereto; that as such, DBTrust invests the TECs' trust funds in various investment instruments that include loans to the Top 10,000 corporations; that these loans are evidenced by Promissory Notes issued in favor of DBTrust as Trustee for various trust accounts; that all periodic interest payments from the Top 10,000 corporations are not being subjected to the 20% final tax on interest and are delivered to DBTrust for immediate credit to the trust accounts of the TECs that funded the loan; that such interest payments do not constitute income of DBTrust; and that in consideration for its trusteeship and fund management services, DBTrust is separately compensated by the TECs based on a predetermined fee structure. DaCTcA In connection therewith, you now request for an opinion that the loan interest payments made, to the BIR-qualified employees' trust and non-stock, non-profit educational institutions, by the Top 10,000 corporations should not be subject to creditable withholding tax of 2% prescribed in Revenue Regulations No. 17-2003. In reply thereto, please be informed that Section 2.57.5(B) of Revenue Regulations No. 2-98 is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from the payment of income taxes pursuant to the provisions of any law, general or special. A non-stock, nonprofit educational institution is exempt from income tax pursuant to the 1987 Philippine Constitution and a qualified private benefit plan under Section 32(B)(6)(a) of the Tax Code of 1997 is likewise exempt from income tax on its investment pursuant to Section 60(B), supra . SUCH BEING THE CASE, interest payments made by the top 10,000 corporations to a non-stock, non-profit educational institution as well as to a qualified private benefit plan are not subject to the 2% withholding tax prescribed in Revenue Regulations 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