BIR Ruling [DA-697-99]

December 17, 1999 BIR RULING [DA-697-99] Laya Managhaya & Co . 22/F Antel 1000 Corporate Centre 139 Valero Street, Salcedo Village Makati City Attention: Atty . R . A . Noval and Atty . Ronald L . Carreon Gentlemen : This refers to your letter dated July 2, 1999, on behalf of your client Steel Corporation of the Philippines (SCP), requesting for a confirmation of your opinion that interest income received by holders of long-term commercial papers (LTCP) with a term of at least five (5) years to be issued by SCP is exempt from income and other internal revenue taxes pursuant to Section 6(E) of Republic Act No. 7103, otherwise known as the Iron and Steel Industry Act. It is represented that SCP is a domestic corporation registered with Securities and Exchange Commission on October 3, 1994; that it was granted Certificate of Eligibility No. 94-556 by the Board of Investments (BOI) on December 23, 1994 pursuant to the provisions of RA No. 7103 and was issued Certificate of Registration No. DP-95-187 on December 18, 1995 as New Domestic Producer of Flat Products on a preferred pioneer status pursuant to the provisions of Executive Order No. 226, as amended, otherwise known as the Omnibus Investments Code of 1987; and that as such, SCP is eligible for incentives under RA 7103 and EO 226. In reply, please be informed that Section 6(e) of Republic Act No. 7103, otherwise known as "An Act to Strengthen the Iron and Steel Industry and Promote Philippine Industrialization and for Other Purposes," provides, viz: "Sec. 6 Incentives . All enterprises certified by the BOI in accordance with the foregoing section of this Act shall be entitled to the following incentives." xxx xxx xxx (c) Other Loans . The certified enterprise shall be authorized to contract; subject to the prior approval of the Central Bank of the Philippines, such loans, credits and indebtedness, from time to time and in any convertible foreign currency or capital goods, from foreign private financial institutions or fund resources as may be necessary to undertake the manufacturing activity described in Section 5(b) above. The Central Bank of the Philippines shall give priority to the applications made by certified enterprises to foreign currency loans, debt-asset and debt-equity conversion and such other transactions as may receive the approval of the Central Bank of the Philippines. The Government shall likewise encourage private financial institutions, whether domestic or foreign, to extend loans for equity investments of Philippine nationals in a certified enterprise. The interest income from loans with maturity of five (5) years or more extended by financial institutions shall be exempt from all national internal revenue taxes." Furthermore, Section 8 of the said Republic Act No. 7103 provides, as follows: " Sec. 8. Time Frame . All fiscal incentives in this Act shall apply for a duration consistent with the provisions of the Omnibus Investments Code: Provided, That in less developed areas, the duration shall be fifteen (15) years from the effectivity of this Act" Based on the foregoing and since Steel Corporation of the Philippines is a holder of Certificate of Eligibility under the provisions of R.A. 7103, interest income from loans with maturity of five (5) years or more extended by domestic and foreign financial institutions to it shall be exempt from all national internal revenue taxes for a period of fifteen (15) years. (BIR Ruling No. 118-96 dated November 4, 1996) 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)