ING Bank N.V. Manila Branch

December 23, 2009 BIR RULING [DA-(FIT-025) 836-09] S-24 (B) (1); DA-064-02, DA-(FIT-04)117-09 ING Bank N.V. Manila Branch 20/F Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue, Makati City Attention: Ms. Maria Paz Agojo-Garcia Head, Legal & Trust Administration and Ms. Elvie Y. Reyes Trust Compliance Officer Gentlemen : This refers to your letter dated July 23, 2009 requesting for confirmation on the tax exemption from the 20% final withholding tax under Section 24 (B) (1) of the 1997 Tax Code on the interest income earned by a tax exempt long term Unit Investment Trust Fund ("UITF"), which as per BSP Circular No. 447 is synonymous with Common Trust Fund ("CTF") which you intend to launch and offer to individual clients who are citizens and/or resident aliens of the Philippines. It is represented that ING Bank N.V. Manila Branch is a banking corporation duly organized and existing under and by the virtue of the laws of the Netherlands, duly licensed to operate as a universal bank and to perform fiduciary functions by the Bangko Sentral ng Pilipinas. The provisions of the Declaration of Trust provide, among others, that the purpose of this UITF is to create a medium through which investible funds are pooled together for collective investment and to provide clients access to higher yielding investment instruments, investment diversification and higher yield potential due to the benefits of tax exemption. The UITF shall be administered and maintained exclusively for the collective investment and reinvestment of funds in investment outlets which are not commonly available to participants or investors. The trustee shall have exclusive management, administration, operation and control of the Fund as well as the full power and authority on the matter of investment and reinvestment of the same. The Fund shall be limited to individual trustors/investors who are Filipino citizens or resident aliens. Participation in the Fund shall be non-negotiable and non-transferable. The date of the contribution to the Fund shall be clearly indicated in the confirmation of participation to serve as basis for the Trustee to determine the period of participation. The Declaration of Trust and Participation Trust Agreement also provides that the interest income earned by a Filipino citizen or resident alien-investor from the Fund derived from investments interest bearing instruments which are otherwise subject to 20% final withholding tax shall be exempt from such tax, provided participation in the Fund is for a period of at least five (5) years. If the participation is for a period less than five (5) years, client's interest income shall be subject to a final tax which shall be deducted and withheld based on the schedule contained in Section 24 (B) (1) of the 1997 Tax Code. prLL In reply, please be informed that this Office has, on several occasions, ruled that interest income derived by individual citizens and individual resident aliens, as well as non-resident aliens engaged in trade or business in the Philippines from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under Sections 24 (B) (1) and 25 (A) (2), both of the 1997 Tax Code, as amended. (BIR Ruling No. 101-98 dated June 29, 1998; BIR Ruling No. 63-00 dated Nov. 20, 2000; BIR Ruling No. 3-05 dated July 22, 2005) Section 22 (FF) of the Tax Code of 1997 defines the term "long term deposit or investment certificate" as follows: "The term 'long term deposit or investment certificate' shall refer to certificate of time deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments with a maturity period of not less than five (5) years, the form of which shall be prescribed by the Bangko Sentral ng Pilipinas (BSP) and issued by banks only (not by non-bank financial intermediaries and finance companies) to individuals in denominations of Ten thousand pesos (P10,000) and other denominations may be prescribed by the BSP." In relation to this, Sections 24 (B) (1) and 25 (A) (2), both of the 1997 Tax Code, as amended, provide that interest income derived by individual citizens and individual resident aliens, as well as non-resident aliens engaged in trade or business in the Philippines, from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this Subsections: Provided finally, That should the holder of the certificate preterminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12% and Less than three (3) years 20% In view thereof, and considering that your proposed long term Unit Investment Trust Fund (UITF) as described above are in full compliance with the requisites of "long-term deposit or investment certificate" as defined under Section 22 (FF) of the 1997 Tax Code, as amended, the interest income to be derived therein by your individual clients, who are Filipino citizens, resident aliens, as well as non-resident aliens engaged in trade or business within the Philippines, shall be exempt from the 20% final withholding tax under Sections 24 (B) (1) and 25 (A) (2) of the Tax Code of 1997, as amended. ATSIED A meticulous study of the above-cited section disclosed further that there is nothing which would prohibit your individual clients who are holders of the certificates to pre-terminate the deposit or investment before the fifth (5th) year period. However, the withdrawal of the principal deposit/investment before the 5th would subject the said entire earnings to a final withholding tax depending on the holding period of the instrument as stated above. Finally, for better monitoring purposes, the bank shall have to set up a separate numbering system in its books for these proposed long term Unit Investment Trust Fund (UITF) you will now be offering to your individual clients. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service