15% Withholding Tax — Interest Earnings

January 3, 1980 BIR RULING NO. 002-80 Komisyon Ng Mga Imbentor Sa Pilipinas (Philippine Inventors Commission) 3rd Floor, PTRI Bldg., NSDB Compound Gen. Santos Avenue, Bicutan, Taguig Metro Manila Attention: Mr . Felipe Ll . Santillan Commissioner Gentlemen : This refers to your letter dated November 27, 1978 requesting that the interest earnings of the Invention Guarantee Fund of the National Science Development Board (NSDB) deposited with the Development Bank of the Philippines (DBP) be exempted from the 15% withholding tax imposed by Presidential Decree No. 1156. cd It is represented that pursuant to Section 8 of Republic Act 3850 as amended by Presidential Decree No. 1423 and in accordance with the Memorandum of Agreement executed by and between the DBP, the Philippine Inventors Commission and the NSDB on October 10, 1978, the initial amount of one million pesos (P1M) from the Grants-In-Aid Fund of the NSDB was set aside to comprise the initial NSDB Invention Guarantee Fund and was deposited by and in the name of the NSDB with the DBP with interest rate of 7% per annum for the purpose of guaranteeing unsecured loans from the DBP to deserving inventors who are unable to meet DBP's collateral requirements. You contend that since the NSDB is a government entity organized and operated exclusively for scientific purposes, it is exempt from payment of taxes pursuant to Sections 27 and 29 of the Tax Code, as amended; and that Section 3 of Revenue Regulations 8-77 implementing Presidential Decree No. 1156 provides that the 15% withholding tax does not apply to interest paid on deposits maintained by tax-exempt entities certified by this Office. In reply, please be informed that since Section 2 of Presidential Decree No. 1177, otherwise known as the Budget Reform Decree of 1977, now subjects all units of government to income tax, it is deemed to have revoked the tax exemption privileges that NSDB enjoyed prior to July 30, 1977, the date the aforesaid Presidential Decree took effect. Since NSDB is liable to income tax, the interests on its bank deposits are therefore subject to the 15% withholding tax. cdti Very truly yours, RUBEN B. ANCHETA Acting Commissioner