15% Tax — Interest Income from Foreign Loan

January 3, 1980 BIR RULING NO. 003-80 Molave Tours Corporation Midland Plaza Ermita, Manila Attention: Ms . Delia P . Carapiet Vice President and General Manager Gentlemen : This refers to your letter dated June 15, 1979 stating that your company has an existing interest bearing deferred foreign obligation from a non-resident foreign corporation; that said obligation inclusive of interest due thereon, is secured by an irrevocable letter of credit issued by the Philippine National Bank (PNB); that relying on a Central Bank (CB) circular-letter dated January 21, 1977, the PNB opined that in this case, PNB is the withholding agent required to deduct and withhold the 15% tax on the interest income from said foreign loan; and that the 15% tax withheld must be remitted to the BIR in advance, the official receipt of the remittance being a condition precedent for the approval of the remittance by the CB of the interest to the foreign creditor. Based on the aforestated facts, you posed the following queries: "1. Who is the Withholding Agent; "2. When is the remittance to the BIR of the 15% tax withheld; and "3. Does the Central Bank circular in question have the effect of amending Sec. 54 of our National Internal Revenue Code of 1977 as amended." In reply, I have the honor to inform you as follows: 1. Pursuant to Section 53(b) of the Tax Code of 1977, the party "having the control, receipt, custody, disposal or payment of interest . . ." shall undertake the deduction and withholding of the 15% tax. Inasmuch as that corporation has the control, custody and disposal of the interest payments to be remitted to the non-resident foreign corporation, it is the withholding agent and should, therefore, deduct and withhold the 15% withholding tax due thereon. 2. The corresponding tax deducted and withheld should be reported in a return which shall be filed and the withheld amount remitted to the B.I.R. within 25 days from the close of the calendar quarter. (Sec. 54(a), Tax Code) 3. The CB circular in question does not have the effect of amending Section 54 of the Tax Code of 1977 because, in fact, this Office, "in recommending that one of the required documents to be submitted by applicants for license to remit foreign exchange, is the proof of payment of the withholding tax due thereon, relied on the provision of Section 54 of the Tax Code which empowers the Commissioner of Internal Revenue, with the approval of the Secretary of Finance, to require the withholding agent to pay or deposit the taxes deducted and withheld at more frequent intervals when necessary to protect the interest of the Government. This Office resorted to such practice to insure that all income taxes pertaining to such income remittances have actually been paid thereby attaining the objective of simplifying tax collection through coordination with government agency. Furthermore, under this arrangement the cash budgetary requirement of the government will be favored." (B.I.R. Ruling dated October 10, 1977) cdt Very truly yours, RUBEN B. ANCHETA Acting Commissioner