Taxability of Dividend Income to be Remitted to Industrialization Fund For Developing Countries

January 6, 1992 BIR RULING NO. 003-92 28 (b) (8) (A) 125-90 003-92 Sycip, Salazar, Hernandez & Gatmaitan 105 Paseo de Roxas, Makati Metro Manila Gentlemen : This refers to your letter dated November 6, 1991 stating that Industrialization Fund For Developing Countries (IFU) is a financing organization established in 1967 by the government of Denmark; that its primary purpose, is to promote the industrial and commercial development of developing countries, primarily in the form of equity investments in local entities pursuant to the Act of Parliament No. 297 of June 10, 1971; that IFU is financed substantially by the Danish government; and that the activities of IFU form part of the official development efforts of the Danish government; that pursuant to this, IFU invested in two local Cement Companies, namely: Atlas Cement Corporation and Davao Union Cement Corporation; and that the investments in these companies were funded by inward remittances of foreign currencies which have been duly registered with the Central Bank. In connection therewith, you now request for a ruling in behalf of your client, IFU, on whether dividend income to be remitted to it, are exempt from Philippine income tax, and consequently from the withholding tax. In reply, please be informed that pursuant to Section 28(b)(8)(A) of the Tax Code, as amended, income received from investments in the Philippines in loans, stock, bonds, or other domestic securities or from interest on deposits in banks in the Philippines by foreign government, financing institutions owned, controlled, or enjoying refinancing from them, and international or regional financing institutions established by governments are exempt from income tax. Accordingly, considering that IFU is a financing institution owned and controlled by the Danish Government, income derived from its investments in the Philippines, i.e., cash dividends to be remitted to it by Atlas Cement Corporation and Davao Union Cement Corporation are exempt from Philippine income tax and consequently from the withholding tax pursuant to Section 28(b)(8)(A) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue