BIR Ruling No. 009-83

January 14, 1983 BIR RULING NO. 009-83 Gentlemen : This refers to your letter dated March 26, 1981 requesting exemption from the payment of 15% withholding tax on interest due on your foreign loan extended by Kao Soap., Ltd., a Japanese corporation, under the RP-Japan Tax Treaty. It appears that you are a corporation duly registered under the laws of the Philippines; that you were extended a loan by Kao Soap Co., Ltd., a Japanese corporation with principal office in Tokyo, in the amount of Yen 180,000,000.00 on December 29, 1978 payable within thirteen (13) years with an interest rate of 1% per annum ; and that the aforestated loan was obtained by Kao Soap Co., Ltd., from the Japan International Cooperation Agency, (JICA) a financial institution owned and controlled by the Government of Japan. In reply, I have the honor to inform you that the pertinent portions of paragraph 14, Articles 11 of the RP-Japan Tax Treaty provides: "Notwithstanding the provisions of paragraphs (2) and (3), interests arising in a Contracting State and derived by the Government of the other Contracting State including political subdivisions and local authorities thereof, the Central Bank of the other Contracting state or any financial institution wholly owned by that Government, or by a resident of the other Contracting State with respect to debt-claims guaranteed or indirectly financed by the Government of that other Contracting State including political subdivisions and local authorities thereof, the Central Bank of that other Contracting State or any financial institution wholly owned by that Government shall be exempt from tax in the first-mentioned Contracting State . For purposes of this paragraph, the term "financial institution wholly owned by . . . Government" means: (a) In the case of Japan, the Export-Import Bank of Japan, the Overseas Economic Cooperation Fund and the Japan International Cooperation Agency; . . ." Under the above quoted provisions of the tax treaty, interest income derived from a foreign loan indirectly financed by the JICA is exempt from tax in the Philippines. cdta In the instant case, the loan which was extended to you by Kao Soap Co., Ltd., was obtained by the latter from JICA, hence, the same was indirectly financed by JICA. Such being the case, your interest payments beginning January 1, 1981, the effective date of the tax treaty, are exempt from the 15% withholding tax. However, your interest payments prior to January 1, 1981 are subject to the 15% withholding tax, in accordance with Section 24 (b) (1) (ii) of the Tax Code, in relation to Sections 53 and 54, of the same Code. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue