15% Income Tax — Foreign Loan

January 19, 1981 BIR RULING NO. 011-81 0-21 (b) (ii) 000-78 011-81 Philippine International Shipping Corporation PMI Bldg., 28 Quirino Highway Balintawak, Quezon City Attention: Mr . George U . Lim President Gentlemen : This refers to your letter dated October 15, 1980 requesting a ruling as to whether or not your company is subject to the withholding tax on interest payments made on foreign and domestic loans contracted by you. It is represented that your company has secured a US $9.44 million loan from Ultrafin AG of Switzerland which was used to finance the 80% acquisition cost of its two vessels acquired in 1978; that in 1979 it secured an interim loan of US $34.592 million through the Philippine National Bank Foreign Currency Deposit Unit (FCDU) which will be drawn down to long term funds under the Central Bank of the Philippines Consolidated Foreign Borrowings Program (CB-CFBP) Jumbo loan; that said loan was used to finance the 80% acquisition cost of its five (5) additional vessels; that in the loan agreements which your company has executed with various foreign financing institutions, the 15% withholding tax on interest on said foreign loans is for your company's account as debtor. In reply thereto, I have the honor to inform you that loan secured by you from the Swiss corporation is a foreign loan; hence your interest payments to said foreign corporation are subject to the 15% income tax prescribed by Section 24(b)(ii) of the Tax Code, as amended. On the other hand, the interest income on the foreign currency loan granted by the PNB Foreign Currency Deposit Unit is subject to the 10% withholding tax as final tax, pursuant to Section 24(f)(2) of the Tax Code. In both instances, as payor-borrower, you are constituted as the withholding agent charged with the duty of deducting, withholding and remitting the tax to this Office, pursuant to Sections 53 and 54 of the Tax Code. aisadc Very truly yours, RUBEN B. ANCHETA Acting Commissioner