15% Withholding Tax — Non-financing Institution

January 19, 1981 BIR RULING NO. 013-81 029-b8A 000-00 013-81 J.S. Zulueta & Co. M-Floor, Padilla Bldg. Emerald Avenue, Ortigas Commercial Center, Pasig Metro Manila Attention: Mr . Carlos G . Zulueta Gentlemen : This refers to your letter dated January 19, 1980 requesting exemption from the payment of the 15% withholding tax on the interest payments to be made by your client, Marinduque Mining and Industrial Corporation in favor of Kobe Steel, Ltd. of Tokyo, Japan pursuant to the Credit Agreements executed by them on July 3, 1971 and August 6, 1973. It is represented that the Export-Import Bank of Japan is an independent governmental institution; that Kobe Steel, Ltd. is financed directly by the said bank and that the loan was given to your client through Kobe Steel, Ltd., by the said bank. In reply thereto, I have the honor to inform you that income received by financing institutions enjoying refinancing by foreign governments in loans, stocks, bonds, or other domestic securities, or from interest on their deposits in banks in the Philippines are exempt from income tax in accordance with Section 29(b)(8)(A)(2) of the National Internal Revenue Code, as amended. In other words, to come within the purview of the exemption, the foreign lender must be a financing institution . From the papers at hand, it appears that the Export-Import Bank of Japan issued a credit directly to Kobe Steel, which in turn extended a loan for the purchase of the machinery and equipment supplied by it to your client. Thus, the foreign lender in this case is Kobe Steel, which does not appear to be a financing institution. Such being the case, interest payments on the aforesaid loans are not exempt from Philippine income tax. Consequently, they are subject to the 15% withholding tax prescribed by Section 53(b)(2) in relation to Section 54 of the Tax Code. cdt Very truly yours, RUBEN B. ANCHETA Acting Commissioner