Applicability of the 15% Withholding Tax on Interest Payable by Planters Products, Inc. to Canpotex, Ltd.

March 18, 1986 BIR RULING NO. 022-86 53 (3) (2) 000-00 022-86 S i r : Reference is made to your letter dated February 28, 1986 requesting on behalf of the Canadian Export Development Corporation (EDC), reconsideration of BIR Ruling No. 24 (b)(ii) 000-00-016-86, regarding the applicability of the 15% withholding tax on interest payable by Planters Products, Inc. (PPI) to Canpotex, Limited, a Canadian exporter. It appears from the additional document submitted that EDC is a crown corporation that provides financial services to Canadian exporters and foreign buyers in order to facilitate and develop export trade; that it does this through a wide range of insurance, guarantee and loan services not normally provided by the private sector; that export sales of general commodities by Canadian firms normally can be insured against non-payment by foreign buyers, and that EDC normally assumes 90% of the commercial risk involving insolvency or default by the buyer. It also appears that as one of the credit insurance services of EDC, the Global Shipment Comprehensive Insurance provides cover from the time of shipment of goods, usually stock items and commodities, until payment is received. As previously represented, Canpotex' shipment to Planters Products, Inc. of 10,000 metric tons of muriate of potash (potassium chloride) valued at US$1,098,400.00 was made on credit and that PPI defaulted in the payment thereof which was due on December 5, 1984. Consequently, post maturity interest at the rate of 18% p.a. was charged by Canpotex on the credit of PPI; and that as clarified by you, what was insured by the EDC is the credit of the foreign buyer (PPI) and not the shipment per se. cdti In reply, I have the honor to inform you that under Par. 7 (b), Article XI of the RP-Canada Tax Treaty which provides as follows: "Interest arising in the Philippines and paid to a resident of Canada shall be taxable in Canada if it is paid in respect of a loan made, guaranteed or insured by the Export Development Corporation." the interest arising in the Philippines and to be paid by Planters Products, Inc. to Canpotex, Limited in respect of the aforementioned credit insured by EDC is taxable in Canada, and consequently, the same is not subject to the withholding tax imposed by Section 53 (e)(2) of the National Internal Revenue Code, as amended. This revokes BIR Ruling No. 24 (b) (ii)-000-00-016-86, dated February 19, 1986. cd Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner