Tax Exemption — Foreign Corporation

February 8, 1980 BIR RULING NO. 024-80 Santiago, Sison & Associates 106 Paseo de Roxas Makati, Metro Manila Attention: Atty . Emilie S . Layaoen Gentlemen : This refers to your letter dated November 27, 1979 requesting a ruling as to whether or not the interest payments to be remitted by Bulletin Publishing Corporation (BPC) in favor of Societe Nationale Industrielle Aerospatiale (SNIAS), a foreign corporation domiciled in France, is subject to tax. cdta It is represented that BPC executed a promissory note in favor of SNIAS covering the balance payable in installments (principal and interest) due on the purchase price of one (1) Gazelle Helicopter sold by SNIAS to BPC; and that the said promissory note has been discounted by Banque Francaise Du Commerce Exteriour (BFCE) and that the same has likewise been guaranteed by Compagnie Francaise d' Assurance pour le Commerce Exterieur (COFACE). In reply thereto, I have the honor to inform you that Section 8(b) (i), Article 11, of the Convention between the Government of the French Republic and the Government of the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income provides: "3. Notwithstanding the provisions of paragraph 2, xxx xxx xxx b) interest arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other Contracting State if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by: (i) in the case of France, the Banque francaise du commerce exterieur -BFCE- or the Compagnie francaise d'assurance pour le commerce exterieur COFACE and xxx xxx xxx In the said Tax Treaty (Article 11.6), interest shall be deemed to arise in a contracting State when the payor is a resident of that State. In view thereof, since the interest payments were deemed to arise in the Philippines, the payor being a Philippine resident, and inasmuch as the promissory note in question has been discounted by BFCE and that the same has been guaranteed by COFACE, the interest payments thereon to be remitted by Bulletin Publishing Corporation in favor of the Societe Nationale Industrielle Aerospatiale is taxable only in France; hence the same is not subject to Philippine income tax and consequently to the 15% withholding tax imposed by Section 24(b)(i)(ii), in relation to Section 53(b)(2), both of the Tax Code of 1977, as amended. aisadc Very truly yours, RUBEN B. ANCHETA Acting Commissioner