Application of the Proviso of Sec. 25 (a) of the Tax Code

January 9, 1959 BIR RULING NO. 027-59 Messrs. Meer, Meer and Meer Attorneys-at-Law Suite 302-306, Singson Bldg. Plaza Moraga, Manila Gentlemen : In answer to your queries regarding the application of the proviso of Section 25 (a) of the Tax Code, I have the honor to inform you as follows: The proposed investment of the accumulated profits or surplus of your client, the De La Rama Steamship Co., Inc. in the Filipino Vegetable Oil Corporation which is in the process of incorporation, is exempt from the additional corporate tax since it appears that the latter corporation will engage in a dollar-producing industry consisting of processing copra into oil for export. Accumulated surplus or profits of your client which are loaned at interest to its officers who in turn invest the funds so borrowed in dollar-saving or dollar-producing industries are not exempt from the additional corporate tax imposed under Section 25(a) of the Tax Code. This is so because loaning of accumulated profits or surplus by a corporation to its officers certainly does not constitute investment in a dollar-producing or dollar-saving industry. Secondly, while it may be true that the loans in question maybe ultimately invested in dollar-saving or dollar producing industries, yet said investments are made by the officers and not by the corporation. The said proviso contemplates of investments of accumulated profits or surplus by corporations and not by private individuals. When the corporation loans its accumulated profits or surplus to its officers it has parted with its ownership over the same, the latter having acquired such ownership. It cannot, therefore, be said that the investment of said loans by the said officers is also an investment of the corporation. Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue