Interest Income Derived by a U.S. Corporation Not Engaged in Business in the Philippines from its Philippine currency bank deposits in the Philippines is Subject to a 15% Withholding Tax

March 13, 1991 BIR RULING NO. 042-91 25 (b) (1) 000-00 042-91 Gentlemen : This refers to your letter dated January 18, 1991 requesting confirmation of your opinion to the effect that the gross amount of interest derived by the Consuelo Zobel Alger Foundation (Foundation),a U.S. corporation not engaged in business in the Philippines from its Philippine currency bank deposits in the Philippines is subject to a 15% withholding tax. It is represented that the Foundation is a non-stock entity duly organized and existing under the laws of the State of Hawaii, U.S.A. which is not engaged in trade or business in the Philippines and does not have a permanent establishment in the Philippines as contemplated in the RP-US Tax Treaty; and that the Foundation has a Philippine currency bank deposit with Prudential Bank. In reply thereto, please be informed that pursuant to Section 25 (b) (1) of the Tax Code, as amended, foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 35% of gross income received during each taxable year from all sources within the Philippines such as interest, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodical or casual gains, profits and income and capital gains, except capital gains subject to tax under subparagraph 5 (C). However, Article 12 (2) of the RP-US Tax Treaty provides, viz: "ARTICLE 12 " INTEREST "(1) ... "(2) Interest derived by a resident of one of the Contracting States from sources within the other Contracting State shall not be taxed by the other Contracting State at a rate in excess of 15 percent (15%) of the gross amount of such interest." Such being the case, and since the Foundation is a resident of the United States of America and does not have a permanent establishment in the Philippines as contemplated under Article 5 of the RP-US Tax Treaty, its interest income derived from its Philippine currency bank deposits is subject to a tax of 15% pursuant to Article 12 (2) of the RP-US Tax Treaty. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner