Whether Certain Entities are Exempt from Philippine Withholding Tax on Dividends Derived from their Investments in Shares of Stock Philippine Companies

February 8, 1994 BIR RULING NO. 049-94 28 (b) (8) (A) 000-00 049-94 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . J . A . Osana Gentlemen : This refers to your letter dated August 10, 1993 requesting, in behalf of your client, HONGKONG & SHANGHAI BANKING CORPORATION, LTD. (HongkongBank), for confirmation that the following entities are exempt from Philippine withholding tax on dividends derived from their investments in shares of stock Philippine companies. a) Workers' Compensation Board of the Government of Ontario, Canada (the Board); and b) Hongkong Special Administrative Region Government Land Fund Trust (SAR). It is represented that HongKongBank acts as the custodian bank of the Board and SAR; that the Board is a statutory corporation created by the Act of the Ontario Legislature in 1914 Government of Ontario, Canada; that it is a "controlled entity" of the province of Ontario, Canada, so that it is exempt from taxation on income derived from U.S. Securities in accordance with Section 892 of the U.S. Securities Internal Revenue Code (IRC); that the funds invested in U.S. Securities pertain to investment of the Accident Fund which the Board administers for the payment of compensation, medical and pension benefits to or on behalf of the injured workers of the province of Ontario; that similarly, the funds invested in stocks of Philippine companies, with HongkongBank as the custodian bank, are investments of the Accident Fund administered by the Board; that on the other hand, the SAR was established by the duly authorized representative of the People's Republic of China through a Declaration of Trust on August 13, 1986; that it is tasked to receive and hold the Fund in trust for the future Hongkong SAR Government and to make provision for the proper management and preservation of its value; and that it is the interim governmental agency or body which administers the Fund, until the establishment of the Hongkong SAR Government of the People's Republic of China by March 31, 1998. In reply thereto, please be informed that pursuant to Section 28(b) (8) (A) of the Tax Code, as amended, "income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from them, and (iii) international or regional financing institutions established by governments" shall not be included in gross income and shall be EXEMPT from taxation. Accordingly, since both the Workers' Compensation Board of the Government of Ontario, Canada and the Hongkong Special Administrative Region Government Land Fund Trust are agencies of the government of Ontario, Canada and the People's Republic of China, respectively, they fall within the purview of the term "foreign government" as contemplated under Section 28(b)(8)(A)(i) of the Tax Code, as amended, hence, dividend income received by them from their investments in shares of stock of Philippine domestic corporations, for which the HongkongBank acts as the custodian bank, is EXEMPT from Philippine income tax and consequently, from withholding tax. cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue