Exemption from Philippine Income Tax

June 28, 1979 BIR RULING NO. 054-79 Exemption from Philippine income tax This refers to your letter dated October 24, 1978, requesting confirmation of your opinion to the effect that the interest which will be paid by Philcadan, Inc. to Industrialization Fund for Developing Countries (IFU) of Denmark as well as the dividends which will be remitted by Philcadan, Inc. to IFU are not subject to the 15% and 35% withholding tax prescribed by Section 53 (b)(2) in relation to Section 54 of the Tax Code. It is represented that on April 14, 1975, Philcadan, Inc., a domestic corporation duly incorporated under Philippine laws, entered into a Financing and Investment Agreement with IFU, which is a non-profit corporation owned and controlled by the Government of Denmark, solely created for the purpose of promoting the economic development of developing countries in cooperation with Danish industries; that in accordance with the agreement, IFU invested in the share capital of Philcadan to the extent of 20%; and that IFU granted a loan to Philcadan amounting to Danish Kroner 825,000 equivalent to P1,050,000 subject to interest of 10.6% per annum. In reply thereto, I have the honor to inform you that income received by foreign governments, financing institutions owned, controlled, or enjoying refinancing by such foreign governments and international or regional financing institutions established by governments from their investments in the Philippines in loans, stocks, bonds, or other domestic securities, or from interest on their deposit in banks in the Philippines are exempt from income tax in accordance with Section 29(b)(8)(A)(1)(2) and (3) of the Internal Revenue Code of 1977. In view thereof, and it appearing that IFU is a non-profit corporation, owned and controlled by the Government of Denmark, solely created for the purpose of promoting the economic development of developing countries, by promoting investments in this country in cooperation with Danish industries, this Office is of the opinion as it hereby holds that the interest payments on such loans as well as the dividends which will be remitted by Philcadan, Inc. to IFU are not subject to the Philippine income tax, and consequently, not also subject to the 15% and 35% withholding tax prescribed by Section 53(b)(2) in relation to Section 54 of the Tax Code.