Exemption from Final Withholding Tax — Interest on Bank Deposits

March 23, 1981 BIR RULING NO. 057-81 053-e 000-00 057-81 Philippine Casino Operators Corp. P.O. Box Number 2956 M a n i l a Attention: Mr . Edward T . Marcelo President Gentlemen : This refers to your letter dated January 16, 1981, requesting that interest income on bank deposits derived by PHILIPPINE CASINO OPERATORS CORPORATION (PCOC) and MANILA BAY ENTERPRISES, INC. (MBEI) be exempt from the withholding tax provision of Section 53(e) of the Tax Code, as amended by Presidential Decree Nos. 1156 & 1739. The basis of your request is Section 4, par. 2 of Presidential Decree No. 1067-B, as amended by Presidential Decree No. 1399, which provides as follows: "Section 4. EXEMPTIONS (1) . . . (2) Income and other taxes (a) Franchise Holder: No tax of any kind or form, income or otherwise . . ., shall be assessed and collected under this Franchise from the Franchise Holder; nor shall any form of tax or charge attach in any way to the earnings of the Franchise Holder, except a Franchise Tax of Five (5%) per cent . . . (b) Others: The exemption herein granted for earnings derived from the operations conducted under the franchise, specifically from the payment of any tax, income or otherwise, . . ., shall inure to the benefit of and extend to corporation/s, association/s . . . with whom the Franchisee has any contractual relationship in connection with the operations of the casino/s . . . ." It is also represented that the PCOC and MBEI have contractual relations with the Philippine Amusements and Gaming Corporation, the franchise holder, to operate and manage casino/s in the Philippines. In reply, please be informed that under Revenue Regulations No. 12-80, implementing Section 24(cc) of the Tax Code, as amended by Presidential Decree No. 1739, the final withholding tax imposed therein shall not apply to interest on bank deposit owned by tax-exempt entities as certified by the Commissioner of Internal Revenue. The PCOC and MBEI are tax-exempt corporations by virtue of their contractual relationship with Philippine Amusements Gaming Corporation, whereby, the former corporations are conferred the benefits granted to the latter pursuant to the aforequoted provision of law. Accordingly, the interest income on bank deposits of Philippine Casino Operators Corporation and Manila Bay Enterprises, Inc. are exempt from the 15% withholding tax in the case of savings deposit and 20% in the case of time deposit and yield on deposit substitutes, prescribed by Section 24(cc) in relation to Section 53(3) of the Tax Code, as amended by Presidential Decree No. 1739. This serves as authority for the depository banks to forego withholding of the final tax on the interest on deposits maintained by PCOC and MBEI with them. Very truly yours, RUBEN B. ANCHETA Acting Commissioner