Interest Income Earned by Investors from Foreign Currency Denominated Deposits

May 7, 1999 BIR RULING NO. 064-99 064-99 Philippine National Bank PNB Financial Center Roxas Blvd., Metro Manila Attention: Ms . Ligaya R . Gagolinan Vice-President Gentlemen : This refers to your letter dated August 25, 1998 requesting for a confirmation of your opinion that the interest income to be earned by various investors from foreign currency denominated deposits shall also be applicable to foreign currency bonds issued through the Foreign Currency Deposit Unit (FCDU) of banks. cdlex In reply, please be informed that the interest income earned by various investors from foreign currency denominated deposits is not applicable to foreign currency bonds. A bond is a security as provided for by Section 22(T) of the Tax Code of 1997 which provides, viz: "SEC. 22. Definition of Terms. xxx xxx xxx (T) The term "securities" means shares of stock in a corporation and rights to subscribe for or to receive such shares. The term includes bonds, debentures, notes or certificates, or other evidence of indebtedness, issued by any corporation, including those issued by a government or political subdivision thereof, with interest coupons or in registered form." In BIR Ruling No. DA-323-98 dated July 17, 1998, wherein a foreign corporation organized and existing under the laws of the Republic of Indonesia and is not engaged in trade or business in the Philippines and which acquired various interest-bearing bonds, notes and other government securities issued by the Philippine government, including but not limited to Philippine Government Bonds, Floating Rate Notes with interest coupons, CB Bills and Notes and Treasury Bills and Notes, it was ruled that under the provisions of RP-Indonesia Tax Treaty, the interest income arising from the Philippines shall be exempt from Philippine income tax if the payor of the interest is the Government of the Philippines, a political subdivision or a local authority thereof. Accordingly, the interest income to be earned by various investors from foreign currency denominated deposits shall not be applicable to foreign currency bonds. Moreover, the interest income to be received by said investors shall be governed by tax treaties entered into by the Philippines with their respective countries. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue