BIR Ruling No. 074-12

February 10, 2012 BIR RULING NO. 074-12 Sec. 32 (B) (7) (a) of the 1997 NIRC; BIR Ruling No. 358-2011 Isla Lipana & Co. 29th Floor, Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Malou P. Lim Partner, Tax Services Gentlemen : This refers to your letter dated October 24, 2011, in reference to BIR Ruling No. 358-2011 dated September 28, 2011 issued to your firm on behalf of Abu Dhabi Investment Council (ADIC). The said ruling is in reply to your request for tax exemption of ADIC's income from its stock investments in Ayala Corporation (AC) and Ayala Land, Inc. (ALI). In the above ruling, the BIR confirmed that "[s]ince the ADIC is a financial institution owned, controlled, or enjoying refinancing from the Government of the Emirate of Abu Dhabi, it is not subject to Philippine income tax under Section 32 (B) (7) (a) (ii) of the Tax Code of 1997, as amended." TCAScE You agree with us on the basis provided in the said opinion confirming the exemption of ADIC from Philippine income tax on its income from its stock investments in AC and ALI, however, you stated that there are factual inconsistencies between the issued BIR ruling and your letter-request, detailed as follows: ADIC request for Ruling BIR Ruling No. 158-2011 (filed on March 30, 2010) (issued on September 28, 2011) 4th par., page 1: 3rd par., page 1: "The Philippine investee companies "The Philippine investee companies declared regular cash dividends for the declare regular cash advance dividends second semester ended 31 December for the second semester ended 31 2009." December 2009." 2nd par., page 3: 3rd par., page 2: ". . . we respectfully request for your "[s]ince the ADIC is a financial confirmation that any income, received institution owned, controlled, or enjoying or to be received by ADIC from its stock refinancing from the Government of the investments in Ayala Corporation and Emirate of Abu Dhabi, it is not subject to Ayala Land, Inc., such as dividends and Philippine income tax . . . on its income gain from sales of shares of stocks, shall from its stock dividends and again from not be subject to income/withholding tax." sale of shares of stock." EASI In order to properly reflect the true factual circumstances and application of the cited Tax Code provision, we now hereby modify the aforesaid Ruling issued to ADIC which shall now be read, viz. : "It is represented that ADIC is a government financial institution incorporated and constituted in the United Arab Emirates and wholly owned by the Government of the Emirate of Abu Dhabi; that a Residence Certificate issued by the United Arab Emirates Ministry of Finance on January 19, 2010 confirms this; that ADIC has stock investments in the Philippines, as follows: Company ISIN Number of % of Shares Ownership Ayala Corporation PHY0486V1154 4,000 .0008% Ayala Land, Inc. PHY0488F1004 384,300 .0030% and that the Philippine investee companies declare regular cash dividends for the second semester ended December 31, 2009 to all shareholders of common stock in the amount of P2.00 per share and P0.03 per share, respectively. AHCTEa In reply, please be informed that Sec. 32(B)(7)(a)(ii) of the 1997 Tax Code, as amended, provides as follows: '(B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this title: xxx xxx xxx (7) Miscellaneous Items. (a) Income Derived by Foreign Government. Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institution owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments.' IEaATD From the foregoing, it is clear that income derived from investments in the Philippines from stocks by financial institutions owned or controlled by foreign government shall not be included in gross income and shall be exempt from income taxation. Since the ADIC is a financial institution owned, controlled, or enjoying refinancing from the Government of the Emirate of Abu Dhabi, it is not subject to Philippine income tax under Section 32(B)(7)(a)(ii) of the Tax Code of 1997, as amended, on its income from dividends and gain from sale of shares of stock." This Supersedes BIR Ruling No. 358-2011 dated September 28, 2011. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue