BIR Ruling No. 075-83

May 4, 1983 BIR RULING NO. 075-83 Gentlemen : This refers to your letter dated February 21, 1983 requesting for and in behalf of your client, Philippine Global Communications, Inc., a confirmation of your opinion that dividend and interest income from its money market placements are extraneous income: hence, not subject to the franchise tax of 5% prescribed by its franchise specifically under Section 8(b) of Republic Act No. 5617 which reads as follows: "(b) The grantee shall further pay to the Treasurer of the Philippines each year, within ten days after the audit and approval of the accounts as prescribed in this Act, five per centum of all gross receipts from business transacted under this franchise by the said grantee in the Philippines." In reply, please be informed that exemption from all taxes and assessments under a legislative franchise is limited only to those income derived from its business covered by the franchise. All income derived from any activity or business not specified by the franchise is subject to income tax. (Manila Electric Co. vs. Commissioner, CTA Case No. 1737, November 22, 1969). In the case of your client, its dividend and interest income from money market placements are extraneous income derived from business not specified in the franchise. Accordingly, the said dividend income is subject to the final income tax of 10% on the total amount thereof pursuant to Section 21(c)(1) of the Code, as amended; while the interest income/yield from money market placements is subject to the 20% final withholding tax prescribed under Section 24(cc) of the Tax Code, as amended by Presidential Decree No. 1739. cdtech In view thereof, your opinion is hereby confirmed that dividend income and interest income from money market placements are extraneous income which are not subject to franchise tax, but to income tax. Very truly yours, (SGD.) ROMULO M. VILLA Acting Commissioner Bureau of Internal Revenue