DBP's Request for Waiver of Withholding Taxes on Interest Payments, and Documentary Stamps Charged on Its Dollar Purchases

March 19, 1987 BIR RULING NO. 080-87 24 (b), 51 (e) 000-00 080-87 S i r : This refers to your letter dated February 9, 1987, referring to this Office for comment the query of the Development Bank of the Philippines (DBP) regarding the latter's request for waiver of withholding taxes on interest payments, and documentary stamps charged on its dollar purchases to service payments of liabilities assumed by the National Government in accordance with Section 30 of the Revised DBP Charter dated December 3, 1986. The request of DBP was based on the proposed Servicing Agreement whereby the non-performing accounts of DBP, although assumed by the National Government, are still being serviced by the former. In reply, I have the honor to inform you in the negative. Pursuant to then Sections 24(b)(1)(ii) and 51(e)(2) both of the Tax Code as amended, the interest payments on foreign loans incurred from a foreign corporation other than (a) foreign governments (b) financing institutions owned, controlled or enjoying refinancing from them and (c) international or regional financing institutions established by governments, are still subject to the 15% withholding tax. However, pursuant to Section 25(b)(5)(A) and 51(a) of the same Code, as amended by Executive Order No. 37 which took effect on August 1, 1986, interest on foreign loans contracted on or after August 1, 1986 shall be subject to a 20% tax. Likewise, the documents, instruments and papers relative to the dollar remittance to the foreign creditor are subject to the corresponding documentary stamp tax pursuant to Section 186 of the Tax Code which provides "that whenever one party to the taxable document enjoys exemption from the tax . . . the other party thereto who is not exempt shall be the one directly liable for the tax". In the instant case, the documentary stamp taxes are the direct liabilities of the DBP which issued the taxable document, i.e., dollar remittance to the foreign creditor. Moreover, even if assumed by the National Government, the same is nonetheless subject to the corresponding documentary stamp taxes on the aforesaid documents pursuant to Executive Order No. 93. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner