BIR Ruling No. 082-82

March 15, 1982 BIR RULING NO. 082-82 21 000-00 082-82 Mr. Rodolfo P. Andal 4789 Haggart Street Vancouver, B. C. Canada S i r : This refers to your telex message dated December 29, 1981 requesting a ruling on whether or not under the RP-Canada Tax Treaty, the interest income received by a Filipino resident of Canada from his money market placements in the Philippines for which the 35% transaction tax had already been paid is still subject to tax in Canada. cd You represented that from 1976 to 1979, you and your wife resided in Canada; that in 1977, 1978 and 1979, your money market investments in the Philippines earned interest income which was subjected to 35% transaction tax; and that Canadian revenue authorities have made an assessment of thirty-five (35) Canadian dollars against you on the said interest income. In reply, please be informed that the interest income earned by your money market placements being interest for the use or forbearance of money falls within the purview of the term "investment" as used under Section 3 of Article XI of the RP-Canada Tax Treaty which means, among others, as "income assimilated as income from money lent by the taxation law of the state in which the income arises." Sections 1 and 2 of Article XI of the Treaty provide: "1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other state. 2. However, such interest may be taxed in the Contracting State in which it arises, and according to the law if that State, but the tax so charged shall, provided that the interest is taxable in the other Contracting State, not exceed 15% of the gross amount of the interest." Under the aforequoted provisions of the Treaty, interest arising from sources within the Philippines and accruing to a resident of Canada may be taxed in Canada, and interest arising in Canada payable to a resident in the Philippines may be taxed in the Philippines. It may likewise be taxed in the state of its origin, so that interest arising in the Philippines may be taxed in the Philippines, and interest arising in Canada may be taxed in Canada. Where however, interest arising from sources within the Philippines and payable to a resident of Canada is taxed in Canada, or interest arising in the Philippines and payable to a resident of Canada is taxed in the Philippines, the tax that may be imposed by either Canada or the Philippines shall not exceed fifteen percent (15%) of the gross amount of the interest. Accordingly, the interest earnings of your money market placements here in the Philippines while you were residing in Canada may be taxed in Canada. The interest income of your money market placements in the Philippines for 1977, 1978 and 1979, being taxable both in the Philippines which was the source, and in Canada, the country of residence of the recipient, should have been subject to a tax of 15% of the gross amount thereof only, and not to the 35% transaction tax under Section 210 of the Tax Code, as amended. You, therefore, made overpayments of the transaction tax. However, the refund or tax credit of said overpayments can only be claimed, if a claim is filed in writing with this Office within two years after the payment of the tax. Very truly yours, RUBEN B. ANCHETA Acting Commissioner