BIR Ruling No. 103-12

February 21, 2012 BIR RULING NO. 103-12 Sec. 28 (B) (7) (a);324-83 Manabat Sanagustin & Co.,CPAs The KPMG Center, 9/F 6787 Ayala Avenue Makati City Attention: Atty. Herminigildo G. Murakami Principal, Tax & Corporate Services Gentlemen : This refers to your letter dated December 15, 2010 stating that your client, Kuwait Investment Office (KIO),is the branch office of Kuwait Investment Authority (KIA) in the City of London; that KIA is an autonomous government body responsible for the management and administration of Kuwait's General Reserve Fund (GRF),Future Generations Fund (FGF),as well as any other funds entrusted to it by Kuwait's Minister of Finance for and on behalf of the State of Kuwait; that KIO was set up in 1953 (as Kuwait Investment Board) with the aim of investing surplus oil revenues to reduce the reliance of Kuwait on its finite oil resource; that by virtue of Kuwait Law No. 47/1982 issued on June 13, 1982, KIO as an office of KIA in London, England, was established as Kuwait Public Authority with an independent juridical status for the purpose of managing, in the name and for the account of the Government of Kuwait, the investment assets of the State of Kuwait; that KIO manages the funds as a global investor, with investments in all main geographical areas and asset classes, managed by portfolio managers on an active basis; that it is a long term investor and the in-house investment management team covers equities, fixed income, treasury, private equity and property; and that in the Philippines, KIO has investments in government bonds, corporate bonds and bank deposits which are primarily held by its custodian, the Hong Kong and Shanghai Bank Corporation (HSBC). Based on the foregoing representations, you now request confirmation of your opinion that the income derived by KIO from investments in the Philippines in loans, stocks, bonds or other domestic securities are not subject to income tax and consequently to withholding tax pursuant to Section 28 (B) (7) (a) of the Tax Code of 1997. In reply thereto, please be informed that Section 32 (B) (7) (a) (i) of the Tax Code of 1997 provides that "(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. DHcESI (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 institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments." From the foregoing, it is clear that the income derived by a foreign government from investments in the Philippines is exempt from income tax. Accordingly, any income to be derived by KIO from its investments in the Philippines in loans, stocks, bonds, or other domestic securities, or from interest on deposits is EXEMPT from income tax and consequently from withholding tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue