Withholding Tax Rate of 15% on Interest Derived by Philippine Fund, Inc.

May 16, 1989 BIR RULING NO. 103-89 24 000-00 103-89 Gentlemen : This refers to your letter dated April 17, 1989 requesting confirmation of your opinion to the effect that the interest derived by your client, Philippine Fund, Inc. from the Central Bank Special Series Bills under the conversion provisions of CB Circular 1111 is subject to a withholding tax rate of 15% in accordance with the RP-US Tax Treaty. aisadc It is represented that Philippine Fund, Inc. is a corporation organized under the laws of Delaware, wholly-owned by the Security Pacific Overseas Corporation which is itself a wholly-owned subsidiary of Security Pacific National Bank; that the Philippine Fund, Inc. has no office and no operations in the Philippines; that its sole business activity is the holding of Central Bank bills pending identification of potential investments under CB Circular 1111; that in May 1988, the Philippine Fund, Inc. converted $14,050,000 face value of CB debt obligation under the Central Bank Restructuring Agreement of July 1987 into CB Special Series Bills under the Debt to Equity conversion provisions of CB Circular 1111; and that the Philippine Fund, Inc. now holds CB bills on which interest is paid monthly, less a 20% withholding tax held by the CB and remitted to the BIR. In reply thereto, please be informed that your opinion is hereby confirmed. Pursuant to paragraph 2, Article 12 of the RP-US Tax Treaty, interest derived by a resident of one of the Contracting State shall not be taxed by the other Contracting State at a rate in excess of 15 percent of the gross amount of such interest. Such being the case, and since the Philippine Fund, Inc. is a resident of the U.S., interest derived by it from the Central Bank Special Series Bills under the Debt to Equity conversion provisions of CB Circular 1111 is subject to a withholding tax of 15%. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner