Whether the Interest on Foreign Loan Granted by Citicorp Investment Bank Limited of England (CIBL) thru the Export-Import Bank of the United States (Eximbank) is Exempt from Income Tax under the RP-US Tax Treaty

July 19, 1995 BIR RULING NO. 108-95 28 (b) (6) 000-00 108-95 Development Bank of the Philippines Makati, Metro Manila Attention: Mr . Jose A . Salvatierra Vice-President Transaction Processing Dept . Gentlemen : This refers to your letter dated November 2, 1994 requesting, in effect, for a ruling that the interest on foreign loan granted to you by Citicorp Investment Bank Limited of England (CIBL) thru the Export-Import Bank of the United States (Eximbank) is exempt from income tax under the RP-US Tax Treaty. cdtech It is represented that based on a Project Grant Agreement for Concessionary Financing Facility, a loan was granted to the Development Bank of the Philippines (DBP) by the Citicorp Investment Bank Limited (CIBL), guaranteed by the Export-Import Bank of the United States (US-Eximbank); that said Agreement was entered into by and between the Republic of the Philippines (the Grantee) and the United States of America acting thru the Agency for International Development (AID); that it made funds available for Concessionary Financing Facility (CFF) in cooperation with US-Eximbank and the commercial financing institutions for the financing of capital development subprojects in the Philippines; that CFF finances the acquisition in the United States of capital equipment, capital goods, related components and services in the areas of telecommunications, electric power, transportation, construction equipment and environmental management activities related to these sectors; that funds are available under the said Agreement for the CFF which is disbursed and administered by Eximbank; that to assist the guarantee in meeting the costs of carrying out the Project, USAID pursuant to the Foreign Assistance Act of 1961, as amended, agrees to grant the Grantee under the terms of the Agreement not to exceed Thirty Million Dollars ($30,000,000); and that the Grantee agrees to provide or cause to be provided for the Project all funds, in addition to the Grant and the CFF all other resources required to carry out the Project; that out of the entire Grant, 50% shall be remitted to the Government and the other 50% shall accrue to DBP; that under the RP-US Tax Treaty dated March 31, 1981, the US Eximbank is one of the instrumentalities of the United States that is exempt by the Philippine Government, hence, your request that the aforementioned Grant, such as the loan granted to DBP by CIBL, be exempt from income tax and consequently from the withholding tax provided under Section 28, in relation to Section 50 of the Tax Code, as amended. In reply thereto, please be informed that pursuant to Section 28(b)(6) of the Tax Code, as amended in relation to Article 12(4)(a) of the RP-US Tax Treaty which provides as follows: "Article 12 INTEREST "(4) Notwithstanding paragraph (1)(2) and (3), interest derived by (a) One of the Contracting States, or an instrumentality thereof (including the Central Bank of the Philippines, the Federal Reserve Bank of the United States, the Export-Import Bank of the United States, the Overseas Private Investment Corporation of the United States, and such other institutions of either Contracting State as the competent authorities of both Contracting States may determine by mutual agreement, or:" interest derived from the loan you received from CIBL thru the U.S. Eximbank shall exempt from income tax and consequently from the withholding tax. cdti Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue