BIR Ruling No. 109-12

February 22, 2012 BIR RULING NO. 109-12 Section 32 (B) (7) (a); BIR Ruling No. 162-11 Manabat Sanagustin & Co. The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226 Attention: Roberto L. Tan Principal, Tax Ana Liza K. Pural-Andal Assistant Manager, Tax Gentlemen : This refers to your letter requesting on behalf of your client, BANK NEGARA MALAYSIA for confirmation of your opinion that the income of the Company from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks, and capital gains on sale of shares of stock, bonds, and other domestic securities in the Philippines is exempt from income tax, and consequently, withholding tax pursuant to Section 32 (B) (7) (a) of the NIRC. It is represented that BANK NEGARA MALAYSIA ("BNM" for brevity) is the Central Bank of Malaysia, established on 26 January 1959 under the Central Bank of Malaysia Act of 1958 (CBA 1958),which has been repealed and replaced by the Central Bank of Malaysia Act of 2009 (CBA 2009).It is a statutory body owned by the Government of Malaysia. BNM keeps the Minister of Finance of Malaysia informed on matters pertaining to monetary and financial stability. Among the important roles of BNM are to promote monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy, being a banker and adviser to the Government of Malaysia, playing an active role in advising on economic matters. It is also the sole authority in issuing currency as well as managing the country's international reserves. As such BNM has made several investments in the Philippines such as, but not limited to government securities in the form of treasury bills and treasury bonds, as well as bank deposits. Based on the foregoing, you now request for confirmation that income received by BNM from its investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks, in the Philippines is exempt from income tax as contemplated by Section 32 (B) (7) (a) of the Tax Code, and consequently, exempt from Philippine withholding tax. In reply, please be informed that Section 32 (B) (7) (a) of the Tax Code of 1997 provides that 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) financial institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments shall not be included in gross income and shall be exempt from taxation. In BIR Ruling No. 162-11 dated May 20, 2011, this Office had the occasion to rule that: DTcACa ". . . any income received by ADIA from its investment in the Philippines received for taxable year 2010 and started to receive for taxable year 2011, such as interest on loans, interest on deposits, interest on bonds, dividends, and capital gains on sale of shares of stock, bonds, and other domestic securities, are exempt from Philippine income tax and consequently from the withholding tax subject to the condition that ABU DHABI INVESTMENT AUTHORITY remains as a financial institution owned, controlled and financed by the Government of the Emirate of Abu Dhabi, as contemplated under Section 32 (B) (7) (a) (ii) of the Tax Code of 1997." Accordingly, any income received by BNM from its investment in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks, and capital gains on sale of shares of stock, bonds, and other domestic securities in the Philippines are exempt from Philippine income tax and consequently from withholding tax subject to the condition that BANK NEGARA MALAYSIA remains as a financial institution owned, controlled and financed by the Government of Malaysia. 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. TCaEAD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue