Request for Tax Exemption of the Conversion/Transfer of Special Foreign Currency Deposits of the Govt. to Regular Demand Deposits

July 3, 1985 BIR RULING NO. 109-85 260-A 032-85 109-85 Gentlemen : This refers to your letter dated June 3, 1985 stating that whenever transfer of funds are made by the Central Bank of the Philippines to your Regular Demand Deposit Account from your Foreign Currency Deposit Account, like the IBRD Working Fund, IDA, MDF, etc., also maintained with that bank, the amount in pesos credited to the regular deposit account is net of the 1% transaction tax levied on such transfers; that the said 1% transaction tax is in turn passed on by the Bureau of Treasury to government agencies/corporations availing of foreign loans, and that the government agencies particularly government corporations, have presented serious objections on the rationale of such charges claiming that the National Government is unnecessarily taxing them for the availment of the foreign loan proceeds. Based on the foregoing, you now request that the aforesaid conversion or transfer of the special foreign currency deposits of the government to regular demand deposits be treated as a transaction not falling within the coverage of the 1% tax on foreign exchange transactions. In reply, I have the honor to inform you that your request cannot be granted. The transfer or conversion of foreign currency deposits of that Bureau into regular demand deposits in pesos, which in turn is availed of by government agencies or government corporations as foreign loans is a "foreign exchange purchase" because, in effect, the Central Bank delivers pesos and receives foreign exchange in return. Accordingly, the same is a foreign exchange transaction (Revenue Memorandum Circular No. 30-84), subject to the 1% transaction tax imposed under Section 260-A of the Tax Code, as amended by P.D. No. 1959, as implemented by Revenue Regulations No. 16-84. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner