Whether Interest on Reinsurance Premiums Being Held and Paid by Local Insurance or Ceding Companies to Societe Anonyme Franchise De Reassurances (Societe Anonyme) is Subject to the 15% Withholding Tax Pursuant to Paragraph 2, Article 11 of the RP-France Tax Treaty

July 24, 1995 BIR RULING NO. 115-95 28 (B) (6) 000-00 115-95 Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . P . Noel Tax Division Gentlemen : This refers to your letter dated April 6, 1995 requesting confirmation of your opinion that interest on reinsurance premiums being held and paid by local insurance or ceding companies to your client, Societe Anonyme Franchise De Reassurances, (Societe Anonyme) is subject to the 15% withholding tax pursuant to Paragraph 2, Article 11 of the RP-France Tax Treaty. prcd It is represented that your client is a corporation duly organized and existing under the laws of France and is duly licensed to engage in reinsurance business; that is entered into reinsurance contracts with several local insurance companies in the Philippines; that pursuant to Section 213 of the Insurance Code of the Philippines, the local insurance companies retain 40% of the reinsurance premiums due to your client which are released after one year; that the amount of reinsurance premiums withheld by the local insurance companies in turn earns interest at the rates agreed upon by the parties in accordance with the terms of their reinsurance treaty agreement; and that the local insurance companies pay interest on the amount of insurance premium retained but deducts 35% withholding tax therefrom upon remittance to Societe Anonyme Francaise de Reassurances. In reply, please be informed that your opinion is hereto confirmed. Paragraph 4, Article 11 of the RP-France Tax Treaty defines "interest" as income from debt claims of every kind whether or not secured by mortgage, and whether or not carrying right to participate in the debtor's profits, and in particular income from government securities and income from bonds on debentures, including premiums and prizes attaching to bonds or debentures. . . . There is no question that the 40% of the reinsurance premiums retained by local insurance or ceding companies is money properly belonging to Societe Anonyme which the former are bound to return to your client under the terms of their contract. Accordingly, the interest therefrom falls within the aforequoted definition of "interest" subject only to 15% withholding tax pursuant to Paragraph 2, Article 11, the RP-France Tax Treaty which provides, viz.: cdtech "ARTICLE 11 INTEREST "1. . . . "2. However, such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 15% of the amount of the interest". llcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue