BIR Ruling No. 125-83

July 8, 1983 BIR RULING NO. 125-83 Gentlemen : This refers to your letter dated June 1, 1983 requesting a ruling to the effect that the interest income realized by your company in its money market placements is subject to the preferential withholding tax rate of 15% pursuant to Article 11, paragraph (2) of the RP-Japan Tax Treaty, and a refund of the excess taxes paid therefor. It appears that your corporation is organized under the laws of Japan; that you are the branch office of said corporation in Manila; and that your interest income from money market placements in the Philippines has been subjected to a withholding tax of more than 15%. aisa dc In reply, please be informed that Article 11, paragraph (2) of the RP-Japan Tax Treaty does not apply to interest income of a Japanese corporation carrying on business in the Philippines through a permanent establishment situated therein. Article 5, paragraph 2(b) of the said treaty considers the branch here of your corporation as a permanent establishment and Article 11, paragraph 6 thereof provides, as follows: "The provisions of paragraphs (1), (2) and (3) above shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and that debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be shall apply." Under Article 7 of the Tax Treaty, if an enterprise of a Contracting State carries a business in the other Contracting State through a permanent establishment situated therein, the profits of the enterprise may be taxed in that other Contracting State but only so much of them as is attributable to that permanent establishment. In view thereof, your interest income on savings deposits is subject to the 15% withholding tax while your interest income on time deposits and yield from deposit substitutes are subject to the 20% withholding tax, pursuant to Section 24(cc) in relation to Section 53 (d), of the Tax Code, as amended. In this connection, the interest income on your money market placements has been subjected to the 20% withholding tax. This collection is legal and, therefore, no excess payment has been made which is refundable to you. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue