20% Final Withholding Tax — Interest Income

July 30, 1981 BIR RULING NO. 140-81 024-cc 000-00 140-81 Intermodal Shipping Agencies, Inc. Dolmar Building 1136-1138 U.N. Ave. Paco, Metro Manila Attention: Mr . Vicente J . Brillantes President Gentlemen : This refers to your letters all dated December 17, 1980 in behalf of the following domestic corporations: TRANS SWEDISH SHIPPING, INC., TRANS MALAYAN SHIPPING, INC. AND SKANFIL SHIPPING INC., requesting exemption from the withholding tax on interest income derived by them from savings deposits and money marked placements under Section 24(cc) of the Tax Code, as amended by Presidential Decree No. 1739. cdt The basis of your request is Sec. 2, R.A. No. 1407, as amended by Presidential Decree No. 764, which provides as follows: "Sec. 2. In pursuance of the above- declared policy, any citizen of the Philippines, or any association or corporation organized under the laws of the Philippines, at least sixty per cent of the capital of which is owned by citizen of the Philippines, engaged or which shall engage exclusively in overseas shipping business or in the construction of modern boats for overseas service shall be exempt from the payment of income tax on income derived from his or its overseas shipping business for a period of thirty years from the date of approval of this Act or until September nine, nineteen hundred and eighty- five ; Provided , that they shall invest the entire net income, after deducting not more than ten per cent (10%) thereof for distribution to the stockholders or partners, realized during the period of exemption, which would otherwise have been taxable under the provisions of Title II of the National Internal Revenue Code, in the construction, purchase or acquisition of vessels and equipment and/or in the improvement of its vessels and equipment. The amount so invested shall not be withdrawn for a period of thirty years after the expiration of the period of income tax exemption or until after the vessels and equipment so acquired had been fully paid for . Any amount withdrawn before the end of this period shall be subject to the corresponding income tax, including surcharges and interests. (Emphasis supplied). In reply thereto, please be informed that the aforequoted provision of law limits the tax exemption to income derived from the overseas shipping business. Accordingly, the interest income on money market placements and on savings deposits of Trans Swedish Shipping, Inc., Trans Malayan Shipping, Inc. and Skanfil Shipping, Inc. being extraneous income derived from sources other than the overseas shipping business shall be subject to 20% final withholding tax in case of money market placements and 15% in case of savings deposits pursuant to Section 24(cc) in relation to Section 53(c) both of the Tax Code, as amended. Very truly yours, RUBEN B. ANCHETA Acting Commissioner