Interest Earnings Derived from the Foreign Loan Granted by the Export-Import Bank of Japan is Exempt from Tax in the Philippines

August 2, 1991 BIR RULING NO. 141-91 28 (b) (8) (A) 009-83 141-91 Gentlemen : This refers to your letter dated April 22, 1991 requesting confirmation of your opinion that the interest you pay to the Export-Import Bank of Japan (EXIMBANK) under your Loan Agreement executed on October 17, 1990 is exempt from withholding tax pursuant to Article II (4) of the Tax Treaty between the Philippines and Japan. cdta It appears that Babcock-Hitachi (Philippines), Inc. is a company duly registered under the laws of the Philippines; that you were able to obtain a loan from EXIMBANK in the amount of US$3.3 Million pursuant to a Loan Agreement entered into by and between your company and EXIMBANK on October 17, 1990 which provides for an interest on said loan at the floating rate minus 3/10 of 1% per annum ; but that, when your company started remitting through a Philippine Bank your interest payments due on the loan to EXIMBANK, the said Philippine Bank required payment of the corresponding withholding tax thereon before any such remittance is made. In reply, I have the honor to inform you that under paragraph 4, Article II of the RP-Japan Tax Treaty, pertinent portions of which is quoted hereunder as follows: "Notwithstanding the provisions of paragraphs (2) and (3) interest arising in a Contracting State and derived by the Government of the other Contracting State including political subdivisions and local authorities thereof, the Central Bank of that other Contracting State or any financial institution wholly owned by the Government, or any resident of the other Contracting State with respect to debt-claims guaranteed or indirectly financed by the Government of that other Contracting State including political subdivisions and local authorities thereof, the Central Bank of that other Contracting State or any financial institution wholly owned by the Government shall be exempt from tax in the first mentioned Contracting State. For the purposes of this paragraph, the term "financial institution wholly owned by the Government" means: (a) In the case of Japan, the Export-Import Bank of Japan, the Overseas Economic Cooperation Fund and the Japan International Cooperation Agency; . . . ." the interest earnings derived from the foreign loan granted to you by the Export-Import Bank of Japan is exempt from tax in the Philippines. cdti Very truly yours, (SGD.) JOSE U. ONG Commissioner