15% Withholding Tax on Reinsurance Premiums

August 8, 1990 BIR RULING NO. 144-90 24 (b) 148-89 144-90 Gentlemen : This refers to your letter dated February 12 and June 1, 1990, in effect, requesting a ruling that the interest on reinsurance premiums to be remitted by local ceding companies to your principal in Germany as subject only to the 15% withholding tax pursuant to paragraph 2 (b) Article II of the RP-West Germany Tax Treaty. aisadc It is represented that Cologne Reinsurance Company (Cologne) is organized under the laws of the Federal Republic of Germany; that it is authorized by the Board of Investments to establish a representative office in the Philippines, maintain contact between underwriters and reinsurers, relay information, coordinate service efforts; and maintain close contact with IIAP and help arrange training programs; that it entered into a reinsurance contracts with various local insurance companies in the Philippines; that pursuant to the Insurance Code the local insurance companies retain/withhold 40% of the reinsurance premiums due to Cologne, which are released after one year; that in the meantime, 40% of the reinsurance premiums are held by the local companies, which earns interest at the rate agreed upon by the parties; and that the 40% reinsurance premiums including interest is allowed to be remitted by the Insurance Commissioner and the Central Bank net of the withholding tax on the interest portion. In reply thereto, I have the honor to inform you that paragraph 5, Article II of the RP-West Germany Tax Treaty defines the term "interest" as income from Government securities, bonds on debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State from which the income is derived. Moreover, paragraphs I and 2, Article II of the aforesaid treaty provide as follows: "Article II" " INTEREST " "1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. "2. However, such interest may be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed; (a) 10 per cent if such interest is paid; (i) in connection with the sale on credit of any industrial, commercial or scientific equipment, or (ii) on any loan of whatever kind granted by a bank, or (iii) in respect of public issues of bonds, debentures or similar obligations, (b) 15 per cent of the gross amount of such interest in all other cases." Under the aforequoted paragraph 2 (b), the interest on the reinsurance premiums to be remitted by local or ceding insurance companies to Cologne is subject to a 15% withholding tax. Very truly yours, (SGD.) JOSE U. ONG Commissioner