Withdrawal of Exemption under P.D. No. 1955 Does Not Affect Grantees of Legislative Franchise

September 2, 1985 BIR RULING NO. 154-85 267 031-85 154-85 S i r : This refers to your letter dated March 19, 1985 requesting a ruling on whether grantees of legislative franchise to operate telecommunication facilities and which enjoy certain tax privilege fall within the exception of P.D. No. 1955 on non-impairment clause of the Constitution. In reply thereto, please be informed that your query is answered in the affirmative. Ministry Order No. 35-84 provides that the withdrawal of the exemption under P.D. No. 1955 does not affect "those covered by the non-impairment clause of the Constitution, such as franchise." Moreover, Section 1 of Ministry Order No. 39-84 implementing P.D. No. 1955 provides thus "SEC. 1. The withdrawal of exemption from, or any preferential treatment in the payment of duties, taxes, fees, imposts and other charges, as provided for under Presidential Decree No. 1955 does apply to exemption or preferential treatment embodied in the following laws: "a. The National Internal Revenue Code as amended; xxx xxx xxx Section 267 of the National Internal Revenue Code as amended provides that "there shall be collected in respect to all franchises upon the gross receipts from the business covered by the law granting the franchise, a tax of five per centum or such taxes, charges and percentages as are specified in the special charters of the grantees upon whom such franchises are conferred, whichever is higher, unless the provisions thereof preclude the imposition of a higher tax . . . .". cdtech Such being the case, the preferential tax treatment embodied in the legislative charters of telecommunication companies shall continue to be observed by this Office pursuant to the aforequoted provisions of Finance Ministry Order No. 39-84. However, any exemption from or preferential treatment in the tax on interest income from bank deposits and yield or any other monetary benefit from deposit substitutes, trust fund and other similar arrangements shall remain withdrawn pursuant to Section 24(cc) and 53(d)(1) of the Tax Code, as amended by P.D. No. 1959. (Section 2, Ministry Order No. 39-84, effective October 15, 1984). Accordingly, telecommunication companies are subject to 15% final withholding tax on their interest income from bank deposits and yield from deposit substitutes prescribed by P.D. No. 1959. cd Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner