Exemption of Interest Payments from Philippine Income Tax and Consequently to Withholding Tax

August 16, 1990 BIR RULING NO. 157-90 28 (b) (8) (a) 000-00 157-90 Gentlemen : This refers to your letter dated May 24, 1990 requesting a ruling as to whether the interest payments on your loan from Burgan Bank SAK, a financing institution owned and controlled by the State of Kuwait, is subject to Philippine income tax. aisadc Documentary evidence submitted shows that you obtained a revolving credit facility in the maximum aggregate principal amount of US $95,000,000.00 from Burgan Bank, a financial institution set up by the Government of Kuwait for the purpose of financing your purchases of crude oil and petroleum products from Kuwait Petroleum Corporation; and that under the revolving credit facility agreement approved by the Central Bank, you are subject to interest payment of 1% per annum . In reply, please be informed that pursuant to Section 28 (b)(8)(a) of the Tax Code reading: "(b) Exclusions from gross income . The following items shall not be included in gross income and shall be exempt from taxation under this Title. xxx xxx xxx "(8) Miscellaneous items . (A) Income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from them, and (iii) international or regional financing institutions established by governments." the interest income of 1% per annum paid by you to Burgan Bank on your aforesaid loan is not subject to Philippine income tax and consequently to withholding tax imposed under Section 25 (b)(5)(A) in relation to Section 50 (a) both of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner