Drawdown and Repayment of Foreign Loans Are Foreign Exchange Transactions Subject to 1% Transaction Tax

September 24, 1985 BIR RULING NO. 166-85 260-A 109-85 166-85 S i r : This refers to your Memorandum dated May 3, 1985 to the Monetary Board which was referred to this Office for appropriate action, stating that the National Government or private persons, engaged as contractors, consultants, or suppliers for government projects are the beneficiaries of foreign loans from IBRD, IDA, ADB and other foreign financial institutions; that the National Government, its instrumentalities or private contractors-beneficiaries undertake the peso funding for the projects after which they request reimbursement on their expenditures from the foreign financial institution-funder which telex instructs the Foreign Exchange Department II (FED II) of the Central Bank to take the peso payments to the beneficiaries and that FED II credits the demand deposit account of the Treasury of the Philippines for the account of the beneficiaries. Based on the foregoing, you now request that the National Government and its private contractors-beneficiaries be exempted from the 1% transaction tax under Section 260-A of the Tax Code, as amended by P.D. No. 1959, on drawdowns and repayments of foreign loans. In reply, I have the honor to inform you that your request cannot be granted. Under the foregoing facts, there is a "foreign exchange purchase" because the Central Bank received foreign exchange from the foreign financial institutions; hence, in return, it delivered pesos to the beneficiaries. Accordingly, the same is a foreign exchange transaction (Revenue Memorandum Circular No. 30-84), subject to the 1% transaction tax imposed under Section 260-A of the Tax Code as amended by P.D. No. 1959, as implemented by Revenue Regulations No. 16-84. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner