Exemption from the 20% Withholding Tax on Interest Earned from Bank Accounts

June 28, 1988 BIR RULING NO. 277-88 50 (a) & 204 (3) 000-00 277-88 Gentlemen : This refers to your letters dated January 16 and April 12, 1988 requesting a ruling to the effect that you are exempt from the 20% withholding tax on interest earned from your bank accounts; and that you are entitled to a refund of the taxes withheld from you which are not yet barred by the two-year prescriptive period. cdtech It is represented that under the Host Agreement between you and the Republic of the Philippines you are exempt from all direct and indirect taxes on your income; that as a consequence thereof you are also exempt from the payment of the 20% withholding tax on interest on bank deposits; that the withdrawal of all tax exemptions under P.D. No. 1955 and Executive Order No. 93 did not include those covered and conferred by effective international agreements to which the Government of the Republic of the Philippines is a signatory and those conferred under the four basic Codes one of which is the National Internal Revenue Code, as amended; and that you are entitled to a refund of the 20% tax withheld on your interest income which are not yet barred by the two-year prescriptive period. In reply thereto, I have the honor to inform you that your request is hereby granted. Section II of the Host Agreement between you and the Republic of the Philippines in part, provides, viz: "Section II. The organization, the assets, income and other property, shall be: (a) exempt from all direct and indirect taxes. It is, understood, however, that the organization will not claim exemption from taxes which are, in fact, no more than charges for public utility services; . . ." It is clear from the above-quoted provision that you are exempt from income tax and consequently from the withholding tax on interest on bank deposits under Section 50(a) of the Tax Code, as amended. As regards the refund of the 20% tax withheld from your interest on bank deposits, in order to effect said refund, you may file a claim with this Office, Attn.: Appellate Division, within two (2) years from the date of payment. In this connection, only those taxes which are not yet barred by the two-year prescriptive period reckoned from the date of payment of the tax pursuant to Section 204(3) of the Tax Code, as amended are refundable. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner