15% Tax on Interest on Delayed Payments on Crude Purchases

July 13, 1988 BIR RULING NO. 310-88 50 (a) 000-00 310-88 Gentlemen : This refers to your letter dated February 8, 1988 requesting confirmation of your opinion to the effect that interest on delayed payments on your crude purchases to be remitted by you to Marubeni Corporation of Tokyo, Japan is not subject to withholding tax. It is represented that you are purchasing crude on a spot basis from Marubeni Corporation of Tokyo, Japan; that payment on your purchases may be on a delayed payment terms subject to interest; and that Marubeni Corporation of Tokyo, Japan has a branch office at L.V. Locsin Bldg., Ayala cor. Makati Avenue, Makati, Metro Manila. cdt In reply thereto, I have the honor to inform you that Article 11 of the RP-Japan Tax Treaty provides in part as follows: "Article 11 "(1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. "(2) However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed: (a) 10 percent of the gross amount of the interest if the interest is paid in respect of Government Securities, or bonds or debentures; (b) 15 per cent of the gross amount of the interest in all other cases. "(3) Notwithstanding the provisions of paragraph (2), the amount of tax imposed by the Philippines on the interest paid by a company, being a resident of the Philippines, registered with the Board of Investments and engaged in preferred pioneer areas of investment under the investment incentives laws of the Philippines to a resident of Japan, who is the beneficial owner of the interest, shall not exceed 10 per cent of the gross amount of the interest. "(4) . . . "(5) . . . "(6) The provisions of paragraph (1), (2) and (3) above shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the debt claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply." Such being the case, and since the interest on delayed payments on your crude purchases to be remitted by you to Marubeni Corporation of Tokyo, Japan is income of the latter and not of its Philippine Branch, is subject to a tax of 15% pursuant to Art. 11(2)(b) of the RP-Japan Tax Treaty. (See Marubeni Corporation vs. The Acting Commissioner of Internal Revenue, CTA Case No. 3605, Feb. 12, 1986). aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner