BIR Ruling No. 320-11

August 22, 2011 BIR RULING NO. 320-11 Section 2 of Republic Act 9400; Section 1 of Revenue Regulations No. 20-02 Our Lady of Mt. Carmel Medical Center, Inc. Lot 4, Ninoy Aquino Avenue Clark Freeport Zone, Philippines Attention: Dr. Monet B. Briones, M.D. Gentlemen : This refers to your letter dated 9 February 2011, requesting confirmatory ruling on the tax exemption of your Time Deposit Account pursuant to Section 2 of Republic Act 9400, otherwise known as The Bases Conversion and Development Act of 1992. It is represented that Our Lady of Mt. Carmel Medical Center, Inc. is duly registered with the Securities and Exchange Commission (SEC Reg. No. A199912391) and with principal place of business at Lot 4, Ninoy Aquino Avenue, Clark Freeport Zone, Philippines. On June 7, 2010, Our Lady of Mt. Carmel Medical Center, Inc. was issued a Certificate of Registration as a Clark Freeport Zone Enterprise (Certificate No. 2010-148) authorized to do business in Clark Freeport as follows: "To establish a 24-hour satellite clinic including the following support facilities: Emergency Rooms; Ultrasound Room; Doctors Consultation Room; Laboratory; X-ray Room; Business Office; Pharmacy; Endoscopy Unit; Convenience Store; Lying-In Rooms" In reply, please be informed that based on the above enumerated registered business activities of Our Lady of Mt. Carmel Medical Center, investment in a Time Deposit Account or any other Philippine Currency bank deposit is not one of its registered business activities. Being an unregistered business activity, Revenue Regulations No. 20-02 clarifies its tax treatment, as follows: "Sec. 1. Tax Treatment. Income derived by an enterprise registered with the Subic Bay Metropolitan Authority (SBMA), the Clark Development Authority CDA, or the Philippine Economic Zone Authority (PEZA) from its registered activity/ies shall be subject to such tax treatment as may be specified in its terms of registration ( i.e. , the 5% preferential tax rate, the income tax holiday, or the regular income tax rate, as the case may be). Nonetheless, whatever the tax treatment of said enterprise with respect to its registered activity/ies, income realized by such registered enterprise that is not related to its registered activity/ies shall be subject to the regular internal revenue taxes, such as the 20%, final income tax on interest from Philippine Currency bank deposits and yield or any other monetary benefit from deposit substitutes , and from trust funds and similar arrangements, the 7.5% tax on foreign currency deposits and the 5%/10% capital gains tax or 1/2% stock transaction tax, as the case may be, on sale of shares of stock." (emphasis supplied) The above cited Revenue Regulation categorically provides that income realized by a registered enterprise that is not related to its registered activities is subject to the regular internal revenue taxes. It is also worth emphasizing that in BIR Ruling No. 117-99 dated August 10, 1999, this Office had the occasion to rule that income derived by PEZA-registered enterprise from unregistered activity is considered as ordinary income subject to regular corporate income tax. In applying Revenue Regulations No. 20-02 and BIR Ruling No. 117-99, it is clear that the Our Lady of Mt. Carmel Medical Center's interest income from a Time Deposit Account, being an unregistered business activity, is subject to the 20% final income tax. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue