BIR Ruling No. 358-11

September 28, 2011 BIR RULING NO. 358-11 Sec. 32 (B) (7) (a) of NIRC of 1997, as amended; BIR Ruling No. [DA-290-08]; BIR Ruling No. [DA-(C-196) 504-09] Isla Lipana & Co. 29th Floor, Philamlife tower 8767 Paseo de Roxas 1226 Makati City Attention: Ms. Malou P. Lim Partner, Tax Services Gentlemen : This refers to your letter dated March 30, 2010 requesting on behalf of your client, Abu Dhabi Investment Council ("ADIC"), for a ruling that the income received or to be received by ADIC from its stock investments in Ayala Corporation and Ayala Land, Inc. such as dividends and gain from sale of shares of stocks, are exempt from income tax, and consequently from withholding taxes, pursuant to Section 32 (B) (7) (a) of the Tax Code of 1997, as amended. It is represented that ADIC is a government financial institution incorporated and constituted in the United Arab Emirates and wholly owned by the Government of the Emirate of Abu Dhabi; that a Residence Certificate issued by the United Arab Emirates Ministry of Finance on January 19, 2010 confirms this; that ADIC has stock investments in the Philippines, as follows: Company ISIN Number of Shares % of Ownership Ayala Corporation PHY0486V1154 4,000 .0008% Ayala Land, Inc. PHY0488F1004 384,300 .0030% and that the Philippine investee companies declare regular cash advance dividends for the second semester ended December 31, 2009 to all shareholders of common stock in the amount of P2.00 per share and P0.03 per share, respectively. In reply, please be informed that Sec. 32 (B) (7) (a) (ii) of the 1997 Tax Code, as amended, provides as follows: "(B) Exclusions from Gross Income The following items shall not be included in gross income and shall be exempt from taxation under this Title: cCAIDS xxx xxx xxx (7) Miscellaneous Items. (a) Income Derived by Foreign Government. Income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institution owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments." From the foregoing, it is clear that income derived from investments in the Philippines from stocks by financial institutions owned or controlled by foreign governments shall not be included in gross income and shall be exempt from income taxation. Since the ADIC is a financial institution owned, controlled, or enjoying refinancing from the Government of the Emirate of Abu Dhabi, it is not subject to Philippine income tax under Section 32 (B) (7) (a) (ii) of the Tax Code of 1997, as amended, on its income from its stock dividends and gain from sale of shares of stock. (BIR Ruling No. [DA-(C-196) 504-09] dated September 8, 2008) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue