BIR Ruling No. 419-61

September 1, 1961 BIR RULING NO. 419-61 The Financing House, Inc. 817-19 Equitable Bank Bldg. Manila Gentlemen : Reference is made to your query regarding your income tax liability under the facts represented in your letter. LLpr It is admitted that your income consists of around 20% from interest, 70% on gain earned from the purchase of promissory notes and 10% from other sources. Discount realized upon maturity of installment notes receivable discounted by a finance company is held to be interest income for purposes of personal holding company requirement. (International Finance Co. BTA Memo Op., January 29, 1941; Montgomery's Federal Taxes, Vol. II 1946-47 p. 844) Soo Amansec, Law on Income Taxation, p. 417-18.) A copy of your articles of incorporation shows out that more than 50% of your total paid-in capital (P500,000.00) is owned by the following individuals: Name Nationality Amount Paid 1. Sy Chi Siong Filipino P200,000.00 2. Vicente C. Sayson Filipino 50,000.00 3. Co Bun Chun Filipino 30,000.00 4. Chua Egan Filipino 30,000.00 5. Peter Leoncio Sy Filipino 25,000.00 The Tax Code defines personal holding company as follows: prcd "SEC. 64. Definition of personal holding company . (a) General rule . For the purposes of this Title, the term 'personal holding company' means any corporation, as defined in section eighty-four if "(1) Gross income requirement . At least eighty per centum of its gross income for the taxable year is personal holding company income as defined in section sixty-five . . . "(2) Stock ownership requirement . At any time during the last half of the taxable year more than fifty per centum in value of its outstanding stock is owned, directly or indirectly, by or for not more than five individuals. . . ." Section 65 of the same Code defines personal holding company income as that portion of the gross income which consists of: "(a) Dividends, interest (other than interest constituting rent as defined in subsection (g) hereof), royalties (other than mineral, oil, or gas royalties), and annuities. The term 'royalties', as herein used, includes income from copyrights, patents, and other similar revenues. cdpr "(b) Stock and securities transactions . Except in the case of regular dealers in stock or securities (as defined in subsection (s) of section eighty-four), gains from the sale or exchange of stock or securities. . ." In view of the fact that more than 50% of your outstanding stock is owned by five individuals and more than 80% of your gross income is personal holding company income, you are liable for the payment of the 45% tax on your undistributed income prescribed in Section 63 of the Tax Code in addition to the tax imposed by Section 24 of the same Code. Very truly yours, (SGD.) MELECIO DOMINGO Commissioner of Internal Revenue