BIR Ruling No. 449-12

July 10, 2012 BIR RULING NO. 449-12 Sec. 32 (B) (7) (a) of the 1997 Tax Code, as amended; BIR Ruling No. 162-11 SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty. Antonette C. Tionko Principal, Tax Services Gentlemen : This refers to your letter dated October 12, 2010 requesting confirmation that, pursuant to Section 32 (B) (7) (a) of the 1997 Tax Code, as amended, the income from investments in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines, derived by Government Pension Fund-Global (GPFG), which is beneficially owned by the Government of Norway, and Foreign Exchange Reserves Fund (FERF), which is owned by Norges Bank, is exempt from Philippine income tax, and consequently, to withholding tax. Any future investments comprising GPFG and FERF in the Philippines in loans, stocks, bond or other domestic securities, or from interest on its deposits in bank in the Philippines shall likewise be exempt from Philippine income tax. It is represented that Norges Bank is the Central Bank of the Government of Norway established under the Act of 24 May 1985, otherwise known as "The Norges Bank Act" ("the Act") with office address at P.O. box 1179, Centrum, 0107, Oslo, Norway; that, under the said Act, it is a separate legal entity owned by the Government of Norway and is organized as an executive and advisory body for monetary, credit and foreign exchange policy; that it may implement any measures customarily or ordinarily taken by a central bank, and to carry out its purposes, may engage in any and all types of banking business and banking services; that it shall conduct its operations in accordance with the economic policy guidelines drawn up by the government authorities and with the country's international commitments. Likewise, it is represented that GPFG is a fund into which the surplus wealth produced by the Norwegian petroleum income is deposited; that the purpose of GPFG is to invest parts of the large surplus generated by the Norwegian petroleum sector; that Norges Bank manages GPFG on behalf of the Ministry of Finance, through its asset management unit, Norges Bank Investment Management (NBIM); that GPFG does not have legal personality of its own and the investments comprising this fund are performed by Norges Bank in its own name, but for the account of the Government of Norway; that the Fund is beneficially owned by the Government of Norway represented by the Ministry of Finance. On the other hand, it is represented that FERF, which is owned by the Norges Bank, is divided into three portfolios, including a buffer portfolio and an investment portfolio both of which are managed by NBIM; that the investment portfolio accounts for the largest portion of the FERF; that it does not have legal personality either and the investments comprising this fund are performed by the NBIM in its own name and account. Moreover, it is represented that GPFG has, as of 30 August 2010, invested in various Philippine domestic corporations, particularly the following: AETcSa Corporation Name Ayala Land, Inc. Bank of the Philippine Islands Alliance Global Group, Inc. First Philippine Holdings Company Globe Telecom, Inc. Filinvest Land, Inc. International Container Terminal Service, Inc. Jollibee Foods Corporation Metropolitan Bank and Trust Company Banco de Oro Unibank, Inc. Megaworld Corporation Petron Corporation Philippine Long Distance and Telephone Company Robinson's Land Corporation SM Prime Holdings, Inc. Universal Robina Corporation Manila Water Company, Inc. SM Investments Corporation Ayala Corporation First Gen Corporation Philex Mining Corporation Energy Development Corporation Vista Land & Lifescapes, Inc. Aboitiz Power Corporation Manila Electric Company Security Bank Corporation and will derive dividend income from the above-mentioned domestic corporations; that, FERF is currently not invested in any Philippine corporation; that these Funds (GPFG and FERF) will likewise be invested in other Philippine corporations in the future. Based on the following representations, you now request confirmation of your opinion that the income derived by GPFG, which is beneficially owned by the Government of Norway, and FERF, which is owned by Norges Bank the Central Bank of Norway, in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in banks in the Philippines is exempt from Philippine income tax and, consequently, to withholding tax. Any income that GPFG and FERF will derive from future investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in banks in the Philippines shall likewise be exempt from Philippine income tax. In reply thereto, please be informed that Section 32 (B) (7) (a) of the 1997 Tax Code, as amended, provides: "(B) Exclusions from Gross Income The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (7) Miscellaneous Items (a) Income Derived by Foreign Government Income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in the Philippines by (i) foreign governments , (ii) financing institutions owned, controlled, or enjoying refinancing from them , and (iii) international or regional financing institutions established by governments." (Underscoring supplied) In the above-cited provision, it is clear that income derived from investment in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by foreign governments and financing institutions wholly-owned, controlled or enjoying refinancing from foreign investments shall be exempt from income tax and, consequently, to withholding tax. Considering that GPFG is beneficially owned by the Government of Norway, represented by the Ministry of Finance, as confirmed in the Certification of a Foreign Entity/a Financing Institution Owned or Established by the Foreign Government, issued on September 28, 2010 by the Norges Bank Investment Management, GPFG falls within the purview of the term "foreign government" as contemplated under Section 32 (B) (7) (a) (i) of the 1997 Tax Code, as amended. Hence, any income derived by GPFG in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on its deposits in bank in the Philippines, is exempt from Philippine income tax and, consequently, to withholding tax. (BIR Ruling No. 162-2011 dated May 20, 2011) cICHTD Likewise, considering that FERF is owned by Norges Bank, which is the Central Bank of the Government of Norway, as confirmed in the Certification of a Foreign Entity/a Financing Institution Owned or Established by the Foreign Government, issued on September 28, 2010 by the Norges Bank Investment Management, and as further attested to by Randi Naes, Investment Director of the Ministry of Finance of Norway, FERF falls within the purview of the term "financing institutions owned, controlled or enjoying refinancing from the government" as contemplated under Section 32 (b) (7) (A) (ii) of the 1997 Tax Code, as amended. Hence any income derived by FERF in the Philippines in loans, stocks such as dividends, bonds or other domestic securities, or interest on its deposits in banks in the Philippines, is exempt from Philippine income tax and, consequently, from withholding tax. (BIR Ruling No. 162-2011 dated May 20, 2011) In view of the foregoing, your request is hereby confirmed that the income derived by GPFG, which is beneficially owned by the Government of Norway, and FERF, which owned by Norges Bank, the Central Bank of Norway, in the Philippines in loans, stocks, bond or other domestic securities, or from interest on its deposits in bank in the Philippines is exempt from Philippine income tax and consequently, to withholding tax. Any income that GPFG and FERF will derive from future investments in the Philippines in loans, stocks, bond or other domestic securities, or from interest on their deposits in bank in the Philippines shall likewise be exempt from Philippine income tax. This ruling being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue