Tax Effect of Remittance of Profits by Branches of Foreign Commercial Banks Operating a FCDU

November 22, 1988 BIR RULING NO. 553-88 25 (a) (5) 000-00 553-88 Gentlemen : This refers to your letter dated September 28, 1988 requesting confirmation of your opinion to the effect that the remittance of profits by branches of foreign commercial banks operating a foreign currency deposit unit (FCDU) to their head office consisting of the FCDU's offshore income and onshore income is exempt from the 15% branch profit remittance tax. In reply thereto, please be informed that your opinion is hereby confirmed. Pursuant to Section 24(e)(3) of the Tax Code, as amended, income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with non residents, off-shore banking units in the Philippines, local commercial banks including branches of foreign banks that may be authorized by the Central Bank to transact business with foreign currency depository system units and other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes, except taxable income from such transaction as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board to be subject to the usual income tax payable by banks: Provided, That interest income from foreign currency loans granted by such depository banks under said expanded system to residents (other than off-shore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a 10% tax. Moreover, Section 3 of Revenue Regulations No. 10-76 governing the taxation of Offshore Banks and Foreign Currency Deposits Units of depository banks, established under P.D. 1034 and 1035 respectively provides that the rates of income tax to the imposed on offshore income which was then subject to a five percent (5%) tax on the net income from such transactions and on onshore income which was subject to a final tax of 10% shall be in lieu of all other taxes such as but not limited to privilege tax, gross receipts tax, documentary and science stamp tax and profit remittance tax . Accordingly, the remittance of profits by branches of foreign commercial banks operating a foreign currency deposit unit to their head office consisting of the FCDU's offshore and onshore income is not subject to the 15% branch profit remittance tax under Section 25(a)(5) of the Tax Code, as amended. cdti Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner