BIR Ruling [UN-018-94]

January 17, 1994 BIR RULING [UN-018-94] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . Ma . Victoria A . Villaluz Gentlemen : This refers to your letter dated October 25, 1993 requesting in effect for a ruling that interest payments made by your client, Smart Information Technologies, Inc., in favor of NORDBANKEN INTERNATIONAL, a bank, 100% owned by the Swedish Government, in consideration of the loan which the latter has extended to the former, would not be subject to income tax and consequently, to withholding taxes, pursuant to Section 28(b) (8) (A) of the Tax Code, as amended. It is represented that Smart Information Technologies, Inc., is a domestic corporation engaged in the business of telecommunications, computers and electronic services; that it is a grantee of a legislative franchise under Republic Act No. 7249 dated March 27, 1992; that Nordbanken International is a Swedish banking institution, one hundred percent (100%) owned by the Swedish Government; and that the loan extended to Smart Information Technologies by Nordbanken International is guaranteed by Swedish Export Credit, Inc. (Svensk Exportkredit). In reply, please be informed that under Section 28(b) (8) (A) of the Tax Code, as amended, income received from their investments in the Philippines in loans, inter alia , by (1) foreign governments; (2) financing institutions owned, controlled, or enjoying refinancing by foreign governments; and (3) international or regional financing institutions established by governments shall be exempt from Philippine income tax. A certification dated November 19, 1993 by the Embassy of Sweden affirmed that the Nordbanken International is a banking institution fully-owned (100%) by the Swedish Government. Such being the case, the interest payments made by Smart Information Technologies, Inc. in favor of Nordbanken International, on account of the loan which the latter granted to the former, are exempt from income tax and consequently, from the withholding tax (BIR Ruling No. 215-91 dated October 24, 1991). Very truly yours, JAIME M. MAZA Assistant Commissioner (Legal Service)