BIR Ruling [UN-210-95]

June 9, 1995 BIR RULING [UN-210-95] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Mr . R . R . Rubio Gentlemen : This refers to your letter dated May 26, 1995, requesting on behalf of your client, Amkor/Anam Pilipinas, Inc. (Amkor), for a ruling that the interest income which will be received by the Korean Development Bank (KDB-Seoul) from Amkor is exempt from the Philippine income tax and consequently from the withholding tax under Article 11(4) of the RP-Korea Tax Treaty. It is represented that Amkor is a domestic corporation engaged primarily in the subcontract assembly and testing of electronic components; that to finance its purchase of major capital equipment, Amkor intends to borrow funds from KDB-Seoul; that KDB-Seoul is a financial institution which is 100% owned by the Government of Korea; that under the proposed arrangement, payments of interest on the loan will be coursed through KDB-Hong Kong, a wholly-owned corporation of KDB-Seoul; that under the terms of the loan agreement, KDB-Seoul remains the lender on record, the loan agreement being executed between KDB-Seoul, as lender, and Amkor as borrower. In reply, please be informed that reiterating BIR ruling dated April 23, 1990 addressed to the Director General of Korea's Tax Bureau, Korean Development Bank is a financial institution eligible for tax exemption in the Philippines under Article 11 (4) of the RP-Korea Tax Treaty. Thus, interest income arising in the Philippines and paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Korean Development Bank shall not be subject to Philippine income tax, and consequently shall not also be subject to Philippine withholding tax. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)