BIR Ruling [UN-234-95]

June 28, 1995 BIR RULING [UN-234-95] Digital Telecommunications Philippines, Inc. 2/F PCI Bank Building Corinthian Gardens Ortigas Avenue 1110 Quezon City Attention: Mr . Rodolfo G . Bravo Assistant Controller Gentlemen : This refers to your letter dated March 13, 1995 requesting for a ruling as to whether your withholding tax on the interest payments amounting to P250,172 (inclusive of P68,229 interest to be paid on future installment payments) to Gec Plessey Telecommunications Limited (now GPT Limited) can be reduced to 15% in accordance with Section 25(b)(5)(a) of the Tax Code, as amended, for the period beginning April 1, 1992 until October 1, 1996. It is represented that your company, Digital Telecommunications Philippines, Inc. (DIGITEL), a BOI-registered expanding operator of public telecommunications service on a preferred non-pioneer status under the Omnibus Investments Code of 1987, entered into an agreement with GPT Limited with office address at Magnet House, Kingsway, London, U.K. for the supply of System X digital telecommunications equipment, payphones and associated services on March 18, 1991; that 85% of the total contract price is payable by ten (10) semi-annual installments equivalent to the principal and interest in pounds sterling, out of the Irrevocable Letter of Credit with Solidbank Corporation; that the installment payment commenced last April 1, 1992 and will end by October 1, 1996; and that inasmuch as your supplier/contractor is a resident of the United Kingdom where there exists an RP-UK Tax Treaty, your withholding tax can be reduced to 15% instead of 20% pursuant to Sec. 25(b)(25)(a) of the Tax Code, as amended. In reply, please be informed that pursuant to Article 10 of the RP-UK Tax Treaty reading: "ARTICLE 10 "INTEREST "(1) Interest arising in a Contracting State which is derived and beneficially owned by a resident of the other Contracting State may be taxed in that other State. "(2) However, such interest may also be taxed in the Contracting State in which it arises, and according to the law of that State, but the tax so charged shall not exceed fifteen percent (15%) of the gross amount of the interest. "xxx xxx xxx" the interest income which GPT Limited has already received and will be receiving from the loan it granted to DIGITEL will only be subject to fifteen percent (15%) withholding tax based on the gross amount of the interest it has already derived and will be deriving therefrom beginning April 1, 1992 until October 1, 1996. (BIR Ruling No. 174-91 September 6, 1991) This ruling is based on the facts as represented. If, upon investigation, however, it will be disclosed that the facts are different from the aforesaid representation, this ruling shall thereafter be rendered null and void. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner Legal Service