ITAD BIR Ruling No. 002-14

January 15, 2014 ITAD BIR RULING NO. 002-14 Section 32 (B) (7), 1997 NIRC, as amended Embassy of the Islamic Republic of Pakistan 6th Floor Alexander House 132 Amorsolo St. Legaspi Village, Makati City Gentlemen : This refers to your Note No. NV-121/2013 dated 25 November 2013 indorsed by the Department of Foreign Affairs requesting for a tax exemption certificate pursuant to Section 32 (B) (7) (a) of the 1997 National Internal Revenue Code of 1997, as amended. In reply, please be informed that Section 32 (B) (7) (a) of the 1997 NIRC, as amended provides, as follows: "SEC. 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following 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 derived from investments in the Philippines in loans, stocks, bonds and other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign governments, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments. xxx xxx xxx" Based on the above provision, income from investments in loans, stocks, bonds and other securities and interest on bank deposits derived in the Philippines by a foreign government is excluded from the computation of gross income and is exempt from taxation. A diplomatic mission/foreign embassy falls within the purview of the term "foreign government" as used in the afore-quoted provision and is, therefore, exempt from income tax and consequently from the final withholding tax on the aforementioned investments in the Philippines. IHCESD In view thereof, this Office is of the opinion as it hereby rules the Embassy of the Islamic Republic of Pakistan in Manila is exempt from income tax and consequently from the final withholding tax on its investments in loans, stocks, bonds and other domestic securities, and, on interest on bank deposits derived in the Philippines pursuant to Section 32 (B) (7) (a) of the 1997 NIRC of 1997, as amended. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue