ITAD BIR Ruling No. 075-13

March 21, 2013 ITAD BIR RULING NO. 075-13 Section 32 (B) (7) (a), NIRC of 1997 Embassy of Mexico 2nd Floor, GC Corporate Plaza 150 Legaspi Village, Makati City Gentlemen : This refers to Note FIL-0233/123.02 dated 20 February 2013 forwarded to this Bureau by the Department of Foreign Affairs on 05 March 2013 requesting for a ruling on tax exemption from interest derived on bank deposit by the Embassy of Mexico, as required from the latter by Banco de Oro where the embassy maintains an account. In reply, thereto, please be informed that Sec. 32 (B) (7) (a) of the National Internal Revenue Code (NIRC) of 1997, as amended provides, viz. : " Sec. 32. Gross Income. . . . (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: . . . (7) Miscellaneous Items. (a) Income Derived by Foreign Government. Income derived from investments in the Philippines in loans, stocks, bonds or 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. . . . " (Underscoring provided) IDcHCS Based on the above provision, interest on deposits in Philippine banks derived 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 interest on deposits in banks in the Philippines. In view thereof, this Office is of the opinion as it hereby rules that interest on bank deposit by the Embassy of Mexico is exempt from income tax and consequently from the final withholding tax. However, as regards diplomatic personnel maintaining personal savings/current account with local banks, please note that the exemption of diplomatic agents from all dues and taxes, personal or real, national, regional or municipal under Article 34 of the 1961 Vienna Convention on Diplomatic Relations does not include exemption from tax on private income having its source in the receiving State. Accordingly, diplomatic personnel are subject to the withholding tax on interest derived from their personal savings/current accounts maintained with the local banks. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue