ITAD BIR Ruling No. 095-14

June 25, 2014 ITAD BIR RULING NO. 095-14 Section 9 (a), Article VI of the Articles of Agreement of the International Finance Corporation International Finance Corporation 23rd Floor One Global Place 5th Ave., corner 25th St. Bonifacio Global City Taguig City Gentlemen : This refers to your 14 March 2014 letter requesting a ruling that the International Finance Corporation ("IFC") is exempt from income tax and, consequently from withholding tax on its investments whether in the form of loans, other debt, equity, deposits or otherwise in the Philippines pursuant to the Articles of Agreement of the International Finance Corporation ("IFC Agreement") . It is represented that IFC is an international organization established by the IFC Agreement among its member countries; that IFC is a specialized agency of the United Nations responsible for furthering economic development by encouraging the growth of productive private enterprise in member countries, particularly in the less developed areas, thus supplementing the activities of the International Bank for reconstruction and Development; that under the IFC Agreement, IFC is entitled to immunity from all taxation and from all custom duties on its assets, property, income, and its operations and transactions, and from liability for the collection or payment of any tax or duty; that the Republic of the Philippines is a signatory to the IFC Agreement by virtue of Republic Act No. 1604 (1956) which authorized the membership of the Philippines in IFC and its accession to the IFC Agreement. In reply, please be informed that Section 32 (B) (5) of the 1997 National Internal Revenue Code, as amended ("1997 NIRC, as amended") provides, viz. : HCaDET "SEC. 32. Gross Income . xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines. xxx xxx xxx" In connection thereto, Section 9 (a) of Article VI of the IFC Agreement states: "Article VI Status, Immunities and Privileges xxx xxx xxx Section 9. Immunities from Taxation . (a) The Corporation, its assets, property, income and its operations and transactions authorized by this Agreement, shall be immune from all taxation and from all customs duties. The Corporation shall also be immune from liability for the collection or payment of any tax or duty." (Underscoring supplied) Relative thereto, Sections 1 and 6 of Article III of the IFC Agreement provide: cCHETI "Article III Operations Section 1. Financing Operations. The Corporation may make investments of its funds in productive private enterprises in the territories of its members . The existence of a government or other public interest in such an enterprise shall not necessarily preclude the Corporation from making an investment therein. xxx xxx xxx Section 6. Miscellaneous Operations. In addition to the operations specified elsewhere in this Agreement, the Corporation shall have the power to: (i) borrow funds , and in that connection to furnish such collateral or other security therefore as it shall determine; provided, however, that before making a public sale of its obligations in the markets of a member, the corporation shall have obtained the approval of that member and of the member in whose currency the obligations are to be denominated; if and so long as the Corporation shall be indebted on the loans from or guaranteed by the Bank, the total amount outstanding of borrowings incurred or guarantees given by the Corporation shall not be increased if, at the time or as a result thereof, the aggregate amount of debt (including the guarantee of any debt) incurred by the Corporation from any source and then outstanding shall exceed an amount equal to four times its unimpaired subscribed capital and surplus; HIEASa (ii) invest funds not needed in its financing operations in such obligations as it may determine and invest funds held by it for pension or similar purposes in any marketable securities, all without being subject to the restrictions imposed by other sections of this Article; (iii) guarantee securities in which it has invested in order to facilitate their sale; (iv) buy and sell securities it has issued or guaranteed or in which it has invested; (v) exercise such other powers incidental to its business as shall be necessary or desirable on furtherance of its purposes ." (Emphasis provided) Accordingly, IFC is authorized to make investments of its funds in productive private enterprises in the Philippines through borrowing and investing of funds, guaranteeing securities, buying and selling securities under the IFC Agreement. Thus, the resulting income of IFC from its investments whether in the form of dividends, interest, capital gains or other investment income is exempt from income tax. Consequently, IFC is also exempt from withholding taxes. In view of all the foregoing, this Office is of the opinion and so holds that IFC, for its duly authorized transactions, is exempt from income taxes on its investments and, consequently from withholding taxes due therefrom pursuant to Section 9 (a) of Article VI of the IFC Agreement. I hope this sufficiently addresses your concerns. AIaSTE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue