ITAD BIR Ruling No. 128-16

August 18, 2016 ITAD BIR RULING NO. 128-16 Article 11 (Interest), Philippines-Belgium tax treaty AAA c/o BBB ____________________ ____________________ ____________________ ____________________ Madam : This refers to your tax treaty relief application filed on April 15, 2011 requesting confirmation that interest you earned from your depository accounts in the Bank of the Philippine Islands ("BPI") is subject to income tax at the rate of 10 percent pursuant to the Agreement between the Republic of the Philippines and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Belgium tax treaty") , as amended. 1 Facts It is represented that you are a Filipino and a tax resident of Belgium; that you are not a registered owner of any business name in the Philippines; that you migrated to Belgium in 2009 and return to the Philippines every year for approximately two weeks to visit your family; and that you maintain single and joint accounts in BPI with your mother and sister who are residents of the Philippines. Ruling In reply, please be informed that Section 24 (B) (1) of the National Internal Revenue Code of 1997, as amended, ("Tax Code") provides the tax rate on interest earned by individuals, to wit: "CHAPTER III TAX ON INDIVIDUALS "SEC. 24. Income Tax Rates. xxx xxx xxx (B) Rate of Tax on Certain Passive Income. (1) Interests, Royalties, Prizes, and Other Winnings. A final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements . . ." However, under Section 32 (B) (5) of the Tax Code, such income is exempt or partially exempt to the extent required by any treaty obligation on the Philippines, to wit: "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." In this regard, paragraph 2, Article 11 of the Philippines-Belgium tax treaty subjects interest arising in the Philippines and paid to a resident of Belgium to a lower tax rate of 10 percent, to wit: "Article 11 Interest 1. Interest arising in a Contracting State and paid to 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 laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State the tax so charged shall not exceed 10 per cent of the gross amount of the interest." Accordingly, since you are a resident of Belgium, interest arising from your single accounts in BPI is subject to income tax rate of 10 percent pursuant to paragraph 2, Article 11 of the Philippines-Belgium tax treaty. With respect to interest arising from your joint accounts, under Articles 484 and 485 of the Civil Code of the Philippines, it is presumed that you equally own these accounts with your co-accountholders, to wit: "Title III. CO-OWNERSHIP Art. 484. There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. In default of contracts, or of special provisions, co-ownership shall be governed by the provisions of this Title. (392) Art. 485. The share of the co-owners, in the benefits as well as in the charges, shall be proportional to their respective interests. Any stipulation in a contract to the contrary shall be void. The portions belonging to the co-owners in the co-ownership shall be presumed equal, unless the contrary is proved. (393a)" (Emphasis ours) Therefore, applying the foregoing rule on co-ownership, only a portion of the interest corresponding to your ownership in those accounts (50 percent if two accountholders; 33.33 percent if three accountholders, etc.) is subject to income tax at the rate of 10 percent pursuant to paragraph 2, Article 11 of the Philippines-Belgium tax treaty, while the remaining portion of interest derived by your co-accountholders is subject to 20 percent under Section 24 (B) (1) of the Tax Code. This ruling is issued on the basis of the actual facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. By the Protocol Amending the Agreement between the Republic of the Philippines and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income Signed in Manila on 2 October 1976 effective January 1, 2000 .