ITAD Ruling No. 021-99

August 24, 1999 ITAD RULING NO. 021-99 RP-Japan Article 11 000-00 Overseas Economic Cooperation Fund 3rd Division Operations Department I 4-1 Ohtemachi I-Chome, Chiyoda Ku Tokyo, Japan Attention: Mr . Hiroshi Suzuki Director Gentlemen : This refers to your letter dated July 07, 1999, informing this Office of the merger of the Export-Import Bank of Japan (JEXIM) and the Overseas Economic Cooperation Fund (OECF) into a new institution, the Japan Bank for International Cooperation (JBIC) on October 01, 1999, by virtue of the Japan Bank for International Cooperation Law. Relative thereto, you seek our opinion as to whether or not the tax exemption with respect to interest income currently being enjoyed by JEXIM and OECF, financial institutions fully owned by the Japanese Government, pursuant to the RP-Japan Tax Treaty, will likewise be enjoyed by JBIC. In reply, please be informed that Article 11(4) of the RP-Japan Tax Treaty provides as follows: "Article 11 "xxx xxx xxx "(4) Notwithstanding the provisions of paragraphs (2) and (3), interest arising in a Contracting State and derived by the Government of the other Contracting State including political subdivisions and local authorities thereof, the Central Bank of that other Contracting State or any financial institution wholly owned by that Government, or by any resident of the other Contracting State with respect to debt-claims guaranteed or indirectly financed by the Government of that other Contracting State including political subdivisions and local authorities thereof, the Central Bank of that other Contracting State or any financial institution wholly owned by that Government shall be exempt from tax in the first-mentioned Contracting State. For the purposes of this paragraph, the term "financial institution wholly owned by the Government" means: (a) In the case of Japan, the Export-Import Bank of Japan, the Overseas Economic Cooperation Fund and the Japan International Cooperation Agency; (b) In the case of the Philippines, the Development Bank of the Philippines; and (c) Any such financial institution the capital of which is wholly owned by the Government of either Contracting State, other than those referred to in sub-paragraphs (a) and (b) above, as may be agreed from time to time between the Governments of the two Contracting States. In view of this, this Office hereby holds that the interest income that will be derived by the Japan Bank for International Cooperation, being a financial institution wholly owned by the Japanese Government, is exempt from the Philippine income tax. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue