ITAD Ruling No. 052-01

June 6, 2001 ITAD RULING NO. 052-01 Article 11, RP-Belgium Tax Treaty Section 2.24, RR 10-98 ITAD 196-00 Mr . Ivanhoe F . Sandoval United Coconut Planters Bank P.O. Box 4230, MCCPO Box 3029 S i r : This refers to your fax letter dated 29 May 2001 which serves as an addendum concerning the request of Ms. Amelia Reyes de Forthomme on behalf of her husband, Mr. Denis W. P. Forthomme, a prospective depositor of UCPB, for exemption from the 7.5% final tax on interest income on Foreign Currency Deposits (FCDU) under Revenue Regulations No. 10-98, and for the application of the preferential tax rate of 10% final tax on interest income on Philippine Peso Currency deposits pursuant to the RP-Belgium Tax Treaty. It is represented that Mr. Denis Forthomme is a Belgian citizen and is a permanent resident of Bruxelles, Belgium; that he is a non-resident individual and has no existing business in the Philippines from which he can derive income; that he is not in the Bureau of Immigration's list of registered permanent resident aliens as per the said Bureau's Certification (Control No. 00967) dated May 8, 2001; that he is a holder of Belgian Passport No. EB Nr. 790287 issued at Bruxelles, Belgium on May 8, 1999 expiring on April 8, 2004; and that he is a future client of United Coconut Planters Bank, T.M. Kalaw branch. In reply, please be informed as follows: 1. On the imposition of income tax on derived under the Foreign Currency Deposit Under Section 24 (B)(l) of the 1997 Tax Code, the interest income received by a non-resident individual from a depository bank under the expanded foreign currency deposit system shall not be subject to a final income tax at the rate of 7%. Furthermore, Section 2.24 of Revenue Regulation No. 10-98 1 provides, viz: "SEC. 2.24. Income Tax Rate of Interest Income from Foreign Currency Deposit "xxx xxx xxx "(B) Compliance and Administrative Procedures for Non-Resident Citizen and Non-Resident Alien . The tax on interest income from foreign currency deposit shall be imposed unless the depositor who is a non-resident citizen alien can present documentary evidence that he is not a resident of the Philippines. Such evidence shall consist of the original or certified copy of any of the following: "xxx xxx xxx "(4) a certification from the Bureau of Immigration of the Philippines that a non-resident alien is not a resident of the Philippine; or "xxx xxx xxx" Since Mr. Denis W. P. Forthomme is a non-resident alien individual in the Philippines and has complied with the requirement of Revenue Regulations No. 10-98, the interest income which he may derive from his foreign currency deposit here in the Philippines shall be exempt from the final withholding tax of 7%. II. On the imposition of income tax on interest income from other deposits . Article 11 of the RP-Belgium Tax Treaty provides as follows, viz : "Article II "INTEREST "1. "2. "xxx xxx xxx. "4. "xxx xxx xxx." According to the Commentaries of the ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD) Committee on Fiscal Affairs on the Model Tax Convention [par. 3, Commentary on Article 11 (Interest), 1998, p. 141], "the term 'debt-claims of every kind' obviously embraces cash deposits and security in the form of money, as well as government securities, and bonds and debentures, although the three latter are specially mentioned because of their importance and of certain peculiarities that they may present." (BIR Ruling No. ITAD-196-00 dated December 7, 2000) . Thus, applying Article 11 of the RP-Belgium Tax Treaty, the interest income which may be derived by Mr. Forthomme on Philippine Peso Currency deposits shall be subject to the 10% preferential tax rate pursuant to Article 11 (2) of the RP-Belgium Tax Treaty. This ruling is issued based on the foregoing facts as represented. If upon investigation, it will be disclosed that the said facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI OIC-Commissioner Bureau of Internal Revenue Footnotes 1. Implementing the Provisions of the National Internal Revenue Code, As Amended by Republic Act No. 8424, Relative to the Imposition of Income Taxes on Income Derived under the Foreign Currency Deposit and Offshore Banking Systems .