ITAD Ruling No. 074-01

September 11, 2001 ITAD RULING NO. 074-01 Sec. 32 (B) (7) (a) of Tax Code of 1997 BIR Ruling ITAD-3-00; BIR Ruling ITAD 130-95 Royal Embassy of Cambodia Unit 7A-B/7th Floor, Country Space One Bldg., Sen. Gil Puyat Avenue, Makati City, Philippines Gentlemen : This refers to your letter dated May 29, 2001, requesting for exemption from payment of 20% withholding tax charged by a local bank on the peso account of the Royal Embassy of Cambodia. In reply, please be informed that pursuant to Section 32(B)(7)(a) of the Tax Code of 1997 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 financing institution's established by foreign governments." (Emphasis provided) Since diplomatic and consular Missions fall within the purview of the term "foreign government" as used in the afore-quoted provisions of the Tax Code, income from interest on deposits in banks of foreign embassies, as well as cash and/or property dividends, are exempt from income tax and consequently from the final withholding tax. EIcTAD However, the interest income on the personal deposits of the personnel of that Embassy is subject to income tax in accordance with Section 24(B)(1) of the Tax Code of 1997. (BIR Ruling No. 130-95 dated August 28, 1995) Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group