ITAD Ruling No. 088-01

October 17, 2001 ITAD RULING NO. 088-01 Sec. 32 (B) (7) (a) (ii) of the 1997 Tax Code BIR Ruling No. 013-96 H & Q Philippine Venture II Inc. 22nd Floor, Equitable PCIBank Tower 2 Makati Avenue, Makati City Attention: Ms. Mel Evangelista Gentlemen : This refers to your letter dated November 20, 2000, requesting confirmation of your opinion that the cash dividend to be paid by H & Q Philippine Venture II, Inc. (H&Q) to Commonwealth Development Corporation (CDC) is exempt from Philippine tax pursuant to Section 32(B)(7)(a)(ii) of the Tax Code of 1997. It is represented that H&Q is a corporation organized and existing under the laws of the Philippines; that CDC is a corporation established by the Act of Parliament of United Kingdom (UK) for the purpose of assisting in the economic development of certain countries; that, in particular, CDC is empowered to operate in the Philippines based on the Agreement between the Government of the Philippines, as represented by Secretary of Finance Roberto F. de Ocampo, and CDC, as represented by His Excellency Ambassador Adrian C. Thorpe, on September 3, 1997; that CDC is recognized by the Philippine Government as a financing institution owned and controlled by the UK Government as contemplated under Section 28(b)(8)(A)(ii) [now Section 32(B)(7)(a)(ii)] of the Philippine Tax Code; that as of October 31, 2000, CDC owns 23,786 of H&Q's issued and outstanding shares as certified by the Assistant Corporate Secretary of H&Q dated November 20, 2000; and that on September 20, 2000, H&Q's Board of Directors declared cash dividend in the amount of Eighty Million Pesos (P80,000,000.00) or P326,5306122 per share in favor of common stockholders of record as of October 31, 2000 in proportion to their respective common shareholdings as of said record date, payable on or before December 5, 2000. In reply, please be informed that Section 32(B)(7)(a)(ii) of the Tax Code of 1997 provides as follows: "Section 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 "(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 financial institutions established by foreign governments" Such being the case and since CDC is recognized by the Philippine Government as an international financing institution owned and controlled by the UK Government as contemplated under the above-quoted provision, this Office is of the opinion and so holds that the dividend to be paid by H&Q to CDC shall not be subject to Philippine income tax and consequently to the withholding tax. (BIR Ruling No. 013-96 dated February 14, 1996) This ruling is issued on the basis of the foregoing facts as represented. If upon investigation it will be disclosed that the facts are different, this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group