ITAD Ruling No. 109-00

August 23, 2000 ITAD RULING NO. 109-00 Sec. 32 (B) (7) (a) Embassy of the Sovereign Military Order of Malta 6th Floor, Cattleya Condominium Building 235 Salcedo St., Legaspi Village 1229 Makati City Attention: H . E . Enrique P . Syquia Ambassador Gentlemen : This refers to your letter dated March 15, 1999 requesting for exemption from payment of the seven and one-half percent (7%) final income tax on the interest income which the Embassy of the Sovereign Military Order of Malta receives from its foreign currency time deposit with a local bank. It is represented that the Embassy has a foreign currency certificate of time deposit with a local bank, and that the local bank is requesting the Embassy to present a certificate issued by the Bureau of Internal Revenue to the effect that the Embassy is exempt from the seven and one-half percent (7%) final income tax on interest income it receives from its foreign currency time deposit. cTDECH In reply thereto, please be informed that Sec. 32(B)(7)(a) of the National Internal Revenue Code of 1997 ( Tax Code of 1997 ) provides: "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 financial institutions established by foreign governments." It is clear from the aforequoted provision of the Tax Code of 1997 that interest income received by the Embassy from its foreign currency time deposit with a local bank is considered "income derived from interest on deposits in banks in the Philippines by foreign governments." As an exclusion from the computation of gross income, the same is exempt from taxation. In fine, interest income which the Embassy of the Sovereign Military Order of Malta receives from its foreign currency time deposit with a local bank is exempt from withholding tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be rendered null and void. Very truly yours (SGD.) DAKILA B. FONACIER Undersecretary of Finance Commissioner of Internal Revenue