ITAD Ruling No. 196-00

December 7, 2000 ITAD RULING NO. 196-00 RP-Germany Art. 11 BIR Ruling 042-91 Sozietat Wohlfarth Wirtschaftsprufer-Steuerberater-Rechtsan WeinBenfurger Str. 4 49076 Osnabruck Germany Attention: Mr . Thomas Wohlfarth Gentlemen : This refers to your letter dated September 1, 1999, regarding the application for tax refund of your client, Mr. Karl-Friedrich Hensiek, a resident of Germany, for the overpayment of withholding tax on interest invoking the preferential rate of 15% pursuant to the RP-Germany Tax Treaty. It is represented that Mr. Karl-Friedrich Hensiek is a German resident with address at Barkhausener Str. 70, D-49328 Melle-Buer, Germany as certified by the local federal tax authority of Germany dated January 17, 2000; that Mr. Hensiek has various deposits and investments in Citibank NA Philippines for the year 1998; that these various deposits and investments earned interest; and that Citibank withheld 20% tax on the gross interest of the said deposits and investments. CDAHIT In reply, please be informed that Article 11 paragraph 2(b) of the RP-Germany Tax Treaty states: "Article 11 Interest 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. "2. However, such interest may be taxed in the Contracting State in which it arises; and according to the law of that State, but the tax so charged shall not exceed: a) 10 per cent if such interest is paid: "(i) in connection with the sale on credit of any industrial commercial or scientific equipment, or (ii) in respect of public issues of bonds, debentures or similar obligations, b) 15 per cent of the gross amount of such interest in all other cases. "xxx xxx xxx "5. The term "interest" as used in this Article means income from Government securities, bonds or debentures whether securities, bonds or debentures, where or not secured by mortgage and whether or not carrying a right to participate in the profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State from which the income is derived." 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." IAEcCa In view of the aforequoted provision, the Philippines may tax the interest income derived therefrom by a German resident on his bank deposits and investments with Citibank N.A., but the tax so charged shall not exceed 15% of the gross amount of such interest. Accordingly, your opinion is hereby confirmed that Mr. Hensiek is entitled to a preferential tax rate of 15% pursuant to Article 11 paragraph 2(b) of the RP-Germany Tax Treaty. (BIR Ruling No. 042-91) With respect to your application for refund, we shall be endorsing it to the Large Taxpayers Service for processing. Relative thereto, please address your communication to the following: The Assistant Commissioner Large Taxpayers Service 3rd Floor, Rm. 301 Bureau of Internal Revenue National Office Building, Diliman, Quezon City, Philippines Tel. No. 920-75-08 Fax No. 920-75-10 This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group