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CTA Case No. 735 dated April 12, 2012 FWT on interest payments

CTA Case No. 735 dated April 12, 2012 FWT on interest payments

►   Respondent CIR assessed Petitioner Edison (Bataan) Cogeneration Corporation (EBCC) deficiency taxes for the year 2001, including FWT on interest paid to Ogden Power International Holdings, Inc. (Ogden), a non­resident foreign corporation based in the US.

EBCC protested the assessment and argued that it properly withheld 5% FWT and not 15% as claimed by the CIR since it is subject to 5% preferential tax in lieu of all national taxes, as a corporation duly registered with the Philippine Economic Zone Authority (PEZA). EBCC alleged that it is directly and independently liable for FWT on the interest arising from the ban agreement as stipulated by the parties. Moreover, EBCC invoked BIR Ruling No. 085-95 dated June 13, 1995 where the CIR ruled that interest income payments by a Subic Bay Freeport (SBF) enterprise to US bondholders are subject to 5% FW


Since CiR failed to act on the protest, EBCC filed a Petition for Review with the CTA.
1.      Is the interest paid by EBCC to its US creditor subject to 5% FWT?
2.      Can EBCC properly invoke BIR Ruling No. 085-95?

1. No. The 5% preferential tax granted to PEZA-registered companies does not apply to the FWT due on interest payments of EBCC to Ogden.
Ogden being an NRFC, the 5% tax regime is not applicable on its interest income from the Philippines, in addition, WT due on income paid to non-PEZA registered enterprises are not treated as national taxes and are excluded from the scope of the 5% rate

2.   No. EBCC cannot properly invoke BIR Ruling No. 085-95.
Said ruling violates Section 28(B)(5)(a) of the Tax Code and the Phil-US Tax Treaty, which prescribes 15% FWT on interest paid to a US corporation. Administrative rulings are intended to carry out the law. In case of discrepancy between the law and the regulation or ruling, the law must necessarily prevail.

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