BIR Ruling

October 3, 1977 Taxability of Rural Banks, Limitations In reply to your letter of October 3, 1977, please be informed that since you are an entity exempt from income tax pursuant to Section 14 of R. A. 720 because your net assets as of August 31, 1977, excluding the counterpart capital subscribed and paid in by the Government of the Philippines, did not exceed P1,000,000, your interest income from savings and time deposits is likewise exempt from the 15% withholding tax prescribed by Presidential Decree No. 1156. However, should your net assets exceed the above P1,000,000.00 limitation, you shall become subject to all taxes in accordance with Section 7 and 8 of R.A. 720 which shall be determined in the proportion that such excess bears to your net assets. Upon the occurence of this event, your interest income from savings and time deposits shall be partly subject to the above 15% withholding tax determined on the basis of the said allocation. This will serve as the authority of your depository bank not to subject the interest income of your savings and time deposits to the 15% withholding tax, in accordance with Section 3 of Revenue Regulations No. 8-77 which implements the aforesaid decree. cdti