BIR Ruling [DA-156-01]

September 05, 2001 BIR RULING [DA-156-01] 24 (B) (1); 030-2001 Banco de Oro 12 ADB Avenue, Ortigas Center Mandaluyong City Attention: Mr. Nestor V. Tan President Gentlemen : This refers to your letter dated January 5, 2001 stating that: "The Trust Department of Banco de Oro Universal Bank would like to offer a common trust fund, named the New Smart Money Fund (New SMF). The product is an improved version of our existing Smart Money Fund since it also provides investors who are Filipino citizens or resident aliens the opportunity to take advantage of the tax privileges given to long term investors under Section 24(B)(1) of the Tax Reform Act of 1997 as well as the Memorandum to all Banks Performing Trust, Other Fiduciary Business and Investment Management Activities dated January 3, 2000. "xxx xxx xxx "In view of the above tax law and Section 5 of BSP Memorandum dated January 3, 2000, which reads: "With respect to tax-exempt Common Trusts Funds, individual trust and investment management accounts established under Sec. 24 (B)(1) of R.A. 8424, the bank's trust department or investment management department shall be responsible for obtaining the tax-exemption certifications which may be required by the Bureau of Internal Revenue for the interest-bearing instruments where the Common Trust Funds, individual trust funds and investment management funds will be invested. Likewise, the banks shall ensure the correct amount of final tax on the interest-bearing instruments is withheld/deducted from the proceeds from the CTF participation, trust or investment management account and remitted to the Bureau of Internal Revenue in the event said tax becomes due such as when funds are withdrawn before the required five (5) year holding period or when corporations happen to invest in the tax exempt trust instruments created within the purview of R.A. No. 8424." DETACa Based on the foregoing, you now request for a tax exemption certificate for the interest bearing instruments where the New SMF will be invested pursuant to Section 24(B)(1) of the Tax Code of 1997. In reply thereto, please be informed that Section 24(B)(1) of the Tax Code of 1997 provides that a final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; . . .: Provided, further, that interest income from long term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this subsection: Provided, finally, that should the holder of the certificate preterminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: Four (4) years to less than five (5) years - 5%; Three (3) years to less than four (4) years - 12%; and Less than three (3) years 20% Such being the case, interest income derived by citizens and resident aliens from the New SMF established by Banco de Oro, through its Trust Department, shall be exempt from the final withholding tax of 20% imposed under Section 24(B)(1) of the Tax Code of 1997 provided, however, that if a participant therein pre-terminates his long term investment before 5 years from issue date of the corresponding certificate of participation, Banco de Oro, as Trustee, shall withhold and deduct from the proceeds of said investment a final tax on the interest income thereon which shall be computed in accordance with the above-mentioned schedule. (BIR Ruling No. 030-2001 dated July 24, 2001) Finally, for monitoring purposes, the bank shall set up a separate numbering system in its trusts books for its long-term trust products. DHITSc Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group