BIR Ruling [DA-414-00]

November 29, 2000 BIR RULING [DA-414-00] Sec. 24 (B) (1); 063-2000 Banco De Oro 12 ADB Avenue, Ortigas Center Mandaluyong Center Attention: Mr . Nestor V. Tan President Gentlemen : This refers to your letter dated June 13, 2000 requesting for a ruling as to whether or not the interest income of citizens and resident aliens from long term deposit in the form of common trust funds, named Smart Money Fund, established by Banco De Oro, through its Trust Department, is exempt from the 20% final withholding tax imposed under Section 24(B)(1) of the Tax Code of 1997. It appears that the Smart Money Fund is a common trust fund (CTF) established and administered by Banco De Oro, through its Trust Department; and that Banco De Oro's application for a certificate of tax exemption is made in connection with Section 5 of the Memorandum dated January 3, 2000 issued by the Bangko Sentral ng Pilipinas (BSP) to all banks performing trust, other fiduciary business and investment management activities, amending for this purpose Monetary Board Resolution No. 1748 dated December 10, 1999 to include long-term investment certificates in the form of common trust funds (CTFs), individual trust and investment management accounts that may qualify for tax exemption under 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 years 12%; and "Less than three (3) years) 20% Such being the case, interest income derived by citizens and resident aliens from the Smart Money Fund 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. This ruling is being 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. TSDHCc Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group