BIR Ruling [DA-576-04]

November 12, 2004 BIR RULING [DA-576-04] Metropolitan Bank & Trust Company Metrobank Plaza, Sen. Gil Puyat Avenue Makati City Attention: Atty. Maria Paz Agojo-Garcia Legal Officer Gentlemen : This refers to your letter dated October 6, 2004 stating that Metropolitan Bank and Trust Company Trust Banking Group (MBTC-TBG) is a banking corporation duly authorized under Philippine laws to perform trust and other fiduciary functions; that as trustee of funds of its clients, it holds legal title to the same although beneficial title remains with its trustor-clients; that in the interest of these funds, it, as trustee, invests said funds in various outlets such as bonds, loans and notes by top ten thousand corporations; that the interest payments on the bonds, notes and loans are then made to MBTC-TBG as trustee of the trust accounts which funded said loans, bonds and notes; that however, interest income earned from the same, although paid to it is not income of MBTC-TBG but that of the funder and for which MBTC-TBG also withholds a final tax on the interest income earned by each trust account upon release of the funds or income thereof pursuant to Sections 24(B)(1) and 27(D)(1) of the Tax Code of 1997. In connection therewith, you now request confirmation of your opinion that the interest payments made by the top ten thousand corporations for its loans, bonds and notes funded by MBTC-TBG, as trustee, of various funders is not subject to the 2% creditable withholding tax prescribed in Section 2.57.2(M) of Revenue Regulations No. 17-2003, amending Revenue Regulations No. 2-98. In reply thereto, please be informed that your opinion is hereby confirmed in BIR Ruling No. DA201-04 dated April 12, 2004 , where this Office ruled that ". . . In the instant case, the interest payments made by the top ten thousand corporations are already covered by other rates of withholding tax which is the 20% final withholding tax as prescribed in Sections 24(B)(1) and 27(D)(1) of the Tax Code of 1997. Thus, the subject interest payments are not income payments to BDO-Trust but to the clients/trustors, notwithstanding that BDO-Trust holds legal title to the funds, but the beneficial title remains with the clients/trustors. It is for this reason that the interest paid by the BDO-Trust to its clients/trustors is already subject to the 20% final withholding tax. "Such being the case, the interest payments made by the top ten thousand corporations for its loans funded by BDO-Trust, acting as trustee of various funders, is no longer subject to the 2% creditable withholding tax prescribed in Section 2.57.2(M) of Revenue Regulations No. 17-2003, amending Revenue Regulations No. 2-98." Considering that the afore-cited case is similar in all fours to the instant case, this Office holds that interest payments made by the top ten thousand corporations for its loans, bonds and notes funded by MBTC-TBG, as trustee, is not subject to the 2% creditable withholding tax prescribed in Section 2.57(M) of Revenue Regulations No. 17-2003, amending Revenue Regulations No. 2-98. CEcaTH 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. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group