NSTA-accredited Foundations and Institutions and Trusteed Retirement Plans Now Subject to the 15% Final Tax

January 14, 1985 BIR RULING NO. 006-85 53 (d) (1) 000-00 006-85 Gentlemen : This refers to your letter dated October 19, 1984 requesting a ruling as to whether the interest income from bank deposits and yield of any other monetary benefit from deposit substitutes and from trust fund and similar arrangements of foundations or institutions and the retirement plans respectively granted by the National Science Development Board (now National Science Technology Authority (NSTA) and the Bureau of Internal Revenue certificates of exemption from income tax, are subject to the 15% final tax imposed by Sections 24(cc) and 21(d) in relation to Section 53(d)(1) all of the Tax Code as amended by Presidential Decree No. 1959 and implemented by Revenue Regulations No. 17-84. In reply, please be informed that under Sections 21(d) and 24(cc) of the Tax Code as amended by P.D. No. 1959 which took effect on October 15, 1984, a final withholding tax of 15% shall now be imposed on interest income from Philippine currency bank deposits whether savings or time deposits, and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements. Amending Sections 21(d), 24(cc) and 53(d)(1) of the Tax Code, P.D. No. 1959 has abolished the provisions on : (1) the exemption from the withholding tax if the aggregate amount of the interest at any time during the taxable year does not exceed P1,000 a year or P250.00 per quarter, in the case of Philippine currency bank deposits maintained by an individual, and if the recipient (individual or corporation) of such interest income is exempt from income taxation; and (2) the imposition of the preferential tax rates if the recipient (individual or corporation) of the income is enjoying preferential income tax treatment. The deletion of the exempting and preferential tax treatment provisions under the old law is a clear manifestation that the single 15% rate is imposable on all interest incomes from deposits, deposit substitutes, trust funds and similar arrangement, regardless as to the tax status or character of the recipients thereof. (Revenue Memorandum Circular No. 31-84) Accordingly, the authority granted by this Office to depository banks to forego withholding of the tax on Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes maintained by trusteed retirement plans, persons, or entities exempt from income taxation is deemed revoked as of October 15, 1984, the effectivity date of P.D. No. 1959. Likewise, the authority granted to depository banks to withhold a preferential tax rate, e.g., 10% final tax on the interest income of private educational institutions, on the ground that the depositor enjoys preferential income tax treatment is also deemed revoked as of October 15, 1984. ( Ibid ) Such being the case, NSTA-accredited foundations and institutions and the trusteed retirement plans are now subject to the 15% final tax on (1) interest and/or yield on deposit substitute instruments issued to them beginning October 15, 1984; and (2) interest on their savings and time deposits earned or accrued beginning October 15, 1984. (Revenue Regulations No. 17-84) It may be stated in this connection, that with respect to the non-trusteed deposit administration or insured retirement plan funds, their interest income from Philippine currency bank deposits and yield or any monetary benefit from deposit substitutes shall remain subject to the 15% final withholding tax under the aforesaid amendatory provisions of Presidential Decree No. 1959. cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner