Liability to Taxes, Charges and Fees of Rural Banks with Net Assets Exceeding P1M

October 22, 1974 BIR RULING NO. 012-74 The rural bank when its net assets in 1971 and 1972 exceeded P1 M, its liability to taxes, charges, and fees. Use of net worth of bank in determining its excess net assets for 1971 . This refers to your request for opinion on the applicability of Republic Act No. 720, known as the Rural Bank's Act, as amended by Republic Act No. 5431, and finally amended by Republic Act No. 5939. Your letter which poses the following queries: "1. When did the rural bank become taxable and what period covered. "2. What net worth will be use to determine the proportion of net assets excess over P1,000,000.00 in computing the taxable income for each period. "3. In computing the tax to be levied, which of the following shall be applied: a. Compute the total income tax on the total net income for the year and then apply the proportion of the excess over the net assets on the total tax computed to determine the portion taxable. b. Apply the proportion on the total net income and then computed the tax on the portion of income pertaining to the excess of net assets over the P1,000,000.00." are predicated on the following circumstances: "1. The fiscal period ends on Dec. 31 of each year. "2. The net assets (net worth less preferred shares) on December 31, 1970 is less than P1,000,000.00. "3. The net assets (net worth less preferred shares) increased in 1971 and remained in excess of P1,000.00 as of Dec. 31, 1971, but less than P3,000,000.00. "4. The net assets (net worth less preferred shares) remained in excess of P1,000,000.00 as of Dec. 31, 1972." In reply, I have the honor to inform you as follows: 1. The rural bank became taxable during the calendar years 1971 and 1972 when its net assets exceeded P1,000,000.00. Under Section 14 of Republic Act No. 5939, when the net assets of a rural bank exceed P1,000,000.00, the taxes, charges and fees shall be levied in the proportion that such excess bears to the said net assets. 2. The corresponding net worth of the bank as of the end of the year shall be used in determining the excess net assets, for the purpose of computing the taxable income for such year. Thus, the net worth of the bank as of December 31, 1971 shall be used in determining the excess net assets for 1971 while the net worth as of December 31, 1972 shall be used for 1972. 3. The income tax due from a rural bank which has assets exceeding P1,000,000.00 is determined by applying the following formula: Excess net assets X normal tax = Tax due Total net assets The term "excess net assets" means net assets in excess of P1,000.000.00. cd