Application of Section 119 of the Tax Code, Imposing Gross Tax on Banks and Non-Bank Financial Intermediaries, to a Medium Term Loan of P5 Million Pesos to be Obtained from a Commercial Bank Payable in Four (4) Years

February 22, 1996 BIR RULING NO. 024-96 119 000-00 024-96 Rowell Lithography and Metal Closure, Inc . P.E. Antonio St., Ugong Pasig City Attention: Ms . Medina A . Panganiban VP-Controller Gentlemen : This refers to your letter dated June 30, 1995 requesting clarification on the application of Section 119 of the Tax Code, imposing gross tax (GRT) on banks and non-bank financial intermediaries, specifically in a given example where a medium term loan of P5 Million Pesos will be obtained by you from a commercial bank; and that said loan is payable in four (4) years. In reply, please be informed that pursuant to Section 119 of the Tax Code, as amended, stating: SEC. 119. Tax on Banks and Non-bank Financial Intermediaries There shall be collected a tax on gross receipts derived from sources within the Philippines by all banks and non-banks financial intermediaries in accordance with the following schedule: (a) On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived. Short-term maturity not in excess of two (2) years 5% Medium-term maturity over two (2) years but not exceeding four (4) years 3% Long-term maturity (i) over four years but not exceeding seven (7) years 1% (ii) over seven years 0% xxx xxx xxx your loan application of P5 Million Pesos from a commercial bank shall be classified as medium term subject to the 3% gross receipts tax. However, in case the maturity period of an instrument is shortened thru pre-termination, then the maturity period shall be reckoned to end as of the date of such pre-termination for purposes of classifying the transaction as short, medium or long term and the correct rate of tax shall be applied accordingly. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue