Interest Payments on Loans Granted by Financial Institution and Individuals Not Subject to the Expanded Withholding Tax

March 25, 1996 BIR RULING NO. 043-96 29; 50 (b) 000-00 043-96 Cejogua Sports Corporation 131 Kamuning Road Quezon City Attention: Ms . Norma A . Dayag Chief Accountant Gentlemen : This refers to your letters both dated June 7, 1995, requesting our opinion on the following: casia 1. Whether or not interest payments on loans from financial institutions and individuals obtained in connection with the conduct of business are subject to withholding tax; and 2. Whether or not penalties on SSS, medicare premiums, ECC contributions in arrears can be included as deductions from gross income, and subject to withholding tax. In reply, please be informed that under Revenue Regulations No. 6-85, as amended, implementing Section 50 (b) of the Tax Code, as amended, only payments to persons enumerated therein are subject to the expanded withholding tax. Considering that interest payments for loans and other borrowings are not among those specified in said regulations, your interest payments on loans granted by financial institution and individuals are not subject to the expanded withholding tax. As regards your Question No. 2, please be informed that the penalties imposed for late payment of SSS, Medicare premiums, and ECC Contributions are not ordinary or necessary business expense deductible from gross income under Section 29 of the Tax Code, as amended. Expenses which are ordinary and necessary generally contemplate expenses which are directly connected with and proximately resulting from carrying on the business and must be shown to be appropriate and helpful in the development of the taxpayer's business for the acquisition or pursuit of income or profit [Gancayco vs. CIR, CTA Case No. 287, November 14, 1957]. cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue