Withholding Tax of 20% — Deposit Substitutes

May 20, 1981 BIR RULING NO. 085-81 24-a 000-00 085-81 Good Earth Emporium, Inc. 447-457 Rizal Avenue Metro Manila Attention: Mr . Lim Ka Ping President Gentlemen : This refers to your letter dated March 20, 1981, informing this Office that on May 16, 1979, Ayala Investment & Development Corporation (AIDC) syndicated a Fifty (50) Million Pesos Term Loan for the construction of the Good Earth Annex Building; and that part of the loan package was instrumented via commercial papers under the post-tax structure wherein you, the borrower, undertook the payment of the 35% transaction tax prescribed at the time by Section 210 of the Tax Code. Despite the repeal of said Section 210 of the Tax Code by P.D. No. 1739, you request that the payment of the 35% transaction tax be continued until the expiration of the said loan inasmuch as it was packaged more than a year ahead of P.D. No. 1739. In reply, I have the honor to inform you that your request cannot be granted. Since the law imposing the 35% transaction tax has already been repealed by P.D. No. 1739, you cannot be held liable for the payment of the said tax on commercial papers issued thereafter. After the effectivity date of said law if said commercial papers are deposit substitutes as defined in Section 2(g) of Revenue Regulations No. 12-80, the yield income on said deposit substitutes shall be subject to the final withholding tax of 20% [Sec. 3(a)(2), Revenue Regulations No. 12-80]. On the other hand, if said commercial papers are not deposit substitutes, such income shall be subject to the regular corporate income tax imposed by Section 24 of the Tax Code. Very truly yours, RUBEN B. ANCHETA Acting Commissioner